Rent control discourages investment in real estate. Less investment in real estate means lower quality and fewer apartments. There are some lucky winners who get cheap apartments, but the rest pay higher prices to live in worse places. The same thing happens in New York City.
The economically sound answer is to make it as easy as possible for builders to make large buildings with lots of apartments. Right now it is so hard to build that only luxury apartments are profitable.
It's worth noting that San Francisco sets a much higher burden on new construction: it either charges the builder an "Affordable Housing Fee" (~$200k to $522k per unit), or it requires a certain percentage of units (12% of on-site or 20% of off-site) be made available for rental or sale at a price specified by the city ("below market rate").
Same issue in NYC. So a couple people win a lottery to get subsidized housing, and can't ever move again, at the expense of the people paying full rent, the developers, and everyone else who can't afford housing.
They considered that financial disincentive for new construction when rent control was implemented in 1979. It does not apply to new housing units built after 1979.
Valid point. My perception (Based on SF and NYC) is that many of the laws that go along with rent control make it difficult to build low income housing. The time to get permits, and the difficulty in rehabbing, make anything except luxury apartments unaffordable.
It's always difficult to build low-income housing:
* It's just not inherently very efficient. If you can build 12 luxury apartments that will rent for $3k per month or 20 low-income apartments that will rent for $1k per month, then you're leaving a lot of money on the table.
* Incumbent neighbors hate hate hate low-income housing and will fight to destroy the project during public meetings (because they believe that their property will become less valuable/their neighborhood less desirable with low-income neighbors).
* Low-income tenant are more likely to stop paying rent/force an expensive eviction process than high-income tenants.
* Much of the maintenance cost on an apartment is per apartment or per tenant, not per square foot, so your maintenance cost may be lower on fewer larger apartments.
* Low-income housing developers do not have the resource of market-rate housing developers to move through the (complicated, awful) permitting process, or to buy land. Financing of low-income housing is much more complicated than financing of market-rate housing. Mostly market-rate developers who occasionally put together a low-income project tend to give those projects low numbers of resources/backburner them.
Source: My wife is a project manager at Habitat for Humanity.
- The "Not in my backyard" is economically rational, but still wrong. I'm not sure how to fight it.
- My general view is to remove the roadblocks to let economics help out. Large public works doesn't seem to be the right solution either. (High crime, bad schools, etc)
- The better case is not "luxury vs low-income" but rather to put the lower (or even medium) income apartments somewhere that there's less competition from luxury. There's no natural law that says they need to be side by side. (But I would argue we should ensure the quality of schools for both is similar)
One could argue -- I'm not sure that I care to -- that the natural evolution of things would be for all new housing stock to be built well above the median of the market, and that as structures are a durable, but not appreciating asset, the deal would be that the rich live in new stock, the middle class live in older stock, and the poor live in yet older stock. As new stock comes into the market, it depresses the value of the older stock, and moves it down the income line.
In which case there would be no concept of "affordable housing" as a kind of development -- affordable housing would just be older housing.
Since structures are a significantly durable asset, this would operate over the course of decades, or even a century, not years.
In which case we could imagine that changes in the supply stock over 35 years (ie, rent-controlled stock in SF) would have a magnified effect on the well-being of the poor.
That said, I suspect this model is too simple to have that much predictive power. You are right to focus on schools (though note that in SF, public schools are built on a lottery system, and being local to the school gives you only limited access to it).
Many people are very hostile to the option to say, "Well, fuck it, SF is expensive -- people who want cheaper housing should live in more geographically remote places." It's hard for me to figure out where any concept of a right to live near place X begins or ends.
Interesting idea. The main issue is that location matters. Most of the value of high value real estate is in the location. (This is why a 4BR house in Rochester NY costs 1/20th what it would cost in Manhattan or SF)
People would rather live in an old house with good schools and close to work (say Palo Alto or Los Altos) than new houses a significant drive away.
You can't tell someone "Take a risk on the schools, get a bigger commute, and pay up" but you can say "Get a nice new apartment, roll the dice on the schools, but save a lot of money and buy a nice car for the commute"
Rent control discourages investment in real estate. Less investment in real estate means lower quality and fewer apartments. There are some lucky winners who get cheap apartments, but the rest pay higher prices to live in worse places. The same thing happens in New York City.
The economically sound answer is to make it as easy as possible for builders to make large buildings with lots of apartments. Right now it is so hard to build that only luxury apartments are profitable.