Rent Control is Bad
Debate Rounds (4)
Rent Control is Bad
Rent control refers to laws or ordinances that set price controls on the renting of residential housing. It functions as a price ceiling.
Bad: Not preferable
3,000 character rounds
First round acceptance only
2nd/3rd rounds arguments/rebuttals
4th round closing, no new arguments or sources
No ad-hominems. Bad conduct will be penalized.
Burden of proof is shared.
I wish my opponent luck and look forward to a civil debate.
As of now, I have read cursory arguments against rent control, which is a consensus within the orthodox economics circle. However, none of them have convinced me sufficiently. I will now counter some of the common arguments:
1) Rent control functions as a price ceiling, which creates a deficit as supply cannot meet demand. I understand this theoretically, but I fail to see why it applies to the housing market. I fail to understand why real estate developers would not just make more houses when there is demand, despite rent control. I don't see why the sudden inclusion of rent control would affect that decision, since a profit is still to be made.
2) Critics say rent control is unfair to landlords since they can't cover costs. In my research, I have found that rent control is not static to the year it is established, but allows you to raise it to reflect inflation. For example, to simplify let us say the only costs of running an apartment building is water.
Cost of water (cost to run the apartment) at time A: 100$ a month
Rent at time A: 200$ a month
Thus the landlord makes a 100$ profit, and is able to keep the apartment running.
However, let's say at time B, inflation increased so that water now costs 150$ a month. Since rent control adjusts for inflation, this allows you to raise your rent X$ (X being the price that allows the landlord to match costs, and that raises his profit (income) enough to allow him to maintain his standard of living at time A).
3) Critics say it is more "fair." I don't fully understand this. To me, it is more fair that a poor person continue living in the house he has grown up all his life due to his personal ties - it is not fair that these people are kicked out of their home. To me, it is fair that people don't need to make 3 hour commutes to their place of work, which poor people have to do since they cannot afford high rent (ex. http://www.theatlanticcities.com...). I acknowledge "fair" is a subjective term, but I consider it tied to human rights in which people have the right to a certain standard of living in housing and cultural ties to a neighborhood. As such, rent control is "bad" in that it must either force poor people out or it must reduce living space.
I thank CON for accepting this debate, although I do not thank him for violating the round #1 stipulation of "acceptance only" for the first round. I will ask that he refrain from posting anything in the final round so each side has a full 3 rounds of argumentation.
Arguments and Rebuttals
1) On price ceilings, what typically happens is that suppliers of a good (in this case, the builders of rental units) do not have any real incentive to add more units, because it doesn't benefit them to do so. There are rising costs associated with adding additional units (marginal utility) that are not justifiable due to the ceiling on rents.
Basically, at a certain point, you're going to have over-worked construction workers that are making houses as fast as they can, and in order to get them to make EVEN MORE houses, you're going to have to either compensate them further, or hire more workers (i.e. rising costs). With rent control, builders can't afford either option, so they don't build more houses.
In practice, this leads to some people getting affordable housing, but other people not getting ANY housing. This is the main drawback of rent control.
2) On inflation, that's largely neutral and irrelevant, since costs will rise with inflation as well.
3) On fairness, it is more fair to have housing for whoever needs it at whatever they can afford, than to have housing only for a lucky few, and throwing the rest out into the streets.
There are various other dynamics at work as well:
4) If rents are low, then owners of rental property have less incentive to properly maintain their properties. Thus what typically happens in rent-controlled areas is that much of it turns into a slum. http://www.fairhousingcoalition.com...
This is evident in the city surrounding UC Berkeley, the south side of which is a gigantic slum, even though demand for student housing is ridiculously high. Most students move several miles away from the city either because they can't find any accommodation in the city proper, or because whatever they can find is rat-infested with broken toilets.
5) Low rents translate to low property prices, leading to lower property taxes, leading to less funding for education, police, firemen, and other municipal services. Essentially it's a ceiling on economic activity, especially considering how large a portion of housing is of aggregate wealth http://www.federalreserve.gov.... Pages 1 and 2 of the Federal Reserve's report show that real estate is by far the largest component of household net worth, and is worth fully 2/3 of ALL non-financial corporate assets COMBINED. Rent control thus puts an unnecessary ceiling on the most important aspect of household wealth.
I hope this brief summary answers CON's questions. Rent control is bad because it creates a bunch of undesirable effects in exchange for scant affordable housing, which is typically in terrible shape.
Rent control, as is practiced in the US, does not apply to new housing. So there should be no disincentive to make new houses due to rising costs. But regardless, there is still an incentive to make profit. For example, although with rising cost you make need to wait longer under controlled rent to break even with your construction cost, you still have the potential of making profit once you pass that breaking even point.
3) This is tied to #1, and if my counter in #1 is valid, then your point here is invalid since everyone would have housing, or at least have as much chances of housing as they would under free market. But I agree with your statement (everyone in housing>some people on streets).
4) Why not just impose maintenance laws, in which it is a crime for landlords to neglect their upkeep duties. On a moral level, I don't think landlords should upkeep housing because they think it will give them more money. They should do it altruistically. But since you claim they don't do that naturally, then a law can force them to.
5) Why not just increase income tax? If Sweden can survive on 50% taxation, I don't see why Americans can't, other than their ideology, which can be changed.
6) You don't have to answer this point, because it is a question that may hurt your chances of "winning." But if you don't care about that: To me, it seems like no rent control will gradually replace poor people with rich people in popular cities. I don't think that living in a city should be determined by how much money you have, since money is arbitrary. Do you think it is possible to avoid all the criticisms you laid out without forcing poor people out of popular cities that they lived in their entire lives?
I think I have addressed all your points (number 6 is not a required point). While I agree that rent control itself may lead to trouble, I proposed modifications to rent control and a series of attached laws that would avoid the undesirable effects.
I thank CON for the swift reply.
1) There's some misunderstanding here. All of my comments here dealt with ongoing rent control. If there is rent control, then property prices will be low, which gives builders less incentive to build additional housing (since that's how they make money, by selling the property).
Again, on marginal utility, what happens is that demand is always high under rent control, but prices don't rise to encourage more supply. A homebuilder would have to hire more workers or raise wages for existing workers in order to create more supply of housing, i.e. rising costs, i.e. marginal utility. However, with rent control, property prices don't rise to help alleviate these costs, so builders end up not building the housing units.
Rent control is practiced on new housing depending upon the jurisdiction of the laws. I don't know why my opponent thinks otherwise. If he can't find any cases of rent control applying to new housing, it's probably because most people recognize that rent control does not work, and have since revoked such laws. Regardless, if rent control was implemented, there's no reason to think that new housing would be excluded, although as already stated, the main problem with rent control is that new housing wouldn't be built in the first place.
3) CON isn't making sense here. If new housing isn't subject to rent control, then we aren't talking about rent control, aren't we?
4) Regarding new laws mandating maintenance, the most likely result would be that landlords would sell property en masse, because the maintenance costs would kill the profitability of the property. This continues the chain of lower property prices, lower property taxes, underfunded schools, police, firemen, etc...
5) Increasing income tax without the offsetting rise in property prices would be yet another drain on the economy. Also, increased taxes would generally discourage overall economic activity not necessarily related to housing.
CON's solutions generally favor government involvement in economic activity, and just looking at entities like Fannie Mae, Freddie Mac, Social Security and Medicare and the gigantic debts that these entities have would strongly suggest that a private sector solution would be more effective.
6) LOL, I hope CON isn't "giving" me a win! =)
Eliminating rent control stimulates development, and would cause the private sector to develop a "free-market" solution to CON's dilemma. In some places, this has led to smaller and smaller apartments, which while obviously not as good as large apartments, would at least give more families a relatively affordable place to live within the city.
However, if rent control continues, inner cities would become blighted, as landlords don't maintain the buildings due to cost considerations. New housing wouldn't make it to market because builders can't make money building housing units. Poor people would still get the shaft, even those who live in the slum-like housing.
Please elaborate on the rising cost. Why do the cost rise? If it cost 10k to build a house today (hypothetically), then it should cost 10k to build another one tomorrow. Why does the cost rise?
3) The point is I'm designing a rent control that will work. Sort of a middle way. The objective is to protect the poor with rent control, while not reducing the number of people who would have had housing under the free-market. My proposal (which I believe is also currently happening) is that new buildings aren't immediately under rent control, thus there is no disincentive to make new buildings.
4) I don't understand why they would sell them. I am not saying they will not have a profit. I'm saying they will not have drastic increases in profit. For example, assuming no inflation exist, if a landlord makes 100k a year in 1980, then despite demand, he will still make about 100k in 2013. He still makes a profit, so why would he sell?
5) I'm basing this claim on Sweden. I don't have the econ knowledge to give you a mathematical proof, so I'm just relying on comparative politics. Sweden has higher economic innovation than the US (http://www.swedishwire.com...) and has high taxes. If they work, why wouldn't the US?
I still don't understand why my amendments to rent control wouldn't work. RIght now the main difference stems from your claim of rising cost. Please explain this concept more, but conceptually and practically, not mathematically or with graphs. I don't understand this concept because cost should only rise due to inflation, since construction may cost more, but since my proposed rent control adjust due to inflation (which also currently happens), I don't see why rising cost would be a problem.
Please Do Not Score This Debate
I clearly see now that my opponent's main goal is discussion, and not necessarily advocating CON for the resolution. In this spirit, and because I do believe the following encourages discussion over petty politicking, I ask audiences to not score this debate. In fact, I'd be willing to go another couple rounds if my opponent is willing and still curious, as I do find this discussion to be interesting. If he agrees, he can say so next round. If he does not, then I will reiterate that CON MUST stay silent next round in order to stay within 3 rounds of argumentation. I would then request that CON state exactly "As agreed, CON passes this round".
1) CON is going to have to substantiate his San Francisco point. It's possible that whatever San Francisco has is relatively business-friendly compared to the commonly accepted definition of rent control, and would look much more like a lightly regulated housing environment than what is commonly accepted as "rent control".
On rising costs, the point is time frame. Let's say that "it cost[s] 10k to build a house today (hypothetically), then it should cost 10k to build another one tomorrow." I agree with CON here, but the point is when you decide to build 3 or 300 MORE HOUSES "tomorrow". Then, you hit upon a supply constraint, where there's not enough available labor at prevailing market rates for construction, so businesses would have to pay laborers more to do the work (since labor is scarce, the laborer can demand higher wages), or to entice other laborers to switch to construction.
This is very different from building 3 more houses over 3 years...if demand is high, then those houses can't wait...they need to be built NOW, and that time pressure causes wages (which are a function of time anyway) to rise, which then causes costs to rise for homebuilders, which is fine because home prices are also rising. That's how demand works absent rent control or at least one aspect of how demand works.
3) Ok. So you have your middle way (i.e. not rent control), and construction goes forward. All of the arguments about devolving rental conditions would still apply. Much of San Francisco housing is not very pretty to look at.
4) "...if a landlord makes 100k a year in 1980, then despite demand, he will still make about 100k in 2013. He still makes a profit, so why would he sell?"
This doesn't make sense. If a landlord makes 100k/year on property worth $2 million, then he earns 5% on his investment. With stricter maintenance laws, he may end up making only 50k/year, meaning he earns only 2.5%, whereas if he sold and then bought property in an area without those maintenance laws, he'd book 5% again. The landlord, who is a businessman, would sell.
5) I am no expert on Sweden, but I would say the story is more complicated than just high tax = high success. Forbes tells a story of lowering taxes = success: http://www.forbes.com...
Haha, I'm willing to go more rounds.
1) You can easily google San Francisco's case, but (http://www.sfbg.com...). I also read that most cities operate like this. However, that is not important for my argument; if hypothetically it isn't widespread in the US, then at the very least this is an amendment that would make rent control work.
I am confused to your point about this being a lightly regulated housing policy rather than rent control. My definition of "rent control" comes from wikipedia, in which it includes both the extreme version as well as the modified version. If rent control is purely a static price for all houses for all of time, then I agree rent control is bad. I am instead advocating a constrained rent control that will solve my two problems: making sure the most people gets housing and not evicting the poor.
Ok, I understand your rising cost point. It's that if I make 1 house today, I may want to make 2 houses tomorrow. In fact, due to demand I will need to make 2 houses tomorrow, which in turn increases labor demand and thus cost. Here are my two questions:
a) Why would I need to make 2 houses tomorrow if I need to make 1 house today? Why would demand suddenly increase to two houses tomorrow, but only 1 house today? I understand population growth, but since population is expected to level off, then wouldn't rent control at least be viable in the future once population levels off?
b) With the "no rent control to new buildings" amendment, is rising cost still a problem?
3) Was this agreeing that the constrained rent control wouldn't hurt incentives, even if it still causes the maintainance problem?
4) The idea is that rent control prices rise a little bit each year (which is also what currently happens, but if it isn't, use this as an amendment), so it covers rising maintainance cost. The goal is that at the end of the day, the landlord only makes 100k. If maintainance cost goes up, then his renting price will also go up so he still makes 100k. If the demand raises 600%, then due to rent control he still only makes 100k, and so the poor still survive. This guide here outlines the various ways rent control rises somewhat each year to cover landlord costs: http://www.globalpropertyguide.com...
5) I agree. I shouldn't have used comparative politics since it becomes a cherry picking game.
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