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>> critics argue that it reduces the supply of rental apartments and creates housing shortages I don’t follow the logic. It doesn’t destroy the property or tak

>> critics argue that it reduces the supply of rental apartments and creates housing shortages I don’t follow the logic. It doesn’t destroy the property or take it out of supply, it just means someone might not purchase it specifically to rent it out. Which in turn means less demand buying houses overall, which means more opportunities for people to buy (if they want?)

graeme 3y ago
This analysis only works if you assume the supply is fixed. If you increase the returns to building ownership then people will build more buildings. Which lowers prices. Capping supply by decreasing the returns leads to less supply, other things equal.
- emmacharp 3y ago
  Won't lower prices reduce returns to building ownership?
  - Jensson 3y ago
    Yes, that is supply and demand. Supply will expand until it is no longer profitable to expand supply.
    - emmacharp 3y ago
      But for supply to expand, prices must go up, right? They can't go down. That is what I'm trying to understand, since a lot of people here imply that "increase in supply will lower prices".
      - sethammons 3y ago
        It is called The Law of Supply and Demand. I'm sure there are zounds of articles or videos on it. In the model, the price of a unit will change as you adjust either supply or demand. If there is lots of demand and little supply, the price is high. If there is lots of supply, the demand cannot force the price higher. Assuming the seller wants to sell, they have to compete with other sellers. The more units for sell, the less negotiating power they have because someone more desperate can sell cheaper.
        emmacharp 3y ago
        I understand supply and demand... but it's a really basic theory. My point is: prices will have to increases for supply to increase as well. Saying that increasing supply will keep prices low makes no sense if right now prices are too low for private interests to build more housing. Supply won't keep prices "low" and certainly not lower than they are now. How would that work? How would they make profit?
jayski 3y ago
It doesn't destroy the property or take it out of supply. But it also strongly disincentivizes potential investors in building new rental properties. Which makes perfect sense,if you inherited 5million euro would you spend it building rent controlled apartments or put into stocks&bonds?
- dehrmann 3y ago
  Or in a US scenario, would you rather build rentals in Texas or California?
  - toomuchtodo 3y ago
    California. It’s the world’s fifth largest economy. I will take some regulatory risk over volatility in Texas. California vacancy rates speak for themselves, there is voracious demand for housing there vs Texas. Texas also has the nation’s 7th highest property tax rate. https://austin.culturemap.com/news/real-estate/texas-property-tax-rate-highest/ https://austin.culturemap.com/news/real-estate/texas-propert...
    - jajko 3y ago
      [flagged]
      - toomuchtodo 3y ago
        In my experience, it is crucial to avoid human nature, and instead, simply evaluate the math. It either works or it doesn’t, no emotion. Emotion destroys risk adjusted returns, and is harmful to preserving capital.
        jajko 3y ago
        If you don't evaluate emotions too, you are missing most of human reality in your equations, like it or not. Stuff will not go as expected.
    - 3y ago
neom 3y ago
In Toronto, as it has been explained to me by some banker types, in 2006 they introduced some pretty strong rent control, and developers just switched from building rentals to building condos, now Toronto has no rental units and a zillion condos that not many people can afford to buy or rent.^ Friend of mine lives in a condo and over half the units in his floor are now managed airbnbs. ^ Couple this situation with no restrictions (in fact encouragement) on foreign buyers for many many years, and you have condos sitting empty, condos rented out for amounts nobody can afford, and condos turning into airbnbs for rich tourists. From what I gather, both Toronto and Vancouver are a real mess because of this.
- voisin 3y ago
  > friend of mine lives in a condo and over half the units in his floor are now managed airbnbs This should change with the new Anti-AirBNB(Short term rental) rules at municipal, provincial, and federal (CRA) levels.
  - infotainment 3y ago
    …and it ends up being a cascade of new regulations to try and address the unforeseen consequences of the previous regulation. Eventually you end up like San Francisco where no new housing ever gets built ever again and prices are sky-high because of it.
    - redserk 3y ago
      But go too far in the other direction of not regulating enough, you also end up in the exact same spot.
      - friend_and_foe 3y ago
        Do we? How does that work?
        omnimus 3y ago
colonwqbang 3y ago
1. Few new rentals are built, because it's not profitable 2. Existing rentals are converted to condominiums, because that is more profitable If you can afford to buy a condominium, great. If not, there is always the public housing company. I hope you're not in a hurry though because the typical waiting time to get a rental in Stockholm is 7-11 years. https://bostad.stockholm.se/english/ https://bostad.stockholm.se/english/
paulddraper 3y ago
I refer you to https://news.ycombinator.com/item?id=39655144 https://news.ycombinator.com/item?id=39655144 > there's a queue for rentals, so you register that you want to rent in Stockholm, and then you get put on a list, and then wait two years for it to be your turn Price capping any good -- housing, fuel, food -- by definition produces a shortage. A shortage is when there is more demand than supply at the market price. And artificially lowering the market price increases the amount demanded and reduces the amount supplied.
- tonoto 3y ago
  I believe that the queue hasn't been as short as "two years" in a couple of decades.
- owisd 3y ago
  It only creates a shortage in a world where you have the x-shaped supply and demand curve from econ 101, which doesn’t apply here because the shortage already exists because of zoning/planning laws limiting the construction of new housing. If there wasn’t an existing shortage then no-one would be calling for rent controls. Rent controls just change who the winners and losers are as a result of a given shortage, in Stockholm’s case, existing residents are the winners and new residents are the losers. Existing residents who benefit get to vote to maintain the status quo in municipal elections whereas the people that can’t move there because of rent controls don’t, hence the system is self-sustaining.
  - Jensson 3y ago
    > If there wasn’t an existing shortage then no-one would be calling for rent controls False, rent controls isn't about shortage it is about land lords raising rents for people who already live there and since it is so much work to move people will stay and pay overpriced rent. Then that rent control easily leads to the shortage and extremely high prices for new entrants, but that was never the original goal.

graeme 3y ago

This analysis only works if you assume the supply is fixed. If you increase the returns to building ownership then people will build more buildings. Which lowers prices. Capping supply by decreasing the returns leads to less supply, other things equal.

emmacharp 3y ago
Won't lower prices reduce returns to building ownership?
- Jensson 3y ago
  Yes, that is supply and demand. Supply will expand until it is no longer profitable to expand supply.
  - emmacharp 3y ago
    But for supply to expand, prices must go up, right? They can't go down. That is what I'm trying to understand, since a lot of people here imply that "increase in supply will lower prices".
    - sethammons 3y ago
      It is called The Law of Supply and Demand. I'm sure there are zounds of articles or videos on it. In the model, the price of a unit will change as you adjust either supply or demand. If there is lots of demand and little supply, the price is high. If there is lots of supply, the demand cannot force the price higher. Assuming the seller wants to sell, they have to compete with other sellers. The more units for sell, the less negotiating power they have because someone more desperate can sell cheaper.
      - emmacharp 3y ago
        I understand supply and demand... but it's a really basic theory. My point is: prices will have to increases for supply to increase as well. Saying that increasing supply will keep prices low makes no sense if right now prices are too low for private interests to build more housing. Supply won't keep prices "low" and certainly not lower than they are now. How would that work? How would they make profit?

jayski 3y ago

It doesn't destroy the property or take it out of supply. But it also strongly disincentivizes potential investors in building new rental properties. Which makes perfect sense,if you inherited 5million euro would you spend it building rent controlled apartments or put into stocks&bonds?

dehrmann 3y ago
Or in a US scenario, would you rather build rentals in Texas or California?
- toomuchtodo 3y ago
  California. It’s the world’s fifth largest economy. I will take some regulatory risk over volatility in Texas. California vacancy rates speak for themselves, there is voracious demand for housing there vs Texas. Texas also has the nation’s 7th highest property tax rate. https://austin.culturemap.com/news/real-estate/texas-property-tax-rate-highest/ https://austin.culturemap.com/news/real-estate/texas-propert...
  - jajko 3y ago
    [flagged]
    - toomuchtodo 3y ago
      In my experience, it is crucial to avoid human nature, and instead, simply evaluate the math. It either works or it doesn’t, no emotion. Emotion destroys risk adjusted returns, and is harmful to preserving capital.
      - jajko 3y ago
        If you don't evaluate emotions too, you are missing most of human reality in your equations, like it or not. Stuff will not go as expected.
  - 3y ago

neom 3y ago

In Toronto, as it has been explained to me by some banker types, in 2006 they introduced some pretty strong rent control, and developers just switched from building rentals to building condos, now Toronto has no rental units and a zillion condos that not many people can afford to buy or rent.^ Friend of mine lives in a condo and over half the units in his floor are now managed airbnbs. ^ Couple this situation with no restrictions (in fact encouragement) on foreign buyers for many many years, and you have condos sitting empty, condos rented out for amounts nobody can afford, and condos turning into airbnbs for rich tourists. From what I gather, both Toronto and Vancouver are a real mess because of this.

voisin 3y ago
> friend of mine lives in a condo and over half the units in his floor are now managed airbnbs This should change with the new Anti-AirBNB(Short term rental) rules at municipal, provincial, and federal (CRA) levels.
- infotainment 3y ago
  …and it ends up being a cascade of new regulations to try and address the unforeseen consequences of the previous regulation. Eventually you end up like San Francisco where no new housing ever gets built ever again and prices are sky-high because of it.
  - redserk 3y ago
    But go too far in the other direction of not regulating enough, you also end up in the exact same spot.
    - friend_and_foe 3y ago
      Do we? How does that work?
      - omnimus 3y ago

colonwqbang 3y ago

1. Few new rentals are built, because it's not profitable 2. Existing rentals are converted to condominiums, because that is more profitable If you can afford to buy a condominium, great. If not, there is always the public housing company. I hope you're not in a hurry though because the typical waiting time to get a rental in Stockholm is 7-11 years. https://bostad.stockholm.se/english/ https://bostad.stockholm.se/english/

paulddraper 3y ago

I refer you to https://news.ycombinator.com/item?id=39655144 https://news.ycombinator.com/item?id=39655144 > there's a queue for rentals, so you register that you want to rent in Stockholm, and then you get put on a list, and then wait two years for it to be your turn Price capping any good -- housing, fuel, food -- by definition produces a shortage. A shortage is when there is more demand than supply at the market price. And artificially lowering the market price increases the amount demanded and reduces the amount supplied.

tonoto 3y ago
I believe that the queue hasn't been as short as "two years" in a couple of decades.
owisd 3y ago
It only creates a shortage in a world where you have the x-shaped supply and demand curve from econ 101, which doesn’t apply here because the shortage already exists because of zoning/planning laws limiting the construction of new housing. If there wasn’t an existing shortage then no-one would be calling for rent controls. Rent controls just change who the winners and losers are as a result of a given shortage, in Stockholm’s case, existing residents are the winners and new residents are the losers. Existing residents who benefit get to vote to maintain the status quo in municipal elections whereas the people that can’t move there because of rent controls don’t, hence the system is self-sustaining.
- Jensson 3y ago
  > If there wasn’t an existing shortage then no-one would be calling for rent controls False, rent controls isn't about shortage it is about land lords raising rents for people who already live there and since it is so much work to move people will stay and pay overpriced rent. Then that rent control easily leads to the shortage and extremely high prices for new entrants, but that was never the original goal.