Rent Is Too Damn High Guy Increasing Rent For Others Because His Rent Is Too Damn Low

from the how-markets-function dept

Fri, Aug 5th 2011 4:28pm — Mike Masnick

Lots of people got a kick out of the "rent is too damn high" guy, Jimmy McMillan, running for governor of New York last year. He certainly was entertaining. However, it appears that McMillan's own rent may be too damn low... meaning that he's a part of the damn reason that the rent is too damn high in New York. It turns out that McMillan's landlords are trying to evict him from his rent controlled East Village apartment for which he pays $872.96 a month. That's crazy cheap for an apartment in the East Village. What he doesn't seem to recognize is that when the laws keep the rent on certain properties artificially low compared to the market, that's a huge part of the reason why "the rent is too damn high" for everyone else. If McMillan really wanted to lower the rent, he'd work to get rid of widespread rent control, as that would help drive down the prices of rent in certain areas.

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Filed Under: economics, jimmy mcmillan, rent, rent is too damn high

39 Comments

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A Guy, 5 Aug 2011 @ 4:35pm

Given the market, I would bet that the opposite would happen. A slew of new construction/renovation projects would start to develop the newly more profitable properties and drive the poor/middle class people farther into the suburbs.

That may be a good thing or a bad thing depending on your point of view, but I believe the economic analysis of the New York area is off
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Sir Francis Burdett, 5 Aug 2011 @ 4:39pm

And McMillan is regrettably antisemitic
Mr. Masnick's comments on NYC rent control are quite obviously true.

Without doubt.

Andd it has bothered me somewhat to see Mr. McMillan saluted as a harmless old eccentric.

He has a shameful history of animus directed at the Jewish people.

http://www.theatlanticwire.com/politics/2010/10/why-rent-is-too-damn-high-candidate-will-never-b e-governor/22592/

"The New York Times reports that McMillan "was called an anti-Semite during his mayoral run in 2005 for blaming rent problems on Jewish people." Athima Chansanchai at MSNBC goes into more detail, reprinting material, supposedly from a Web site McMillan maintained in 2009, claiming that "every religious group other than Judiasm are being run out" of Williamsburg, Brooklyn. "If you are not JEWISH you are 'PROHIBITED' from living in this area," the material reads. "After the world fought hard to free the JEWISH people from the hands of HITLER. They should be shame of themselves for discriminating in housing against the people in the State of New York especially in the city of Brooklyn.""
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Nick Taylor, 5 Aug 2011 @ 4:48pm

You're assuming that "market forces are an act of nature, and must be left alone"... which is a convenient untruth foisted on you by those that benefit from it. See... you're doing it now. You're arguing on behalf of the wealthy, against the poor. This American chearleading of inequality is probably going to cost you your country.

As to rent... actually, it would be better to regulate the entire thing* so that one class of people can't have another class of people over a barrel because they're making them pay for something they can't live without.

* I won't call it an "industry", because they don't actually produce anything... it's all based on getting something for nothing.
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Anonymous Coward, 5 Aug 2011 @ 4:49pm

Rent control should, actually, be instituted throughout the US. Again, the "market" is a terrible way of deciding what people should pay. It forces the impoverished and lower working class into bad neighborhoods that are separated from their jobs by distance. It functionally makes moving cost prohibitive, and frankly, American quality standards are ridiculously low for apartments. The rent is too damn high and it's not rent control's fault. It's the magical market that jacks those prices up.
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Karl (profile), 5 Aug 2011 @ 5:00pm

Untrue
he'd work to get rid of widespread rent control, as that would help drive down the prices of rent in certain areas.

I can say with certainty that this is not true. It was one of the reasons rent control was abolished in Cambridge. What happened after that? Rent increased throughout the city. In some areas it doubled within a year. There was not one neighborhood where rent decreased.
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Anonymous Coward, 5 Aug 2011 @ 5:06pm

Re:
"A slew of new construction/renovation projects would start to develop the newly more profitable properties"

Obviously, this increase in supply would drive prices up!! It's just simple economics!
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Anonymous Coward, 5 Aug 2011 @ 5:06pm

Damn!
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A Guy, 5 Aug 2011 @ 5:12pm

Re: Re:
I think you underestimate the demand in the NY area, or you are being purposefully disingenuous.
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Killercool (profile), 5 Aug 2011 @ 5:12pm

Re:
Now, tell me. Do landlords have lower classes over a barrel by making them pay for something they can't live without, or are they making money based on getting something for nothing?

Either they are being reimbursed for a much needed service (you can live in the house I own if you give me money for the use), or there is no such thing "wear and tear" as well as use of facilities should be rent-free (yeah, that was on purpose).
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Killercool (profile), 5 Aug 2011 @ 5:16pm

Re:
Those expensive places to live are more expensive because of the conveniences associated with living there, i.e. the area is pretty, the houses are really fancy, it's close to most people's jobs, etc.
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Anonymous Coward, 5 Aug 2011 @ 5:23pm

Less rent control or elimination of rent control would absolutely not lower rent in other ares of New York. The rent controlled areas would simply be raised to the cost of non-rent controlled properties. Your assertion is incorrect.
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minijedimaster (profile), 5 Aug 2011 @ 5:48pm

Re:
Well if what you're expecting is for an instantaneous drop in rent once the controls are gone then yea, you'd be sorely disappointed.

What would actually happen if the controls were gone is rent would immediately go up. All those eViL rich landlords getting greedy and all. Then once everyone left because they couldn't afford to live there anymore the landlords would slowly come to the realization that something is better than nothing and drop the rent prices back to more sane/affordable levels.

So no, it's not an instant realization of dropping rent prices, but after some time rent prices would eventually start to drop below where they started in the first place.
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faceless (profile), 5 Aug 2011 @ 5:49pm

no rent control? in NYC? MADNESS!!!
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Anonymous Coward, 5 Aug 2011 @ 5:53pm

There is lot of dumb in this post's comments. If I had a real keyboard I'd enlighten those of you who seem to have little or no understanding of basic economics. Alas, I'll leave the rebuttal to Mike or others.
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Kaden (profile), 5 Aug 2011 @ 5:54pm

Re: Re:
That's actually the exact opposite of how supply and demand works.

It's honestly getting hard to tell the legitimate shills from the lulz shills. It's a pretty brilliant method of marginalizing salaried contrarians.
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Jesse Townley (profile), 5 Aug 2011 @ 6:00pm

Rent Control... a bit far off the beaten path for Tech Dirt...
Among other things, I am an elected member of the Berkeley Rent Board.

When California passed vacancy decontrol in the late 1990s (this said that historically low rents stopped when a new tenant moved in, removing the low base rent that apartments previously started from), rents shot up. Since 1998, when a tenant moves out of a unit w/ "historically low rent" the property owner can now charge "market rate," whatever that may be.

(All future rent increases are regulated [based on the CPI], tenants are protected against unjust eviction, and all other protections of rent control are in place)

In California's case, the addition of more rental units didn't make rents fall, due to the desirability of the area- just like in NYC.

If people have specific questions or have an interest in many in-depth analyses of rent control and its effects on social, economic, ethnic diversity, head on over to the Berkeley Rent Board site. We've got many programs that protect law-abiding tenants and landlords, and provide counseling and a mediation process.

Main page:
http://www.ci.berkeley.ca.us/DepartmentHome.aspx?id=9546

Research reports:
http://www.ci.berkeley.ca.us/ContentDisplay.aspx?id=53400
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Jesse Townley (profile), 5 Aug 2011 @ 6:20pm

Re: Re:
Actually, no. The amount of units in NYC, or at least the "desirable" boroughs of Manhattan and Brooklyn, would quickly be filled by well-off people from elsewhere who want a NYC address. Even when you add rent-control apartments to the mix, the supply is so limited that there's no negative effect on overall rent.

[For instance, here in Berkeley there is a seemingly endless supply of well-off out-of-state students whose parents are willing to pay big $ for little Johnny & Judy to have a sweet studio apartment for $2000/month (above market).]

The rent'll just keep going up. The question, which isn't what I've been reading in these comments or in the original post, is if the INCREASE in rents is slightly slowed by such releases of rent-controlled units into the market.

Even if this is the case, please note that everyone's rent in a market with limited supply still increases, just not as fast as usual. No one's rent decreases unless there is a massive bubble that bursts or there is a reason that the area becomes much less desirable (say, the Black Plague hits Manhattan).

Out here, rents cooled off when the housing bubble burst, but only backed down a few tens of dollars. Example: A studio that was $600 in 1995 hit $1300 by 2005 and backed down to $1200 in 2009.
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Anonymous Coward, 5 Aug 2011 @ 6:27pm

All those states that regulate what the power companies can charge for electricity are obviously the cause of high prices for electricity in states with no regulations on power companies whatsoever. The solution is for all the states with such regulations to repeal them immediately, which will result in an immediate drop in electricityt prices in the other states.

With respect, Mike, your 'logic' is absolutely DAFT.
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Nraddin, 5 Aug 2011 @ 6:49pm

Rent control makes the rent high?
How do you see this as happening? I am not sure how you even make that leap. Please explain it step by step.
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Anonymous Coward, 5 Aug 2011 @ 6:50pm

Re: Re: Re:
"salaried contrarians"

I hope you don't really believe that.
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Kaden (profile), 5 Aug 2011 @ 6:57pm

Re: Re: Re: Re:
You mean you do this as a hobby? Seek professional help, dude; your folks are probably worried sick about you.
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Anonymous Coward, 5 Aug 2011 @ 8:07pm

Re: Rent control makes the rent high?
Maybe you should look it up on Wikipedia. That should cover the basics like 'how you make that leap.'
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Hephaestus (profile), 5 Aug 2011 @ 8:59pm

Re: Re: Re:
I think you underestimate the demand in the NY area, or you are being purposefully disingenuous.

He is not disingenuous, and he is probably echoing Nina Paley's voice here. Truth be told, having lived in Manhattan and Queens, between rent control, co-op's, and the NYC government, and transportation time and cost, the rent situation is a mess. People can not move away. They are stuck where they live, the slowness of the subway and train system leading into the city, and the cost of getting there, makes moving outside the city a non option.

Like every large city you have monopoly rents being applied, due to time of transport, cost of travel, and just being able to.
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Karl (profile), 5 Aug 2011 @ 11:25pm

Re: Re:
This is absolutely not what has happened in Boston, where I live and pay rent.

In fact, the elimination of rent control makes rents go up. And not by a little.

It's not hard to see why, even from a classic economics perspective. Rent control forces the market to compete with those rent-controlled prices; in a sense, they are forced to "compete with free."

Now, take that away. They are no longer forced to compete with (artificially lowered) prices; they can therefore charge whatever they like, competing only with other players in the market, who also can charge whatever they like (since the demand far outweighs the supply).

The natural result is that, since they don't have to compete with "free," they will raise their prices. And everyone else will do the same.

And that's exactly what happened in Boston, and in every other city where rent control was abolished. The market did not have to compete with (artificially lowered) prices - so rent went up. Astronomically. Those people who owned property just got richer, and renters paid more for the same property. It was (and is) a slum-lord's paradise.
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Anonymous Coward, 6 Aug 2011 @ 5:32am

Almost everyone here should read this, especially the arguments for and against section. It's one thing to disagree with the premise that removing rent controls would reduce rents and/or improve the quality of housing. It's another to presume that this position makes no sense when it is the majority opinion of economists both liberal and conservative. There are some pretty reasonable arguments for rent control that one could argue but "common sense" or saying the other side is "nonsense" or that your position is "obvious" are not among them.
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Anonymous Coward, 6 Aug 2011 @ 5:58am

Re: Re: Re:
"It's not hard to see why, even from a classic economics perspective. Rent control forces the market to compete with those rent-controlled prices; in a sense, they are forced to "compete with free.""

This simply is not true. Rent controls reduce competition over non-controlled apartments and drive rents on non-controlled properties up. The market does not have to compete with rent controlled apartments at all unless the controls are not actually low enough to be a price ceiling in the first place.

I think we can all agree demand is super high in areas like this, meaning removing a bunch of people from the market via the rent control 'lottery' is not going to shift the demand curve much, if at all. So all that is left is a reduction in units being offered, so the supply curve shifts to the left. So, with rent control, the equilibrium point is not at a higher price and lower quantity of units than before. It may very well be that, if all units in the are were averaged together, the rents would be lower than before but whats really happening is that the rents in non-rent controlled apartments are subsidizing the rent controlled apartments

So why not just do this directly for the people that need it? Rent controls have a number of serious externalities the full measure of which is hard to capture like reducing the quality if housing, among others. If eligible rentors were given suplements for their rent instead of controlling the price many of these would go away. The primary result, rent controlled rentors are subsidized by non-rent controlled rentors, would be the same.
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Anonymous Coward, 6 Aug 2011 @ 7:30am

Rent control is a wonderful idea, the abuse of rent control is not. People sneaking other, younger family members in to their rental unit and onto their rental contracts, so that when they die, the younger family member can "inherit" the low rent is insane.

The abuses of the system make the system hard to work with.

It also contributes to the slow turnover of property in New York, and explains why much of the rental stock in the city is crap. There is little economic incentive to build new properties, knowing that your renters will keep the current rents (plus the small annual adjustment) for as long as they stay there, impairing the market value of the property in the future (which is based mostly on average revenue per door). Today's rents might be high, but 20 years from now, many of them will be too cheap for a new owner to be able to justify a market price for the building, and will make it impossible for them to finance it.

Something in here failed.
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Jesse (profile), 6 Aug 2011 @ 7:50am

Free market is not the answer to everything. Vancouver does not have rent controlled buildings, I believe, and our housing is the most expensive in Canada.
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Jesse (profile), 6 Aug 2011 @ 7:53am

Also, can you explain how keeping the rent low on one property makes it higher on other properties? Unless it's owned by the same business and they are trying to compensate, why would it have that effect?

There is an overabundance of people who want to live in New York. It seems like even if this rent was not controlled, prices would continue to rise.
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AW (profile), 6 Aug 2011 @ 12:22pm

Re: Re:
Conveniences? I have to live over an hour from any jobs just to be able to afford to live. There aren't enough jobs to go around and raising prices on the poor isn't going to give them homes. It's not like they'd be able to afford houses without the jobs that the cities provide. Apartments ARE too expensive, comparative to houses they have gone up in value not down. More homeless? Raise apartment prices.
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Chargone (profile), 7 Aug 2011 @ 3:36am

Re:
are these liberal and conservative economists basising their logic on the MASSIVELY FLAWED thinking that economics has been based on for the last couple of centuries or so? (may have changed in the last decade for all i know, of course, so i'm dubious to call it 'modern' and while it may properly be called 'classical', that invokes an irrelivant era)

because appeal to authority doesn't work when the authority is incompetent, which is Generally the case when such economics is applied to reality in any significant way beyond record keeping.

(which doesn't say much one way or the other about rent control, admittedly, but i do fail to see how in an environment with limited supply and ever increasing demand, Any action other than artificial restrictions from an outside source can prevent a consistent rise in price overall.)
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Abdurahman, 7 Aug 2011 @ 7:20pm

You are absolutely wrong Mr. Masnick. We need rent control, because without rent control prices would skyrocket everywhere, there is no incentive to decrease it.
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Mike Masnick (profile), 8 Aug 2011 @ 12:02am

Re:
You are absolutely wrong Mr. Masnick. We need rent control, because without rent control prices would skyrocket everywhere, there is no incentive to decrease it

Ah. People who don't understand economics. How sad.
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Anonymous Coward, 8 Aug 2011 @ 3:58am

Re: Re:
At least you could have made an attempt to explain why you think that removing rent controls would lower rents. A link to studies showing that this was indeed the case would have been even better, you know, to show that there was substance to your claims.

As it is, all you seem to have it's a little quip and that is really sad.
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Mike Masnick (profile), 8 Aug 2011 @ 4:05am

Re: Re: Re:
At least you could have made an attempt to explain why you think that removing rent controls would lower rents

Removing rent controls allows the market to function properly. It increases the overall supply, since you have more mobility (with rent control, people never want to give up their places), and with greater supply, price drops.

I was responding mainly to the guy who claimed that "there is no incentive to decrease" the rent. That's obviously false. If people have more options and there's competition, then there are clear incentives to lower the rent.

Now some have argued, reasonably, that in places of super high demand, the impact may not be as noticeable (or it may simply result in a slower increase in rent prices). But it defies basic economics to think that an artificial restriction on rent prices doesn't limit supply and increase price for everyone else.
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Anonymous Coward, 8 Aug 2011 @ 11:43am

Re: Re: Re: Re:
Personally I feel that there is also an under-serviced market. I don't need great views right out of my abode when there are good parks and possibly even roof-top gardens to enjoy. What I would rather have are giant buildings with indoor atrium/greenhouse style designs and apartments that face /inside/. Of course we'd have to have multi-block sized buildings for this to be feasible.
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Econ Demon, 8 Aug 2011 @ 12:12pm

Econ 101
Looks like some of the commenters here could use a lil bit of Econ 101. If you control prices, what incentive do producers have to create new supply? All you're doing with rent control is creating shortages. Why, that would be like putting price controls on gas! Oh wait, they did that in the 70s and it failed. It's not market fundamentalism, it's market fundamentals. (PSSST besides: it's none of your business what a renter charges a tenant.)
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Anonymous Coward, 8 Aug 2011 @ 11:57pm

Re: Re: Re: Re:
This reminds me of one of my lecturers who used to admit that the physics he was teaching applied to such a constrained set of circumstances that he may as well not bother.

Same thing applies here. By the time you finish with all the assumptions, you'll realize that basic economic theory is exactly like the linear mechanics that physics undergrads get taught in the first year.

In theory, there is no difference between practice and theory. In practice, there is.
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Andy H, 9 Aug 2011 @ 12:29pm

that's not how money actually works
I won't bother coming to the defence of a crazy ol' antisemite, but your economics is pop garbage, simply put. Even if rental space were a commodity, which it could be argued to be, price fixing would be accomplished by seizing a majority share of the commodity and over-charging for said commodity. That's why diamonds are so expensive. Artificial demand. I suppose that one can assume that if someone owns a building with majority rent controlled units and another building without that the owner might steep rent where he/she could in order to make a good profit. However entire neighborhoods of buildings are still owned by small family businesses that have just one building, which is usually rent controlled. If you want to advocate an end to rc, that might be a more sound argument. But to labor other posters points, rent control protects and promotes economic.diversity. Imagine your food costs if every corner store employee had to commute 4 hours a day!
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