<p>The best solution would be to minimize red tape and restrictions on new construction. If cities make it easier for developers and builders to construct more dwelling units, it would increase the housing stock and decrease rents and property prices to affordable levels. Also, experimentation of different alternative housing types could help. What alternative types of housing? One could be single-room-occupancies (SROs), which are like studio apartments, albeit without private en-suite bathrooms and kitchens. Instead all the residents in a particular portion of the SRO building share a bathroom or set of bathrooms in the hallway, and there's usually only one kitchen for the entire building. Another alternative housing type is microapartments, which are the attached, multifamily version of tiny houses. Like tiny houses, these apartments are usually under 490 sqft (47 sq m) each, and incorporate ingenious space saving features, and unlike SROs, microapartments contain private ensuite bathrooms. For families, a cohousing apartment building or pocket neighborhood would work well. Co-housing is like a typical roommate situation, except that each person or family gets an entire suite or small cottage with its own private bath. And a pocket neighborhood is a small development of rowhomes or cottages built on a site that would usually have only one single family dwelling built on it.</p>

CC BY-SA 4.0
2024-07-04T06:35:55.127Z
*If cities make it easier for developers and builders to construct more dwelling units, it would increase the housing stock and decrease rents and property prices to affordable levels* — do you have any evidence for this claim?
gerrit
CC BY-SA 4.0
2024-07-04T02:57:54.090Z
2024-07-04T02:57:54.090Z
Aristocratic Jack
<p>There are three major economic reasons for rising house prices:</p>
<ul>
<li>Building restrictions (height restrictions in zoning laws, urban growth boundaries/green belts, difficult building permissions processes, minimum lot sizes, minimum parking requirements, floor area ratio)</li>
<li>Speculation (prices increasing due to the expectation of future increases)</li>
<li>Demand stimulating subsidies (mortgage deductions, housing allowances etc.)</li>
</ul>
<p>So if you want to make housing more affordable, you need to reduce obstacles to build, reduce speculation and phase out demand stimulating subsidies.</p>
<p>For the first one, the problem is that a lot of these restrictions are in place to protect people's building (read: land) values, so we have a system in place where people's wealth are tied to their land, that they want to protect by avoiding tall buildings in their neighborhood, buildings on green space near them, 'poor people' on smaller lots next door, etc.</p>
<p>For the second one, since housing has become an investment, people want to be part of the wave of wealth (or at least not miss out while everyone else gains) from owning land. These people are rational and it is not only foreign investors or developers, it's everyone who can add &quot;it's a good investment&quot; to the list of reasons for buying a house. The problem is that owning land is inherently a good investment as long as populations rise while land is fixed in supply. The wealth earned from this is called economic rent.</p>
<p>For the third one, politicians like subsidies because they make voters happy in the short run, but almost every economic institution are telling governments to stop these, because they raise house prices for everyone, which is great for owners or the small subset of people who become able to buy a home due to the subsidy in the short run while making it more difficult for the next ones.</p>
<p>The problem here is tied to the problem of economic rent. The earnings from owning a scarce resource. Without it, people wouldn't need to protect it from development and people wouldn't tie all their wealth to it instead of more productive savings or investment. And people wouldn't urge politicians to increase it by making subsidies raising it.</p>
<p>According to <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20150501" rel="nofollow noreferrer">Knoll et al.</a>, 80% of the increase in prices are due to the price of land.</p>
<p>Economists like Adam Smith and Henry George argued that to solve this we need to start taxing land separately from buildings. More recently, economists like Josh Ryan-Collins or Joseph Stiglitz have tied problems of increasing house prices and increasing inequality to this economic rent.</p>

CC BY-SA 4.0
2024-05-07T14:26:03.710Z
On the third one — does it count as a subsidy if the government owns a large share of the housing stock directly and rents them out to lower or middle class people for less than they could?  In other words, would that also be a policy that economic institutes would tell governments to stop?  If I'm not mistaken, that's what happens in Vienna and Singapore, and at least in Vienna it doesn't seem to raise prices for everyone (rather the opposite, the city has the economic power to set what a normal apartment rent is), and this way the (implied) subsidies do not end up in rich landlord pockets.
gerrit
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2024-05-07T14:35:08.270Z
How would a minimum floor area ratio increase housing prices?
gerrit
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2024-05-08T16:36:58.170Z
@gerrit Social housing is a bit of a separate category. It is more of a socialisation of the free market. Friedrich Hayek argued that information about the specifics of time, place, and individual preferences is dispersed among all people and that centralized decision-makers cannot effectively harness this information. He concluded that a decentralized market is more effective and efficient at processing this dispersed knowledge. This is the argument against social housing. In order to evaluate if such a system is better, you also have to take into account the public spending.
Victor Nielsen
CC BY-SA 4.0
2024-05-08T16:40:46.810Z
@gerrit A restriction on the height of the building can increase house prices by limiting the supply of housing. Some example literature includes: 
https://www.sciencedirect.com/science/article/pii/S0166046204000213?via%3Dihub
https://www.sciencedirect.com/science/article/pii/S0264837712000774?via%3Dihub
Victor Nielsen
CC BY-SA 4.0
2024-06-03T14:10:32.550Z
Those appears to be for maximum heights / maximum floor area ratio, which obviously restricts density and thus housing supply.  But how about a minimum height / minimum floor area?
gerrit
CC BY-SA 4.0
2024-06-04T16:30:15.527Z
If the minimum height is below the profitable height, then it makes no difference, but if it is higher than the profitable height, then it either doesn't get built or gets built with reduced qualilty.
Victor Nielsen
CC BY-SA 4.0
2024-06-06T07:47:04.220Z
I was rather thinking of rules encouraging/enforcing developers to put multi-family homes (apartment blocks) for multiple moderate-income families rather than luxury villas for a single very-high income family.
gerrit
CC BY-SA 4.0
2024-06-07T09:43:33.037Z
@gerrit if you want more lower income family buildings you should be in favour of policies like land value taxes and maaybe housing allowances for the poor and be against policies like mortgage subsidies, growth boundaries, and minimum dwelling size restrictions (yes that's a thing). But more importantly, you would probably want to tackle the growing inequality problem by advocating for anti market power policies, anti-lobbyist, and land value taxes. To an extent, wealth taxes. I can't go into more detail here unfortunately.
Victor Nielsen
CC BY-SA 4.0
2024-06-07T10:11:08.167Z
The German government has announced they plan to (re-)introduce a system where landlords get tax deductions if they rent out at below-market rent.  I have no clue about the details or how it works.
gerrit
CC BY-SA 4.0
2024-06-07T11:27:24.153Z
@gerrit It is similar to housing allowance in a way, except it doesn't necessarily go towards the poor. This is another solution that doesn't really attack the root issues. The root issues are: economic rent from land leading to speculation, housing supply restrictions, and subsidisation of housing. And for inequality, the root issues are economic rent from land and market power.
Victor Nielsen
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2024-05-07T11:08:17.843Z
2024-05-07T13:25:06.703Z
2024-05-07T13:25:06.703Z
Victor Nielsen
<p>What cities ought to do if they really want housing to be affordable to practically everyone possible, is to relax some of the restrictions that stifle new builds and ban density. That way, builders and developers would be able to construct the number of dwelling units necessary to meet, and maybe slightly exceed demand.</p>

CC BY-SA 4.0
2024-06-06T07:43:34.807Z
Do you have any empirical evidence that this would work?  Are there any major cities that have implemented this and where people earning 150% of minimum wage can afford rent for a home with an acceptable quality?
gerrit
CC BY-SA 4.0
2024-06-06T07:37:24.380Z
2024-06-06T07:37:24.380Z
Costillo
<p>The only way to stabilize or reduce prices is for supply to increase faster than demand.</p>

<p>Many cities that consider price controls also happen to have high barriers to supply. In other words often those cities have intentionally zoned their city in such a way as to intentionally create obstacles to new housing being built. This is the result of politicians with a bias toward central planning but lack understanding of economic principles enough to predict the unintended consequences on prices resulting from their zoning restrictions. So one way to ease upward pressure on housing prices is to encourage more supply by easing zoning and other regulations that present obstacles to developers.</p>

<p>Also, look at removing similar barriers to the supply of financing.</p>

CC BY-SA 4.0
2020-03-11T03:15:08.633Z
Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/105424/discussion-on-answer-by-freemarketunicorn-if-rent-control-doesnt-work-and-sup).
EconJohn
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2020-03-01T22:57:44.370Z
2020-03-02T10:32:20.423Z
2020-03-02T10:32:20.423Z
FreeMarketUnicorn
<p>In many cases, it's impossible.</p>

<blockquote>
  <p>This may be a political aim.</p>
</blockquote>

<p>Your problem is the political objective is a form of <a href="https://en.wikipedia.org/wiki/Economic_planning" rel="nofollow noreferrer">"central planning."</a> Central planning objectives are rarely achievable without sacrificing individual liberties. Why not simply leave people alone to live out their lives without being controlled by the government? Why does the government need to plan and control where people live?</p>

<p>The answer is: it doesn't.</p>

CC BY-SA 4.0
2020-03-02T08:45:53.213Z
I deliberated whether to ask this on [Politics.SE] or here, and settled for here.  Although your question might have been on-topic on the former, I don't think it's an answer on site about economics.  It also lacks sources and is, frankly, obviously incorrect — for example, virtually all road infrastructure is centrally planned, and although there are some cases of spoil, it would be extreme to say you're controlled by the government every time you drive on a public road. Urban planning is another example where the right planning can prevent inefficient urban sprawl.
gerrit
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2020-03-02T08:51:59.290Z
@gerrit: The field of politics often intersects with economics as it often does with other fields such as the field of law, for example. Consequently, it's possible to be simultaneously on-topic in more than one field at a time. For example, you specifically mentioned politics in the body of your question when you wrote, "This may be a political aim." My answer makes reference to that part of your question. Also, you specifically asked if the political objective might be "impossible." My question directly addresses those two parts of your question.
FreeMarketUnicorn
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2020-03-02T09:23:10.353Z
From an economics point of view, the political aim is a boundary condition.  We want to achieve X, what does economics tell us about what measures Y can achieve X.  Yes, your line "it's impossible" does answer the question, but is not useful without sources. It is possible to introduce rent control, it is possible to build 1 million new homes in high density, to reduce/abolish mortgage deductions, to make rent tax-deductible, to subsidise rents, to build social housing, all have economic side-effects but your answer merely states "it's impossible" before continuing with political commentary.
gerrit
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2020-03-02T09:54:16.377Z
@gerrit: Sources won't help because 1. your question lacks sufficient detail for sources to be useful and 2. experts won't agree regardless. The only way to know the answer for any given scenario is to empirically test a given policy as a hypothesis. But your question begs the "impossible" answer as you list all the available options then argue why each, in turn, won't work. Taking your arguments on their face (because of the aforementioned lack of specificity in the question) it's often useful to ask ourselves "why" we are attempting to do X. Often that answer is political. And ill-advised.
FreeMarketUnicorn
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2020-03-02T09:57:34.103Z
As comments on my question indicate, the list of options I have listed in the question is not exhaustive. I disagree that it's ill-advised for protect people's right to live in their home city.
gerrit
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2020-03-02T10:05:03.320Z
@gerrit: But we don't have a right to live in our home city. We don't have a right to live in any particular place that we do not own or have a contract to rent. You must examine the premise of your questions.
FreeMarketUnicorn
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2020-03-02T10:23:20.747Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/105074/discussion-between-gerrit-and-freemarketunicorn).
gerrit
CC BY-SA 4.0
2020-03-01T23:02:15.307Z
2020-03-02T08:37:51.207Z
2020-03-02T08:37:51.207Z
FreeMarketUnicorn
<p>Disclaimer: this answer was significantly rewritten to spell out explicitly how it answers OPs question and to add some sources (thanks to @Fizz). The gist remains the same.</p>

<p>The only case I know where housing policy seems to work the way you envision is Vienna (the Austrien capital). They use a combination of several of the policies on OPs list, they have been doing this for a long time and they seem to be very good at implementing them in productive ways. </p>

<p>First, the city owns a significant proportian of all apartments, enough to have pricing power in the market (about 60% according to <a href="https://www.huffpost.com/entry/vienna-affordable-housing-paradise_n_5b4e0b12e4b0b15aba88c7b0?guccounter=1" rel="nofollow noreferrer">source</a>). Additionally there are rent control laws on the privately owned housing (see for example <a href="https://ucalgary.ca/cities/files/cities/forster_the-vienna-model-of-social-housing.pdf" rel="nofollow noreferrer">here</a> for some housing policies). Nevertheless private housing is more expensive than public housing (<a href="https://www.euronews.com/2018/10/30/vienna-battles-rising-housing-costs-can-a-new-policy-fix-it" rel="nofollow noreferrer">source</a>).</p>

<p>Second, the city is engaged in long term planning for housing and they do that wholesale. So they are not just building houses on existing ground attached to existing infrastructure but they are creating entire new suburbs including attachment to public transportation, schools and all the other infrastructure needed for a successful city. The sources above also talk about that in more detail.</p>

<p>This is hard to pull of because it takes much longer to bear fruit that a typical election cycle. Doing things that cost money now and are very useful in 20 years is difficult for elected politicians. So even if politicians or people in general in other cities like to copy the Vienna model, it is not just a few simple policy changes.</p>

CC BY-SA 4.0
2020-03-02T14:56:25.557Z
Very interesting.  It costs money now, but it's an investment that may well pay off and be profitable in the long run.
gerrit
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2020-03-02T18:46:32.623Z
That's socialism (in housing anyway)! The local gov't indeed seems to control 62% of the local market https://www.huffpost.com/entry/vienna-affordable-housing-paradise_n_5b4e0b12e4b0b15aba88c7b0
fantastic peace and prosperity
CC BY-SA 4.0
2020-03-02T18:52:55.597Z
Interestingly however that [doesn't](https://www.euronews.com/2018/10/30/vienna-battles-rising-housing-costs-can-a-new-policy-fix-it) translate into the private sector rents as much as you claim: "While the rental prices on the subsidised market have moved along the lines of inflation, rents on the free market have risen up to 43% between 2008 and 2016, according to a report by Austria's chamber of labour." So yeah, your post is a bit misleading.
fantastic peace and prosperity
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2020-03-02T19:09:16.567Z
They also have a rent control law in force in Vienna and it dates back to 1917 https://ucalgary.ca/cities/files/cities/forster_the-vienna-model-of-social-housing.pdf
fantastic peace and prosperity
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2020-03-02T19:22:32.840Z
@Fizz If the government owns enough housing to rent out at below-market-rent to those who need it, then the aim to improve affordability is still met, so I don't find it particularly misleading.
gerrit
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2020-03-02T19:29:13.147Z
Actually it still is so; a lot of the privately owned rents in Vienna (42%) are rent-controlled via this 1917 law https://www.immobilienwirtschaft.tu-berlin.de/fileadmin/fg287/ERES/Presentations/Funk-Rent-control-in-Austria.pdf not through indirect effects of the government owning a lot.
fantastic peace and prosperity
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2020-03-03T07:48:21.343Z
@KennyLJ That is true. My answer essentially says, rent control does work for the goal to achieve affordable housing but only if accompanied by suitable other measures and only in rare circumstances.
quarague
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2020-03-03T09:25:16.863Z
OP asked what strategies could be used to achieve affordable housing for the poor. My answer is saying that a combination of rent control, increasing housing supply and government social housing can work for this goal if well implemented (and gives an example where it does work) and also explains why this is hard. Please explain why this is down voted. 'I think rent control is wrong' is not a valid reason.
quarague
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2020-03-03T14:02:14.993Z
You should probably edit the answer to make it a bit more clear, given your last comment, with which I agree, i.e. there was combination of measures. There's a fair bit of material linked in my prior comments with which you can make the answer more factual.
fantastic peace and prosperity
CC BY-SA 4.0
2020-03-02T14:44:06.420Z
2020-03-03T14:33:57.777Z
2020-03-03T14:33:57.777Z
quarague
<p>Suppose we aim that moderately poor people (let's say 1.5× minimum wage) can afford the rent for an apartment meeting minimum quality standards and located within city limits.  This may be a political aim.</p>

<p>What economic policies are effective to achieve this?</p>

<ul>
<li><p><a href="https://en.wikipedia.org/wiki/Rent_regulation" rel="nofollow noreferrer">Rent control</a>.  Popular, but economics appears to tell us it creates more problems than it solves.  See also the questions <a href="https://politics.stackexchange.com/q/50465/130"><em>Why did Berlin freeze the rent prices as opposed to letting the market set the price?</em></a> and <a href="https://economics.stackexchange.com/q/34214/332"><em>What is the likely result of rent control in Berlin?</em></a>.</p></li>
<li><p>Increase supply?  In cities, it appears <a href="https://economics.stackexchange.com/q/17066/332"><em>supply may create demand</em></a> (the more people in a city, the more services, the more people want to live there) so this may not always work either, or only under limited circumstances (perhaps unless building huge amounts, but developers hate vacancies, so I doubt that limit would be surpassed in a free market).</p></li>
<li><p>Social housing, owned by the government?  I don't know what economic theory says about this.</p></li>
<li><p>Reduce demand?  Not sure how that would work without harming the city.</p></li>
<li><p>Impossible?  Should we give up on the idea that poor people can live in <a href="https://en.wikipedia.org/wiki/Global_city" rel="nofollow noreferrer">alpha world cities</a> such as London, New York, Tokyo, Paris, Singapore, Amsterdam, Seoul, Berlin, Hong Kong, or Sydney?</p></li>
<li><p>Something else?</p></li>
</ul>

<p>I'm aware that most economists say that rent control "doesn't work" — what are the alternatives that economists may prefer?</p>

CC BY-SA 4.0
2020-03-01T00:16:59.367Z
Idea spitball: land-value tax, progressive consumption tax (on housing purchases), no longer politically pushing for and subsidizing home ownership, getting rid of various land use and zoning restrictions (FAR limits, height limits, single-use zoning), and improving transit.
Kent Shikama
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2020-03-01T00:18:40.440Z
I'm also skeptical of the supply creates demand argument. Enough supply should eventually outpace demand even though there might be a local minima in which it looks like supply is inducing demand.
Kent Shikama
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2020-03-01T00:22:51.477Z
@KentShikama The [linked question](https://economics.stackexchange.com/q/17066/332) on supply induced demand could still use a good quality answer.  I agree that there should be a limit (after all, number of people who can move to a city is limited by migration law, for example).  Can we calculate where that limit lies?  Is that limit of practical significance, or is it so far out that it's unfeasible to build so much that this limit actually kicks in? What are FAR limits?
gerrit
CC BY-SA 4.0
2020-03-01T00:26:43.487Z
I think a high quality answer for that question needs to do a fair amount of data gathering that I'm not up for doing right now. However, reading through the question has reminded me of another item to add to the idea spitball: requiring higher down payments for mortgages and higher interest rates.
Kent Shikama
CC BY-SA 4.0
2020-03-01T00:37:47.763Z
I do not believe in population limits to cities. Cities exist, among other things, to act as a giant labor market and to promote agglomeration effects. There are benefits to having more people who can reach other within a reasonable time frame (e.g. 1 hour). Most cities with zoning laws have restrictions to building heights and FAR (floor to area ratios), and sometimes they have nothing to do with safety/practical concerns (e.g. buildings shouldn't be so high that planes would normally be in risk of crashing into them) but are just used as negotiating tools for city planners and NIMBYism.
Kent Shikama
CC BY-SA 4.0
2020-03-01T02:38:21.920Z
The last bullet point could be improved by focusing on the biggest and most expensive cities, as presumably you're asking about London and NYC, not Cardiff and Billings. Most cities around the world are actually quite affordable, as they're not a global metropolis.
JonathanReez
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2020-03-01T07:57:50.363Z
Note that "rent control doesn't work" means it [likely] produces contrary effects [in the long run](https://www.simontaylorsblog.com/2013/05/05/the-true-meaning-of-in-the-long-run-we-are-all-dead/).
fantastic peace and prosperity
CC BY-SA 4.0
2020-03-01T08:09:16.890Z
Regarding your 3rd bullet, maybe look at https://link.springer.com/article/10.1007/s10901-012-9276-7 I'm not very familiar with research in this area either. The [US and other] experience with providing "insurers of last resort" may also be relevant (and not just the domain of housing, but almost anything that can be insured, e.g. auto insurance, deposits.) You've basically left you gov't support for (private) rent, which I think is a big area, especially in some countries like UK.
fantastic peace and prosperity
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2020-03-01T12:28:06.420Z
@JonathanReez Good point, added list of the type of cities I'm thinking of.
gerrit
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2020-03-01T22:32:20.757Z
Frame challenge. Most economists use antiquated pseudoscientiic models; only a handful of heterodox economists predicted the 2007 financial crisis, and few today understand the global macroeconomy. Rent caps obviously work and how you assess the social impact against the benefits depends on if you look at it through a private microeconomic lense or a political one, or a sociological one. If, as you state, your provided aims are political, flimsy economic theories hold little relevance.
Frank
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2020-03-01T22:59:13.723Z
Your problem is in the political objective which is a form of "central planning." Those types of objectives are rarely achievable without sacrificing the individual liberty of the population. Why not simply leave people alone to live out their lives without being controlled by the government every step of the way. Why does the government need to plan and control everything?
FreeMarketUnicorn
CC BY-SA 4.0
2020-03-02T06:09:11.033Z
@FreeMarketUnicorn Because in that naive model the assumption is that 'individuals' constitute an important part of the economy when in actual fact rent control is often in reaction to corporate buying, and we live in a world where a tiny number of corporations produce 90% or more of what the whole world consumes. Leaving things to 'individuals' is just propaganda aimed at giving corporations the keys to the governmental castle.
Frank
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2020-03-02T08:44:28.977Z
@FreeMarketUnicorn Landlords aren't leaving people alone.  Individual freedom is a communist utopia that no political system can ever achieve.
gerrit
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2020-03-02T12:46:25.270Z
@Frank Rent caps obviously work at reducing rent, but I think the question is whether they have other bad side effects and whether there's a good way for the government to reduce rent without significant side effects.
Criticize SE actions means ban
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2020-03-02T22:39:24.803Z
@user253751 incorrect. The question asks about affordability. Affordability can be improved for example through helicopter cash drops on population segments. So affordability can be achieved without rent reduction.  Rent cap side effects would in any case need to be presented as 'side effects' according to some metric, again political sociological economic etc, so it begins to look all quite circular. Perhaps the population is collectively suicidal. What set of interests do we want to support and how do we measure success?
Frank
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2020-03-03T08:34:05.093Z
Why is this attracting so many downvotes
gerrit
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2020-03-04T12:07:21.750Z
@Frank That does not improve affordability in a free market because landlords will just raise their rent to account for it, see? The paradox of https://en.wikipedia.org/wiki/Tax_incidence applies equally well to subsidies (negative taxes). This happened in NZ when the government tried to pay part of students' rent.
Criticize SE actions means ban
CC BY-SA 4.0
2020-03-04T14:07:50.180Z
@user253741 no I don't see that as being likely. If corporations are buying up property to boost sale price as a speculative measure then giving workers more money satisfies landlords, it would be irrational for them to evict these payers unless they were interested in selling
Frank
CC BY-SA 4.0
2020-03-04T14:21:22.300Z
@iser263741 also can we please stop referring to 'free markets 'as if it were a real thing. We might as well discuss neverneverland
Frank
<pricing><housing><rent-control>
If rent control "doesn't work" and supply induces demand, how can cities improve affordability?
gerrit
# If rent control "doesn't work" and supply induces demand, how can cities improve affordability?

(Asked by: username_0 on 2020-02-29)

Suppose we aim that moderately poor people (let's say 1.5× minimum wage) can afford the rent for an apartment meeting minimum quality standards and located within city limits. This may be a political aim.

What economic policies are effective to achieve this?

* [Rent control](https://en.wikipedia.org/wiki/Rent_regulation). Popular, but economics appears to tell us it creates more problems than it solves. See also the questions [*Why did Berlin freeze the rent prices as opposed to letting the market set the price?*](https://politics.stackexchange.com/q/50465/130) and [*What is the likely result of rent control in Berlin?*](https://economics.stackexchange.com/q/34214/332).
* Increase supply? In cities, it appears [*supply may create demand*](https://economics.stackexchange.com/q/17066/332) (the more people in a city, the more services, the more people want to live there) so this may not always work either, or only under limited circumstances (perhaps unless building huge amounts, but developers hate vacancies, so I doubt that limit would be surpassed in a free market).
* Social housing, owned by the government? I don't know what economic theory says about this.
* Reduce demand? Not sure how that would work without harming the city.
* Impossible? Should we give up on the idea that poor people can live in [alpha world cities](https://en.wikipedia.org/wiki/Global_city) such as London, New York, Tokyo, Paris, Singapore, Amsterdam, Seoul, Berlin, Hong Kong, or Sydney?
* Something else?

I'm aware that most economists say that rent control "doesn't work" — what are the alternatives that economists may prefer?

**Tags:** pricing, housing, rent-control

> **Comments:**
> **username_1**: Idea spitball: land-value tax, progressive consumption tax (on housing purchases), no longer politically pushing for and subsidizing home ownership, getting rid of various land use and zoning restrictions (FAR limits, height limits, single-use zoning), and improving transit.  
> **username_1**: I'm also skeptical of the supply creates demand argument. Enough supply should eventually outpace demand even though there might be a local minima in which it looks like supply is inducing demand.  
> **username_0**: @KentShikama The [linked question](https://economics.stackexchange.com/q/17066/332) on supply induced demand could still use a good quality answer.  I agree that there should be a limit (after all, number of people who can move to a city is limited by migration law, for example).  Can we calculate where that limit lies?  Is that limit of practical significance, or is it so far out that it's unfeasible to build so much that this limit actually kicks in? What are FAR limits?  
> **username_1**: I think a high quality answer for that question needs to do a fair amount of data gathering that I'm not up for doing right now. However, reading through the question has reminded me of another item to add to the idea spitball: requiring higher down payments for mortgages and higher interest rates.  
> **username_1**: I do not believe in population limits to cities. Cities exist, among other things, to act as a giant labor market and to promote agglomeration effects. There are benefits to having more people who can reach other within a reasonable time frame (e.g. 1 hour). Most cities with zoning laws have restrictions to building heights and FAR (floor to area ratios), and sometimes they have nothing to do with safety/practical concerns (e.g. buildings shouldn't be so high that planes would normally be in risk of crashing into them) but are just used as negotiating tools for city planners and NIMBYism.  
> **username_2**: The last bullet point could be improved by focusing on the biggest and most expensive cities, as presumably you're asking about London and NYC, not Cardiff and Billings. Most cities around the world are actually quite affordable, as they're not a global metropolis.  
> **username_3**: Note that "rent control doesn't work" means it [likely] produces contrary effects [in the long run](https://www.simontaylorsblog.com/2013/05/05/the-true-meaning-of-in-the-long-run-we-are-all-dead/).  
> **username_3**: Regarding your 3rd bullet, maybe look at https://link.springer.com/article/10.1007/s10901-012-9276-7 I'm not very familiar with research in this area either. The [US and other] experience with providing "insurers of last resort" may also be relevant (and not just the domain of housing, but almost anything that can be insured, e.g. auto insurance, deposits.) You've basically left you gov't support for (private) rent, which I think is a big area, especially in some countries like UK.  
> **username_0**: @username_2 Good point, added list of the type of cities I'm thinking of.  
> **username_4**: Frame challenge. Most economists use antiquated pseudoscientiic models; only a handful of heterodox economists predicted the 2007 financial crisis, and few today understand the global macroeconomy. Rent caps obviously work and how you assess the social impact against the benefits depends on if you look at it through a private microeconomic lense or a political one, or a sociological one. If, as you state, your provided aims are political, flimsy economic theories hold little relevance.  
> **username_5**: Your problem is in the political objective which is a form of "central planning." Those types of objectives are rarely achievable without sacrificing the individual liberty of the population. Why not simply leave people alone to live out their lives without being controlled by the government every step of the way. Why does the government need to plan and control everything?  
> **username_4**: @username_5 Because in that naive model the assumption is that 'individuals' constitute an important part of the economy when in actual fact rent control is often in reaction to corporate buying, and we live in a world where a tiny number of corporations produce 90% or more of what the whole world consumes. Leaving things to 'individuals' is just propaganda aimed at giving corporations the keys to the governmental castle.  
> **username_0**: @username_5 Landlords aren't leaving people alone.  Individual freedom is a communist utopia that no political system can ever achieve.  
> **username_6**: @username_4 Rent caps obviously work at reducing rent, but I think the question is whether they have other bad side effects and whether there's a good way for the government to reduce rent without significant side effects.  
> **username_4**: @user253751 incorrect. The question asks about affordability. Affordability can be improved for example through helicopter cash drops on population segments. So affordability can be achieved without rent reduction.  Rent cap side effects would in any case need to be presented as 'side effects' according to some metric, again political sociological economic etc, so it begins to look all quite circular. Perhaps the population is collectively suicidal. What set of interests do we want to support and how do we measure success?  
> **username_0**: Why is this attracting so many downvotes  
> **username_6**: @username_4 That does not improve affordability in a free market because landlords will just raise their rent to account for it, see? The paradox of https://en.wikipedia.org/wiki/Tax_incidence applies equally well to subsidies (negative taxes). This happened in NZ when the government tried to pay part of students' rent.  
> **username_4**: @user253741 no I don't see that as being likely. If corporations are buying up property to boost sale price as a speculative measure then giving workers more money satisfies landlords, it would be irrational for them to evict these payers unless they were interested in selling  
> **username_4**: @iser263741 also can we please stop referring to 'free markets 'as if it were a real thing. We might as well discuss neverneverland  

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## 6 answers

### Answer by username_11 on 2020-03-02. Score: 5 | Accepted answer

Disclaimer: this answer was significantly rewritten to spell out explicitly how it answers OPs question and to add some sources (thanks to @Fizz). The gist remains the same.

The only case I know where housing policy seems to work the way you envision is Vienna (the Austrien capital). They use a combination of several of the policies on OPs list, they have been doing this for a long time and they seem to be very good at implementing them in productive ways.

First, the city owns a significant proportian of all apartments, enough to have pricing power in the market (about 60% according to [source](https://www.huffpost.com/entry/vienna-affordable-housing-paradise_n_5b4e0b12e4b0b15aba88c7b0?guccounter=1)). Additionally there are rent control laws on the privately owned housing (see for example [here](https://ucalgary.ca/cities/files/cities/forster_the-vienna-model-of-social-housing.pdf) for some housing policies). Nevertheless private housing is more expensive than public housing ([source](https://www.euronews.com/2018/10/30/vienna-battles-rising-housing-costs-can-a-new-policy-fix-it)).

Second, the city is engaged in long term planning for housing and they do that wholesale. So they are not just building houses on existing ground attached to existing infrastructure but they are creating entire new suburbs including attachment to public transportation, schools and all the other infrastructure needed for a successful city. The sources above also talk about that in more detail.

This is hard to pull of because it takes much longer to bear fruit that a typical election cycle. Doing things that cost money now and are very useful in 20 years is difficult for elected politicians. So even if politicians or people in general in other cities like to copy the Vienna model, it is not just a few simple policy changes.

> **Comments:**
> **username_0**: Very interesting.  It costs money now, but it's an investment that may well pay off and be profitable in the long run.  
> **username_3**: That's socialism (in housing anyway)! The local gov't indeed seems to control 62% of the local market https://www.huffpost.com/entry/vienna-affordable-housing-paradise_n_5b4e0b12e4b0b15aba88c7b0  
> **username_3**: Interestingly however that [doesn't](https://www.euronews.com/2018/10/30/vienna-battles-rising-housing-costs-can-a-new-policy-fix-it) translate into the private sector rents as much as you claim: "While the rental prices on the subsidised market have moved along the lines of inflation, rents on the free market have risen up to 43% between 2008 and 2016, according to a report by Austria's chamber of labour." So yeah, your post is a bit misleading.  
> **username_3**: They also have a rent control law in force in Vienna and it dates back to 1917 https://ucalgary.ca/cities/files/cities/forster_the-vienna-model-of-social-housing.pdf  
> **username_0**: @Fizz If the government owns enough housing to rent out at below-market-rent to those who need it, then the aim to improve affordability is still met, so I don't find it particularly misleading.  
> **username_3**: Actually it still is so; a lot of the privately owned rents in Vienna (42%) are rent-controlled via this 1917 law https://www.immobilienwirtschaft.tu-berlin.de/fileadmin/fg287/ERES/Presentations/Funk-Rent-control-in-Austria.pdf not through indirect effects of the government owning a lot.  
> **username_11**: @KennyLJ That is true. My answer essentially says, rent control does work for the goal to achieve affordable housing but only if accompanied by suitable other measures and only in rare circumstances.  
> **username_11**: OP asked what strategies could be used to achieve affordable housing for the poor. My answer is saying that a combination of rent control, increasing housing supply and government social housing can work for this goal if well implemented (and gives an example where it does work) and also explains why this is hard. Please explain why this is down voted. 'I think rent control is wrong' is not a valid reason.  
> **username_3**: You should probably edit the answer to make it a bit more clear, given your last comment, with which I agree, i.e. there was combination of measures. There's a fair bit of material linked in my prior comments with which you can make the answer more factual.  

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### Answer by username_7 on 2024-07-04. Score: 1

The best solution would be to minimize red tape and restrictions on new construction. If cities make it easier for developers and builders to construct more dwelling units, it would increase the housing stock and decrease rents and property prices to affordable levels. Also, experimentation of different alternative housing types could help. What alternative types of housing? One could be single-room-occupancies (SROs), which are like studio apartments, albeit without private en-suite bathrooms and kitchens. Instead all the residents in a particular portion of the SRO building share a bathroom or set of bathrooms in the hallway, and there's usually only one kitchen for the entire building. Another alternative housing type is microapartments, which are the attached, multifamily version of tiny houses. Like tiny houses, these apartments are usually under 490 sqft (47 sq m) each, and incorporate ingenious space saving features, and unlike SROs, microapartments contain private ensuite bathrooms. For families, a cohousing apartment building or pocket neighborhood would work well. Co-housing is like a typical roommate situation, except that each person or family gets an entire suite or small cottage with its own private bath. And a pocket neighborhood is a small development of rowhomes or cottages built on a site that would usually have only one single family dwelling built on it.

> **Comments:**
> **username_0**: *If cities make it easier for developers and builders to construct more dwelling units, it would increase the housing stock and decrease rents and property prices to affordable levels* — do you have any evidence for this claim?  

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### Answer by username_8 on 2024-05-07. Score: 1

There are three major economic reasons for rising house prices:

* Building restrictions (height restrictions in zoning laws, urban growth boundaries/green belts, difficult building permissions processes, minimum lot sizes, minimum parking requirements, floor area ratio)
* Speculation (prices increasing due to the expectation of future increases)
* Demand stimulating subsidies (mortgage deductions, housing allowances etc.)

So if you want to make housing more affordable, you need to reduce obstacles to build, reduce speculation and phase out demand stimulating subsidies.

For the first one, the problem is that a lot of these restrictions are in place to protect people's building (read: land) values, so we have a system in place where people's wealth are tied to their land, that they want to protect by avoiding tall buildings in their neighborhood, buildings on green space near them, 'poor people' on smaller lots next door, etc.

For the second one, since housing has become an investment, people want to be part of the wave of wealth (or at least not miss out while everyone else gains) from owning land. These people are rational and it is not only foreign investors or developers, it's everyone who can add "it's a good investment" to the list of reasons for buying a house. The problem is that owning land is inherently a good investment as long as populations rise while land is fixed in supply. The wealth earned from this is called economic rent.

For the third one, politicians like subsidies because they make voters happy in the short run, but almost every economic institution are telling governments to stop these, because they raise house prices for everyone, which is great for owners or the small subset of people who become able to buy a home due to the subsidy in the short run while making it more difficult for the next ones.

The problem here is tied to the problem of economic rent. The earnings from owning a scarce resource. Without it, people wouldn't need to protect it from development and people wouldn't tie all their wealth to it instead of more productive savings or investment. And people wouldn't urge politicians to increase it by making subsidies raising it.

According to [Knoll et al.](https://www.aeaweb.org/articles?id=10.1257/aer.20150501), 80% of the increase in prices are due to the price of land.

Economists like Adam Smith and Henry George argued that to solve this we need to start taxing land separately from buildings. More recently, economists like Josh Ryan-Collins or Joseph Stiglitz have tied problems of increasing house prices and increasing inequality to this economic rent.

> **Comments:**
> **username_0**: On the third one — does it count as a subsidy if the government owns a large share of the housing stock directly and rents them out to lower or middle class people for less than they could?  In other words, would that also be a policy that economic institutes would tell governments to stop?  If I'm not mistaken, that's what happens in Vienna and Singapore, and at least in Vienna it doesn't seem to raise prices for everyone (rather the opposite, the city has the economic power to set what a normal apartment rent is), and this way the (implied) subsidies do not end up in rich landlord pockets.  
> **username_0**: How would a minimum floor area ratio increase housing prices?  
> **username_8**: @username_0 Social housing is a bit of a separate category. It is more of a socialisation of the free market. Friedrich Hayek argued that information about the specifics of time, place, and individual preferences is dispersed among all people and that centralized decision-makers cannot effectively harness this information. He concluded that a decentralized market is more effective and efficient at processing this dispersed knowledge. This is the argument against social housing. In order to evaluate if such a system is better, you also have to take into account the public spending.  
> **username_8**: @username_0 A restriction on the height of the building can increase house prices by limiting the supply of housing. Some example literature includes:  https://www.sciencedirect.com/science/article/pii/S0166046204000213?via%3Dihub https://www.sciencedirect.com/science/article/pii/S0264837712000774?via%3Dihub  
> **username_0**: Those appears to be for maximum heights / maximum floor area ratio, which obviously restricts density and thus housing supply.  But how about a minimum height / minimum floor area?  
> **username_8**: If the minimum height is below the profitable height, then it makes no difference, but if it is higher than the profitable height, then it either doesn't get built or gets built with reduced qualilty.  
> **username_0**: I was rather thinking of rules encouraging/enforcing developers to put multi-family homes (apartment blocks) for multiple moderate-income families rather than luxury villas for a single very-high income family.  
> **username_8**: @username_0 if you want more lower income family buildings you should be in favour of policies like land value taxes and maaybe housing allowances for the poor and be against policies like mortgage subsidies, growth boundaries, and minimum dwelling size restrictions (yes that's a thing). But more importantly, you would probably want to tackle the growing inequality problem by advocating for anti market power policies, anti-lobbyist, and land value taxes. To an extent, wealth taxes. I can't go into more detail here unfortunately.  
> **username_0**: The German government has announced they plan to (re-)introduce a system where landlords get tax deductions if they rent out at below-market rent.  I have no clue about the details or how it works.  
> **username_8**: @username_0 It is similar to housing allowance in a way, except it doesn't necessarily go towards the poor. This is another solution that doesn't really attack the root issues. The root issues are: economic rent from land leading to speculation, housing supply restrictions, and subsidisation of housing. And for inequality, the root issues are economic rent from land and market power.  

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### Answer by username_9 on 2024-06-06. Score: 0

What cities ought to do if they really want housing to be affordable to practically everyone possible, is to relax some of the restrictions that stifle new builds and ban density. That way, builders and developers would be able to construct the number of dwelling units necessary to meet, and maybe slightly exceed demand.

> **Comments:**
> **username_0**: Do you have any empirical evidence that this would work?  Are there any major cities that have implemented this and where people earning 150% of minimum wage can afford rent for a home with an acceptable quality?  

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### Answer by username_5 on 2020-03-01. Score: -4

The only way to stabilize or reduce prices is for supply to increase faster than demand.

Many cities that consider price controls also happen to have high barriers to supply. In other words often those cities have intentionally zoned their city in such a way as to intentionally create obstacles to new housing being built. This is the result of politicians with a bias toward central planning but lack understanding of economic principles enough to predict the unintended consequences on prices resulting from their zoning restrictions. So one way to ease upward pressure on housing prices is to encourage more supply by easing zoning and other regulations that present obstacles to developers.

Also, look at removing similar barriers to the supply of financing.

> **Comments:**
> **username_10**: Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/105424/discussion-on-answer-by-freemarketunicorn-if-rent-control-doesnt-work-and-sup).  

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### Answer by username_5 on 2020-03-01. Score: -6

In many cases, it's impossible.

> This may be a political aim.

Your problem is the political objective is a form of ["central planning."](https://en.wikipedia.org/wiki/Economic_planning) Central planning objectives are rarely achievable without sacrificing individual liberties. Why not simply leave people alone to live out their lives without being controlled by the government? Why does the government need to plan and control where people live?

The answer is: it doesn't.

> **Comments:**
> **username_0**: I deliberated whether to ask this on [Politics.SE] or here, and settled for here.  Although your question might have been on-topic on the former, I don't think it's an answer on site about economics.  It also lacks sources and is, frankly, obviously incorrect — for example, virtually all road infrastructure is centrally planned, and although there are some cases of spoil, it would be extreme to say you're controlled by the government every time you drive on a public road. Urban planning is another example where the right planning can prevent inefficient urban sprawl.  
> **username_5**: @username_0: The field of politics often intersects with economics as it often does with other fields such as the field of law, for example. Consequently, it's possible to be simultaneously on-topic in more than one field at a time. For example, you specifically mentioned politics in the body of your question when you wrote, "This may be a political aim." My answer makes reference to that part of your question. Also, you specifically asked if the political objective might be "impossible." My question directly addresses those two parts of your question.  
> **username_0**: From an economics point of view, the political aim is a boundary condition.  We want to achieve X, what does economics tell us about what measures Y can achieve X.  Yes, your line "it's impossible" does answer the question, but is not useful without sources. It is possible to introduce rent control, it is possible to build 1 million new homes in high density, to reduce/abolish mortgage deductions, to make rent tax-deductible, to subsidise rents, to build social housing, all have economic side-effects but your answer merely states "it's impossible" before continuing with political commentary.  
> **username_5**: @username_0: Sources won't help because 1. your question lacks sufficient detail for sources to be useful and 2. experts won't agree regardless. The only way to know the answer for any given scenario is to empirically test a given policy as a hypothesis. But your question begs the "impossible" answer as you list all the available options then argue why each, in turn, won't work. Taking your arguments on their face (because of the aforementioned lack of specificity in the question) it's often useful to ask ourselves "why" we are attempting to do X. Often that answer is political. And ill-advised.  
> **username_0**: As comments on my question indicate, the list of options I have listed in the question is not exhaustive. I disagree that it's ill-advised for protect people's right to live in their home city.  
> **username_5**: @username_0: But we don't have a right to live in our home city. We don't have a right to live in any particular place that we do not own or have a contract to rent. You must examine the premise of your questions.  
> **username_0**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/105074/discussion-between-username_0-and-freemarketunicorn).  

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