The speed of reform
I love cities. They provide so much humanity, convenience and culture in a cauldron of interaction that makes each a living entity of its own, every one unique and increasingly rich as time passes.
As they build up, of course, they start to get crowded. Rent prices in the better areas climb higher and higher as competition for limited space intensifies, which leads many well-meaning city councils to impose rent controls. Sometimes the reasoning is specifically socialist in nature, informed by a conviction that rents greater than X are exorbitant extortion. Other times the motives are somewhat more sophisticated - the city council may value neighborhood consistency and want to defend families from sudden inclines in rents caused by the positive externalities of surrounding development such as a major new park or completed cultural building. Still more thoughtful analysis will reveal large inefficiencies in an environment that forces frequent wholesale transplanting of the economically displaced.
The fact of the matter is, of course, that rent controls as they have usually been imposed quite simply discourage new building. Once imposed there becomes a more-or-less fixed amount of living space available in more-or-less fixed parcels. This increases the attractiveness of the living space relative to its price, inducing a predictable shortage. Now those who have found apartments hold on to them because they know they may not be able to find a new one and those without apartments either find a leaseholder to move in with or, more frequently, move to the suburbs. Flight to the suburbs in turn reduces the economy of scale for city services, increases transportation problems and destroys either farmland typically amongst the most productive or wilderness that once raised the value of city lands. Suburbanization also tends to reduce aggregate health, resource efficiencies and cultural engagement.
Even when rent controls don’t exist there still tends to be a lag between building and demand as well as a number of pressures encouraging suburban growth (cultural expectations chief amongst them), but they exacerbate those tendencies and as time goes on make things worse. The obvious solution to the damage caused by rent controls is to get rid of them.
Many cities do exactly that. The problem is, the sudden repeal of those measures does not imply a commensurate sudden growth in living space. Buildings take time to build - especially if city codes and similar legal barriers complicate the implementation of development plans. The bigger the building, the more time it’ll take (and typically, the more codes and oversight apply), and in an urban area the buildings tend to be pretty big. Years could go by before a building boom can catch up to the suddenly unleashed supply-demand equilibrium point, especially considering possible limitations credit agencies may want to place on lending to the construction sector in a localized area. Meanwhile, current owners of buildings can charge hugely inflated rents in the intervening period of constricted supply. Renters end up paying owners of dilapidated or even squalid properties the large premium supplied by the convenience of city infrastructure or have to pick up and leave. The character of districts, cultural nuclei, and the pattern of use of city services abruptly change as families move out of or into school districts, as they are replaced by single professionals, as restaurants and entertainment centers close down or relocate, and so on. Agents that had arranged a network of economic choices for greatest efficiency find their whole web disarranged and destroyed before they have time to adapt, leaving them, and much of the city, to start over.
Frequently this turns into a backlash and the repeals are rolled back, exchanging one the new set of problems for the old one, but with a great deal already destroyed. Sometimes political will survives and a city eventually recovers. The problem is, there’s no good reason to endure these destructive shocks, as a thoughtful process of gradual change can obviate the most severe pain.
To offer a single, lightly researched proposal, a city council could announce the impending end of price controls several -let’s say five - years in advance and institute measures to make the change difficult to renege upon so that developers feel confident enough to take on the risk of new construction. Furthermore, after the first year, the percentage of annual increase allowed on existing leases will be relaxed somewhat to offer property owners the possibility of a return on investments in renovations as well as to allow them to signal to current tenants what to expect in the future while still leaving them time to adjust. Finally, the city should invest some of its own reserves in beefing up its infrastructure as well as those offices that handle development oversight so as to expedite the approvals process for new construction.
Even once a city has banished price controls in general, it still does have a legitimate interest in some price regulation, because the tight integration of a city creates many externality effects. Sudden spikes in demand for residency or office space ina certain area do occur, and a property owner is only intelligent to charge what the market can bear. However, since that property owner’s choice effects a large number of uninvolved parties, the most interests of the city, even in mere dollar terms and bracketing cultural/social goals, may diverge dramatically from those of the owner. Leaving aside the hardcore libertarian objections against state interference on property rights grounds, it would behoove the city to try to find a balanced way to mitigating the suddenness of changes without doing too much damage to the market’s ability to find equilibrium through price signals. Perhaps modest caps on rent increases - say 10% annually - would help. Exemptions from price increase caps for renovation are offered by many cities. I don’t know of any cities that cap the rents on new buildings, but the promise of being able to adjust rents easily to market conditions would eliminate most of the worst fears of potential property owners.
I’m sure better, more refined proposals crafted and debated by true experts would far outshine my invention, but I think it already shows a highly desirable middle ground between jarringly sudden reform and the status quo. It’s a specific member of the large set of long-standing imbalances that afflict our global situation, all of which should be rectified as quickly as we can. Or, if you will, as quickly as would be prudent.
Immigration , exchange rates, agricultural subsidies, NTBs, outsourcing, and a variety of other socio-economic issues all cry out for liberalization, but the ideological elegance of a world without them does not imply that sudden, full liberalization on those issues wouldn’t be worse than the status quo, at least for a good long while. Not only is the extended period of chaos and hardship in the offing unnecessary, it frequently engenders political regression that rolls back the liberalization well before it starts to pay off. Purism may be personally gratifying, but it’s not the way to approach policy change.
That’s why I register Libertarian every year but would not actually want a fully Libertarian government to take over suddenly. As the party currently exists, it tends to consist mainly of ideological extremists who rarely even pay lip service to the idea of graceful transition or that end states should be anything other than identical to the theoretical optimum of utopia. The real world has a variety of odd corners and awkward situations to which we cannot apply a one-size-fits-all solution without regard to the details.
And the oddest situation of all is the current accidental status-quo that is undesigned but nonetheless the result of a huge number of actors negotiating the best spot they can find in the bewildering network of interactions. Change must be applied informed by intelligence, detailed knowledge, and flexibility in addition to the theoretical elegance that attracts so many to libertarian principles. Above all, of course, we must have patience.
As they build up, of course, they start to get crowded. Rent prices in the better areas climb higher and higher as competition for limited space intensifies, which leads many well-meaning city councils to impose rent controls. Sometimes the reasoning is specifically socialist in nature, informed by a conviction that rents greater than X are exorbitant extortion. Other times the motives are somewhat more sophisticated - the city council may value neighborhood consistency and want to defend families from sudden inclines in rents caused by the positive externalities of surrounding development such as a major new park or completed cultural building. Still more thoughtful analysis will reveal large inefficiencies in an environment that forces frequent wholesale transplanting of the economically displaced.
The fact of the matter is, of course, that rent controls as they have usually been imposed quite simply discourage new building. Once imposed there becomes a more-or-less fixed amount of living space available in more-or-less fixed parcels. This increases the attractiveness of the living space relative to its price, inducing a predictable shortage. Now those who have found apartments hold on to them because they know they may not be able to find a new one and those without apartments either find a leaseholder to move in with or, more frequently, move to the suburbs. Flight to the suburbs in turn reduces the economy of scale for city services, increases transportation problems and destroys either farmland typically amongst the most productive or wilderness that once raised the value of city lands. Suburbanization also tends to reduce aggregate health, resource efficiencies and cultural engagement.
Even when rent controls don’t exist there still tends to be a lag between building and demand as well as a number of pressures encouraging suburban growth (cultural expectations chief amongst them), but they exacerbate those tendencies and as time goes on make things worse. The obvious solution to the damage caused by rent controls is to get rid of them.
Many cities do exactly that. The problem is, the sudden repeal of those measures does not imply a commensurate sudden growth in living space. Buildings take time to build - especially if city codes and similar legal barriers complicate the implementation of development plans. The bigger the building, the more time it’ll take (and typically, the more codes and oversight apply), and in an urban area the buildings tend to be pretty big. Years could go by before a building boom can catch up to the suddenly unleashed supply-demand equilibrium point, especially considering possible limitations credit agencies may want to place on lending to the construction sector in a localized area. Meanwhile, current owners of buildings can charge hugely inflated rents in the intervening period of constricted supply. Renters end up paying owners of dilapidated or even squalid properties the large premium supplied by the convenience of city infrastructure or have to pick up and leave. The character of districts, cultural nuclei, and the pattern of use of city services abruptly change as families move out of or into school districts, as they are replaced by single professionals, as restaurants and entertainment centers close down or relocate, and so on. Agents that had arranged a network of economic choices for greatest efficiency find their whole web disarranged and destroyed before they have time to adapt, leaving them, and much of the city, to start over.
Frequently this turns into a backlash and the repeals are rolled back, exchanging one the new set of problems for the old one, but with a great deal already destroyed. Sometimes political will survives and a city eventually recovers. The problem is, there’s no good reason to endure these destructive shocks, as a thoughtful process of gradual change can obviate the most severe pain.
To offer a single, lightly researched proposal, a city council could announce the impending end of price controls several -let’s say five - years in advance and institute measures to make the change difficult to renege upon so that developers feel confident enough to take on the risk of new construction. Furthermore, after the first year, the percentage of annual increase allowed on existing leases will be relaxed somewhat to offer property owners the possibility of a return on investments in renovations as well as to allow them to signal to current tenants what to expect in the future while still leaving them time to adjust. Finally, the city should invest some of its own reserves in beefing up its infrastructure as well as those offices that handle development oversight so as to expedite the approvals process for new construction.
Even once a city has banished price controls in general, it still does have a legitimate interest in some price regulation, because the tight integration of a city creates many externality effects. Sudden spikes in demand for residency or office space ina certain area do occur, and a property owner is only intelligent to charge what the market can bear. However, since that property owner’s choice effects a large number of uninvolved parties, the most interests of the city, even in mere dollar terms and bracketing cultural/social goals, may diverge dramatically from those of the owner. Leaving aside the hardcore libertarian objections against state interference on property rights grounds, it would behoove the city to try to find a balanced way to mitigating the suddenness of changes without doing too much damage to the market’s ability to find equilibrium through price signals. Perhaps modest caps on rent increases - say 10% annually - would help. Exemptions from price increase caps for renovation are offered by many cities. I don’t know of any cities that cap the rents on new buildings, but the promise of being able to adjust rents easily to market conditions would eliminate most of the worst fears of potential property owners.
I’m sure better, more refined proposals crafted and debated by true experts would far outshine my invention, but I think it already shows a highly desirable middle ground between jarringly sudden reform and the status quo. It’s a specific member of the large set of long-standing imbalances that afflict our global situation, all of which should be rectified as quickly as we can. Or, if you will, as quickly as would be prudent.
Immigration , exchange rates, agricultural subsidies, NTBs, outsourcing, and a variety of other socio-economic issues all cry out for liberalization, but the ideological elegance of a world without them does not imply that sudden, full liberalization on those issues wouldn’t be worse than the status quo, at least for a good long while. Not only is the extended period of chaos and hardship in the offing unnecessary, it frequently engenders political regression that rolls back the liberalization well before it starts to pay off. Purism may be personally gratifying, but it’s not the way to approach policy change.
That’s why I register Libertarian every year but would not actually want a fully Libertarian government to take over suddenly. As the party currently exists, it tends to consist mainly of ideological extremists who rarely even pay lip service to the idea of graceful transition or that end states should be anything other than identical to the theoretical optimum of utopia. The real world has a variety of odd corners and awkward situations to which we cannot apply a one-size-fits-all solution without regard to the details.
And the oddest situation of all is the current accidental status-quo that is undesigned but nonetheless the result of a huge number of actors negotiating the best spot they can find in the bewildering network of interactions. Change must be applied informed by intelligence, detailed knowledge, and flexibility in addition to the theoretical elegance that attracts so many to libertarian principles. Above all, of course, we must have patience.
0 Comments:
Post a Comment
<< Home