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Is there an academic consensus around Rent Control?

by edoarad1 min read22nd Jan 202114 comments

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ConsensusWorld OptimizationPractical
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Rent control is a type of policy where a maximum cap is put on what a landlord may charge tenants.

I've seen two sources that suggest that there is an (edit: academic economists) consensus against rent control:

  1. A 2009 review.
  2. 81% of economists agree against rent control.

I'm not sure how much faith to put in these, and how non-controversial this topic is in practice (perhaps there are important subcases where it is a good policy). 

Are there strong claims for rent control policies in relevant cases that are supported by a non-trivial amount of economists?

(Yonatan Cale thinks that there is a consensus against rent control. Help me prove him wrong and give him Bayes points!)

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14 comments, sorted by Highlighting new comments since Today at 4:51 PM

Academic <> economist. I don't have an answer, but the arguments in favor of rent control are based on fairness, not efficiency. The domain of academics to consult is, therefore, greater than "economists."

Even for a fairness argument, it seems hard to justify the rent subsidy (the difference between market rent and controlled rents) coming out of the pockets of landlords, vs. the public treasury.

Why pick on landlords?

Sure. I'm not qualified to actually make the arguments, as I don't have any background or history in the topic. But even those without specific domain knowledge can still throw a flag when we see a potential structural issue, like a one-sided framing of a question.

It's an important point to remember, for this and other policy evaluations (labor unions come to mind), that it's very rare to find a serious academic who will say "good" or "bad" in a vacuum.  The questions are "how much" and "under what conditions".  In environments with long-established and slow-to-change property ownership, and a history of tenant maltreatment, interventions like rent control and eviction limits and enforced mediation before court are perhaps necessary to solve problems.  In environments where it's pretty easy to enter and exit the rental market, and tenants have a bit of power because empty units suck, probably less regulation keeps things moving.

And, of course, in the real world where government causes a shortage by preventing creation of housing, and it's hard to become a landlord because of all the regulation, and as a result tenants are mistreated because there are many more of them than spots available, there is no good answer.  Rent control is the wrong tool to address a supply problem.

More importantly than "why pick on landlords" is "what happens when you do?".

Lots of houses are left empty here because the bullshit involved in tenanting them. If renting your property out is a choice then you can choose not to. Furthermore, those that do rent out their properties can impose higher prices and greater strictures because the supply is artificially constricted.

Clamp down on a market and that market will react, one way or another, and you might not like it.

From a Rawlsian "justice as fairness" perspective, it would be reasonable to cripple landlords profits, considering that they are wealthier, and therefore, this inequality would be "just" according to Rawls second justice principle. This reasoning would only be valid IF the landlord is wealthier than the person who rents.

That's right, and a poor framing on my part 😊

 I am interested in a consensus among academic economists, or in economic arguments for rent control. Specifically because I'm mostly interested in utilitarian reasoning, but I'd also be curious about what other disciplines have to say.

I think you're right about 'fairness' being the (most common) central argument. I'd want a (good) economist to evaluate those other domains tho! And not (primarily) to quantify the argument as much as evaluate the relevant tradeoffs at all.

What does "academic consensus" mean, in operational terms?  The VAST majority of papers aren't for or against rent control, they're an exploration of impact of specific policies on specific populations (the better ones also include comparison to other policies on perhaps-comparable populations, and models of impact for various dimensions of policy).   Whether that impact is "good" or "bad" is rarely explored (though many do show that the impact is often misaligned with some stated goals).

I don't know how to measure how complete the consensus is, but there is general agreement among economists that artificially reducing prices will reduce the motivation to create more supply.  I've not seen any dissent from the framing that it's a forced subsidy from owner to tenant, but I don't think there's a broad consensus about whether and when that's desirable.  

On aspect of rent control is that it incentives people to invest into the flats that they rent because they can expect that the landlord doesn't simply raise the prices to drive them out of the flat and makes their investment void. 

There's also an imbalance because for a tenant it's more costly to change move between flats then it is for a landlord to change tenants. Then imbalance can be used to extract higher rents then could be extrated in the absence of switching costs.

A good economic analysis should compare that value against the reduced motivation to create more supply. It might still be that the reduced motivations to create more supply is more important, but it's not a slamdunk. 

Thanks for the concrete examples! Do you have relevant references for these at hand? I could imagine that there might be better ways to solve these issues, or that they somehow mostly cancel out or relatively low problems, so I'm interested to see relevant arguments and case studies.  

I haven't read through the economics literature on rent control myself, the above is just from internet and meatspace policy discussions. 

I don't think that operationalizing exactly what I mean by a consensus would help a lot. My goal here is to really understand how certain I should be about whether rent control is a bad policy (and what are the important cases where it might not be a good policy, such as the examples ChristianKl gave below).