Rent Control: A Comprehensive Analysis

If you weren’t concerned about rent control before the recent election you may be feeling that concern now. There is no doubt that the proponents of the idea now feel that not only they won but their ideas won too. That remains to be seen. In order to be prepared for the onslaught of activism on the issue, we’ve written an analysis of rent control that covers the question of what it is (a price control), why it doesn’t work (it creates no new housing and removes existing housing from the market), and finally, what will work (more housing!). It is long and we’d appreciate it if you’d read it from beginning to end and let us know what you think. But more importantly, it should function as an arsenal against the many, many arguments fielded for this truly bad policy.

Sawant Wins, Chamber Loses. Now What?

Something told me not to write about the election last Tuesday or even Wednesday. It turned out to be the right move. Between the first ballot count on Tuesday night at 8PM and Friday night at about the same time, Kshama Sawant went from being behind by about 10 percentage points to winning the election with about 51.6 percent of the vote. What happened? What does it mean? What should you do next?

Sawant isn’t the problem

I’ve been saying for years now that Sawant isn’t the greatest threat to the business climate in Seattle. Any scan of the record will show that she’s been extraordinarily ineffective as a Councilmember. For example, she failed to gain support to implement $150 million tax on jobs. That proposal went nowhere. Or did it? What ended up happening was her colleagues on the Council and the Mayor ended up picking up the idea, cutting it to $75 million, passing the proposal, and then the Mayor signed it into law. Was Sawant to blame for the brief life of the “Head Tax?” It was her fellow Councilmembers and the supposedly business friendly Mayor that passed the measure.

And here’s something else to think about: now that millions were spent to remove her from office and it failed, does Sawant now have even more power? The answer is yes. 

The Chamber and business leaders failed

This brings me to the next point: in spite of the fact that other Councilmembers are to blame for harmful policies becoming law, the Chamber of Commerce and some business leaders downtown are obsessed with Sawant. This obsession arguably assured the election of Lisa Herbold 4 years ago. Then, like this year, business interests and Vulcan spent lots of cash trying to get a left leaning candidate to take out Sawant and failed. Meanwhile, Shannon Braddock lost to Herbold in District 1 by dozens of votes. Herbold is far more dangerous to development and growth that Sawant will ever be. Yet, the Chamber and other Sawant obsessed interests downtown and Vulcan spent huge with no success.

What’s the problem?

Take any 100 voters in Seattle and talk with them. Most of them will likely blame Amazon and jobs for something, whether its homelessness or the closing of Value Village. They’re angry, surly, and resentful. The bitterest folks in town are single-family homeowners who either want to tax homelessness out of existence, punishing Amazon and businesses and then pouring money into a failing system, or hope that someone will just put all those homeless people in jail. There’s not a lot of nuance here. Anyone who wants to win office in Seattle has to respond to this, and in this election the “tax it to death” crowd won.

This is not going to change by fielding people who aspire to office to walk into the buzz saw of all that resentment. As we saw with Egan Orion, candidates will end up mimicking whatever gets the biggest response, including supporting things like rent control. A candidate with a spine, who stands up the mob, will lose – every single time. Unless and until we can persuade those voters that while their frustration is justified, the answer is not more taxes, money, or enforcement but more housing. Throwing big money at weak and lightweight candidates like Orion only confirms the worst narrative told by lefties and socialists: business, developers, and Amazon control the city. Obviously they don’t.

What’s the answer?

I’ve outlined it already; it takes three steps. First, we need to build a strong and steady response to the bad narratives out there about growth and jobs. Jobs do not cause homelessness. New housing does not make all housing less affordable. Rent control won’t help anyone except a few lucky people in rent-controlled units.

Second, we’ve got to advocate for good ideas that are both efficient and compassionate, like cash for rent. We can’t just be against their ideas, or capitulate to paying bribes to ease permitting for specific projects or because somehow we can make it work. We need to hold the line on market-based solutions that aren’t about more money, but using the resources we have more efficiently and letting people who build housing do it without restraint of overregulation.

Third, we’ve got to figure out why people are so resentful toward Amazon, business, and new development and why they believe the notion of the single pie; when someone else’s slice is bigger, it’s because mine got smaller. People get the logic of baking more pies (or bread), but we’ve to find the right messages to switch that voice on in their heads so that it is louder than the “tax the rich” voice.

You need to invest in a different approach

You need to click on the button below and invest in something better. The approach I describe is not free. It’s going to cost money and take time. Let’s get started today.

Don’t Be Fooled: Rent Stabilization is Rent Control

Tomorrow 7 Seattle City Council seats are up for grabs. I already wrote last week about how the local, self-proclaimed, business community is supporting Egan Orion with hundreds of thousands of dollars even though Orion supports rent control. But wait. He doesn’t support rent control. Orion supports rent stabilization. Oh, stabilization. Got it. There’s a big difference, right. Well, no. Rent stabilization allows a landlord who has price controlled units to increase rents based on money she’s invested in improvements to the units or the buildings. But she still doesn’t get to set her own rent, that’s determined by the local government. Keep in mind, all rent control schemes conceive of rent increases, set by some local junta in charge of rents. Here’s a great explanation of rent stabilization from The Balance, small business blog:

Rent Stabilization Basics

• Place Limit on Amount of Rent That Can Be Charged
• Limit Percentage of Rent Increases
• Limit Frequency of Rent Increases
• Unit Must Meet Certain Habitability Standards
• Tenants Entitled to Lease Renewal
• Tenant Cannot Be Evicted Unless Breach Lease
• Tenant Can File Complaints Against Landlord

Let’s face it, rent control is a terrible idea. You can read why in the latest analysis we’ve produced at our rent control page where we highlight the document, Rent Control: More Politics, Less Housing. And it makes no sense to put support behind a candidate that is simply going to do what Kshama Sawant wants to do, unless you want it done by a young white man instead of Sawant.

The Orion Effect: When Business Won’t Defend Its Own Rational Interests

There is a scene in Monty Python’s Holy Grail that, sometimes, seems to be the story of my life. A King is trying to be sure his son follows through with an arranged marriage. The son, Herbert (or Alice) doesn’t want to go through with it. As the King is leaving, he gets two of his guards to keep an eye on the son. Should be simple enough, right? “Make sure the Prince doesn’t leave this room until I come and get ‘im.”

GUARD #1: Right. Oh, if-if-if, uh, if-if-if, uh, if-if-if we…
FATHER: Yes, what is it?
GUARD #1: Oh, if-if, oh–
FATHER: Look, it’s quite simple.
GUARD #1: Uh…
FATHER: You just stay here, and make sure ‘e doesn’t leave the room. All right?
GUARD #2: Hic!
FATHER: Right.
GUARD #1: Oh, I remember. Uh, can he leave the room with us?
FATHER: N- No no no. You just keep him in here, and make sure…
GUARD #1: Oh, yes, we’ll keep him in here, obviously. But if he had to leave and we were with him–
FATHER: No, no, just keep him in here…
GUARD #1: Until you, or anyone else…
FATHER: No, not anyone else, just me…
GUARD #1: Just you.
GUARD #2: Hic!
FATHER: Get back.
GUARD #1: Get back.
FATHER: Right?
GUARD #1: Right, we’ll stay here until you get back.
FATHER: And, uh, make sure he doesn’t leave.
GUARD #1: What?

You can watch the fun here:

So here I am, not far out from an election for the Seattle City Council and it should be simple. “Price controls are bad. They create inflation and, well, businesses always oppose price controls, especially rent control. Got it?”

No the Greater Seattle Chamber of Commerce and the front group People for Seattle can’t seem to understand this. Nor, I guess, can Vulcan. One of the things that characterizes these groups is their dislike of Councilmember Kshama Sawant. I think “dislike” is too weak a word. It’s more like an unhealthy obsession. And when Danny Westneat pointed out that not much will change in this election because the candidates are kind of a mix of the same left leaning people already there (something I agree with), here’s what Michael McIntyre of the Civic Alliance for a Sound Economy (CASE), the Chamber’s Political Action Committee said,

Our city government needs to get the basics right and be responsive to citizen concerns. Instead, this council has broken trust with voters and failed to make meaningful progress on too many critical issues.

Don’t let anyone fool you about this election – it will be a vote on change versus the status quo.

The people who should be concerned about backlash this election are those who stand with the status quo.

Right. Don’t be fooled! But someone is being fooled. Either CASE is, the voters are, or donors like Vulcan are. Because if you look at the CASE backed opponent of Sawant, Egan Orion, and mail he sent out to thousands of voters, he supports shelter as a “human right” and rent control, both things Sawant and her adherents support completely.

Yes, it’s right there. If you’re confused about what “shelter as a human right” means, the notion of housing or shelter being a human right is a leftist trope that is behind almost all efforts to undermine the rental housing market. I wrote about how that works at Forbes, but essentially it means private property owners’ rights to do what they want with their property — even their own home — is trumped by a renter’s or buyer’s “right” to shelter or housing. If a tenant doesn’t pay rent, too bad landlord, that person gets to stay there until they find another option.

And “stabilization” is followed in the same sentence in Orion’s mail with the words, “control rising rents.” It’s right there folks.

And here’s what Sawant’s mail says: “Don’t let corporate cash buy City Hall.” Then it cites a contribution by Vulcan of $155,000 to “stop rent control.” Check it out.

What’s going on here. You’ve got CASE saying, “Don’t be fooled,” but supporting a candidate that is going to support and, he says, “enact” something his opponent wants to impose as well, rent control. It doesn’t make any sense. And when I have pointed this out to Orion, Sawant, The Stranger, and the Seattle Times, not a single one of them has responded, although Westneat did reply that he didn’t think that Orion is a “clone” of Sawant. He most certainly is not: he’s a young white, gay, man. I guess that somehow makes rent control acceptable to Vulcan and CASE and business groups throwing money at him.

I suggested that Vulcan should ask for it’s money back since they don’t need to spend it here trying to “stop rent control” since, either way, both candidates are committed to it.

The world we live in is the world we want. And the local business community is led by people that genuinely feel guilty and bad about what they’re doing. Most don’t build, own, or manage rental property. They feel even worse about what you do if you are a developer, builder, or landlord. They think you’re probably doing something wrong. In the view of the Greater Seattle Chamber of Commerce advocating for business is offsetting your greed as a business owner with capitulation, bribes, and support for more intervention in your business operations, how you pay and schedule your workers, and how much money you make. They believe that doing all that will make them “good corporate citizens.”

Trying to explain this to people in the real estate business has me feeling a lot like the King who just wants his guards to do a simple thing, but they just don’t seem to get it. The Chamber and downtown interests are not friends of people who build and manage housing. They think you’re not paying your “fair share” (see the Chamber’s ad for Jenny Durkan). And when the time comes to impose rent control, the Chamber will be there nodding and saying, “Rent stabilization will help people who are struggling in our community. Hic!”

 

The Stranger: More Fun With Real Estate Conspiracy Theories

Last week, we got the jump on a really misleading “report” that, once again, somehow, a relatively small number of real estate transactions are distorting the entire housing market. The Stranger felt compelled to respond with a flailing post that mentions my name 8 times but really doesn’t show how around 1,600 units of expensive units can “worsen inequality.” I can just see the author, Charles Mudede reading the Seattle Times and hurling his copy of Discipline and Punish at his Karl Marx poster. “Roger Valdez knows next to nothing about economics!” Maybe I don’t. But I didn’t see anything to convince even an economic illiterate that some luxury apartments in town “worsen inequality.” The truth is that some otherwise really smart people have locked into the foreign buyer conspiracy explanation for why housing prices rise. It simply isn’t true.

The theory goes something like this: foreigners, especially Chinese people, have lots of ill gotten cash from graft or theft and in order to launder that money they are buying up real estate in Seattle and other “hot” real estate markets. As one commenter in The Stranger post asserts,

A property purchased in (for example) Seattle will be able to be sold and render US dollars to a noveau-riche person who had his Chinese bank accounts seized in a Communist Party crackdown on corruption (look up the corruption thing over there). They don’t care about rental income because they bought the thing outright, and it’s a pain to manage from afar.

But let’s look at one of Mudede’s strangest (it is The Stranger) paragraphs. The jumping off point for Mudede’s post was my quote in the Seattle Times story about the report: “It’s easy to imagine that there are millionaires lined up around the block waiting to buy high-rise condos. But the fact is that most of the builders in the city are building small and medium-sized apartments, houses and townhouses.”

The left (or real-world reasoning) is then forced to say dumb things like: Billionaires and their forms of consumption do effect all members of their society. Why? We must let the stupidity continue by stating what is right there in front of every nose: Because the value system that measures the rich is not different from that which measures the working and not-working poor. The wealth of the wealthy is dependent on the fact that wage earners agree that the value of those at the top, those who park their money in luxury condos and live on income from financial speculation, is valid. In the way that capitalism can’t survive without a belief in the value of the surplus extracted by socially necessary labor (the ultimate social contract, which is temporal); it can’t exist without an agreement that the value in the pockets of a person sleeping on the street is the exactly the same as that in Bezos’s bank account. You know this. I know this. We all know this. But Valdez wastes our fucking time by telling the public that there is no connection between luxury condos and the rest of the property market.

“Because the value system that measures the rich is not different from that which measures the working and not-working poor.” If I was grading this paper back in my days as a teaching assistant in graduate school, I’d have to write in the margin, “what does this mean?”

Mudede seems to be making the argument, best articulated in Capital, Volume I. Chapter 1: The Commodity, Section 4, The Fetishism of Commodities and the Secret Thereof, one of Marx’s best and most complex works. Marx’s notion is that,

The mode of production in which the product takes the form of a commodity, or is produced directly for exchange, is the most general and most embryonic form of bourgeois production . . . How long is it since economy discarded the physiocratic illusion, that rents grow out of the soil and not out of society.

I quoted this because it gets at the socialist idea that prices are not a reflection of supply and demand, but a construct of society. Hence the, “the value in the pockets of a person sleeping on the street is the exactly the same as that in Bezos’s bank account.” That value isn’t about the money its about where the person is sleeping and where Jeff Bezos is; price simply reenforces a social construct set by the powerful and through the exchange of money for things like a place to sleep and even setting a person’s worth in society.

I’m trying to help Mudede out. “You know this. I know this. We all know this,” Mudede says. Well, most people don’t have any theoretical concept of commodification. As I pointed out in my post linked above, most of the people stomping around mad about “luxury condos” don’t have the vaguest notion of Marx’s argument that the means of production when controlled by one group forces others without that means to sell their labor. That sale helps pay the bills, but it drains the life out of the seller. What’s worse, is that the deliberate commodification of things like housing, goes the theory, means that poor people are always struggling to stay ahead by selling the only thing they have, their very essence, their bodies and minds to generate cash to pay the rent.

I guess this what Mudede is somehow getting at.

But that’s just a guess. I suppose the fact (I’m pointing at the dog again) that some people can spend a million dollars on hundreds of square feet of apartment illustrates the idea that those square feet have value assigned by society, and that assignment of value means the person on the street will never have access to those square feet. How valuable is an apartment? The billionaires decide, and they’ve set such a high value on that square footage as to keep you poor.

Fine. And I’d even concede that part of what people will pay for an item, say a Rolex watch, is not about the utility of that thing, but its social value. But what  a market does is create the option for some people to buy a Rolex and for some to buy a watch at Target for $15. The very notion of a market is that people arrive there from all over with needs and assets. I need an orange. You have one. You need tomatoes. I have some. We exchange them and walk away, maybe, satisfied. If satisfaction isn’t achieved, we try again — and innovate if need be or find a different seller or seller.

As FA Hayek points out in The Road to Serfdom, “Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes we can turn to another” (page 96).

However, if my ability to produce those tomatoes is constrained, I have less to offer. If others in the market are limited by fines, fees, and the kinds of taxes Mudede supports to “fix” inequality, them our choices and our freedom evaporate.

When we allow more production, we eliminate scarcity and inflation and give the person on the street more buying power. That’s how we solve housing disparity. Mudede fails to show how the luxury condos do anything other than make some people resentful at the extravagance, certainly not how, quantitatively, their existence hurts anyone.

The odd thing about these theories is that they rely on the notion of supply and demand. This is truly the demise of the argument about luxury condos,  especially when the argument is made by doctrinaire socialists who claim there is no supply and demand, just social constructs. The reason that the socialist might offer as the link between the condos and the price of an apartment on Capitol Hill is that, wait for it, the foreigners leave those units vacant. That, they say, leaves more and more apartments in town empty, reducing the supply and then prices go up. That assumes, again, an odd behavior for people smart enough to make hundreds of millions of dollars: buying up things then emptying them out and leaving them vacant. This simply isn’t happening, and if it was happening, as I have pointed out before, many thousands, like tens of thousands, of units would have to be purchased, vacated and abandoned for us to feel it. But worse for the socialist is that the argument about creating vacancies as a ploy to push up value by decreasing supply fundamentally, and fatally, wounds their argument that value is a social construct; they’re admitting the truth of price being the quantitive measure of supply and demand. And that, the lack of supply in the face of rising demand, is why prices go up

And every time my name gets mentioned in The Stranger, 100 units are, purchased, vacated, and abandoned by shadowy foreigners in the city. I don’t think Charles knows that.