WEBVTT 00:00:00.000 --> 00:00:02.100 Welcome back to the deep dive. You know, there's 00:00:02.100 --> 00:00:04.580 a specific feeling, I think we've all felt it, 00:00:04.660 --> 00:00:07.179 where you open that envelope or check that portal 00:00:07.179 --> 00:00:09.300 on the first of the month. Oh, yeah. It's that 00:00:09.300 --> 00:00:11.439 tightness in your chest when you see the number 00:00:11.439 --> 00:00:13.380 that takes the biggest bite out of your paycheck. 00:00:14.099 --> 00:00:17.500 Rent. It is the universal pain point, isn't it? 00:00:17.500 --> 00:00:19.699 It sits right at that uncomfortable intersection 00:00:19.699 --> 00:00:25.600 of a basic human necessity. You know, having 00:00:25.600 --> 00:00:28.920 a roof over your head and the brutal, often cold 00:00:28.920 --> 00:00:31.780 efficiency of market forces. And because it's 00:00:31.780 --> 00:00:34.619 so emotional, it's arguably the topic that generates 00:00:34.619 --> 00:00:37.240 the most heat at dinner parties, in city council 00:00:37.240 --> 00:00:39.500 meetings, and definitely in the comment sections 00:00:39.500 --> 00:00:41.560 of the Internet. Oh, especially there. We are 00:00:41.560 --> 00:00:43.920 talking, of course, about rent regulation. We 00:00:43.920 --> 00:00:45.759 are. And I'm glad we're doing this deep dive 00:00:45.759 --> 00:00:48.159 because the public conversation on this is usually, 00:00:48.280 --> 00:00:50.899 well, it's usually a shouting match. It's so 00:00:50.899 --> 00:00:53.520 binary. You're either for protecting the vulnerable 00:00:53.520 --> 00:00:56.200 or you're for greedy landlords. There's no middle 00:00:56.200 --> 00:00:59.100 ground. Exactly. But looking at the stack of 00:00:59.100 --> 00:01:01.920 research, the history and the economic data we 00:01:01.920 --> 00:01:04.920 have here, the reality is so much messier and 00:01:04.920 --> 00:01:07.540 frankly fascinating. Right. It's not just a battle 00:01:07.540 --> 00:01:10.489 between a tenant and a landlord. It's a story 00:01:10.489 --> 00:01:13.469 about how cities survive, how history creates 00:01:13.469 --> 00:01:16.750 policy traps, and the absolute brutality of the 00:01:16.750 --> 00:01:20.030 law of unintended consequences. So our mission 00:01:20.030 --> 00:01:22.870 today is to step out of the shouting match. We 00:01:22.870 --> 00:01:26.200 want to understand the machine itself. The mechanics 00:01:26.200 --> 00:01:28.819 of it. Exactly. The mechanics of how these laws 00:01:28.819 --> 00:01:31.859 work, why the economic consensus is so overwhelmingly 00:01:31.859 --> 00:01:34.159 negative, where that consensus gets challenged, 00:01:34.359 --> 00:01:36.799 and then take a global tour from the Vatican 00:01:36.799 --> 00:01:40.040 in the 1400s to the crumbling facades of modern 00:01:40.040 --> 00:01:42.560 Cairo. It's going to be a wild ride. Before we 00:01:42.560 --> 00:01:45.299 get to the economic brawls and the history lessons, 00:01:45.480 --> 00:01:47.319 though, we have to do some housekeeping on the 00:01:47.319 --> 00:01:49.599 definitions. Yes, definitely. Because I think 00:01:49.599 --> 00:01:51.819 when I say rent control, most people have a very 00:01:51.819 --> 00:01:53.980 specific image in their heads. They do. They 00:01:53.980 --> 00:01:56.659 usually think of the French. apartment, a massive, 00:01:56.659 --> 00:01:59.200 beautiful loft in the West Village that costs, 00:01:59.340 --> 00:02:02.439 what, $300 a month because the lease was signed 00:02:02.439 --> 00:02:05.819 in 1975 and the price is frozen in a block of 00:02:05.819 --> 00:02:07.859 ice. Right. The frozen price tag. That's the 00:02:07.859 --> 00:02:10.659 mental model. That is definitely one type. But 00:02:10.659 --> 00:02:14.219 rent control is actually a sloppy term. In the 00:02:14.219 --> 00:02:16.840 literature, the accurate umbrella term is rent 00:02:16.840 --> 00:02:20.520 regulation. OK. And under that umbrella, the 00:02:20.520 --> 00:02:22.659 government has a few different levers they can 00:02:22.659 --> 00:02:25.180 pull. It's not just one thing. Okay, lay out 00:02:25.180 --> 00:02:27.500 the toolkit for us. What are we talking about 00:02:27.500 --> 00:02:30.460 here? The first lever is obviously price controls. 00:02:30.740 --> 00:02:33.319 That's the limit on what a landlord can charge. 00:02:33.500 --> 00:02:35.460 That's what we usually focus on. Oh, a cap? The 00:02:35.460 --> 00:02:38.039 cap, exactly. But you can't really have price 00:02:38.039 --> 00:02:41.180 controls without the second lever, eviction controls. 00:02:41.580 --> 00:02:44.039 Which is also called just cause eviction. Correct. 00:02:44.219 --> 00:02:47.199 Think about it. If I tell you, you can't raise 00:02:47.199 --> 00:02:50.039 the rent on John, but I don't stop you from evicting 00:02:50.039 --> 00:02:52.300 John, what are you going to do? I'm going to 00:02:52.300 --> 00:02:54.080 evict John immediately and bring in Steve at 00:02:54.080 --> 00:02:56.000 a higher price. It's a no -brainer. Exactly. 00:02:56.020 --> 00:02:57.719 So the government has to step in and say, no, 00:02:57.780 --> 00:03:01.419 you can only evict John for a legally valid reason. 00:03:01.560 --> 00:03:04.759 Right. Like nonpayment or destroying the property. 00:03:05.020 --> 00:03:07.860 You lose the right to end the tenancy at will. 00:03:08.500 --> 00:03:10.259 Okay. So you have to have a reason. You have 00:03:10.259 --> 00:03:11.919 to have a reason. Then you have the third lever, 00:03:12.099 --> 00:03:14.560 maintenance obligations. Because if I can't raise 00:03:14.560 --> 00:03:16.439 the rent, I'm probably not going to fix the boiler. 00:03:16.939 --> 00:03:19.650 Precisely. You have no incentive to. So the state 00:03:19.650 --> 00:03:21.689 has to mandate that the roof doesn't leak and 00:03:21.689 --> 00:03:24.490 the heat works. Which makes sense. And finally, 00:03:24.509 --> 00:03:28.949 you need oversight, a board or an ombudsman to 00:03:28.949 --> 00:03:31.250 enforce all this. So someone has to police it. 00:03:31.330 --> 00:03:33.289 Someone has to police it. It's a package deal. 00:03:33.349 --> 00:03:34.909 You pull one lever, you have to pull them all. 00:03:34.990 --> 00:03:38.050 It's an ecosystem. But within that price control 00:03:38.050 --> 00:03:41.389 lever, the research makes a really big deal about. 00:03:41.939 --> 00:03:44.599 generations of control. This feels like an important 00:03:44.599 --> 00:03:46.560 distinction because I think people often argue 00:03:46.560 --> 00:03:49.319 about the wrong one. It is vital. If you confuse 00:03:49.319 --> 00:03:51.840 these, you confuse the whole debate. First generation 00:03:51.840 --> 00:03:54.580 rent control is what economists call strict price 00:03:54.580 --> 00:03:57.860 ceilings or a rent freeze. That's the block of 00:03:57.860 --> 00:04:00.139 ice, the friend's apartment. Yes. The government 00:04:00.139 --> 00:04:03.460 says rent is X dollars and it stays X dollars. 00:04:03.580 --> 00:04:06.659 No increase is allowed or maybe very tiny ones 00:04:06.659 --> 00:04:09.330 that don't keep up with inflation. This is what 00:04:09.330 --> 00:04:11.870 we saw in wartime scenarios or in places like 00:04:11.870 --> 00:04:14.110 Egypt, which we will get into later. And this 00:04:14.110 --> 00:04:17.490 is pretty rare now, in the modern Western world 00:04:17.490 --> 00:04:20.129 at least. Very rare. It's seen as a kind of nuclear 00:04:20.129 --> 00:04:22.569 option. Okay, so if first gen is the freeze, 00:04:22.930 --> 00:04:24.850 what is second gen? Because that's what most 00:04:24.850 --> 00:04:26.870 cities have now, right? Right. Second generation 00:04:26.870 --> 00:04:29.230 is technically called tenancy, rent control, 00:04:29.389 --> 00:04:32.810 or vacancy decontrol. Break that down. Vacancy 00:04:32.810 --> 00:04:35.350 decontrol. It means the control is on the tenancy, 00:04:35.370 --> 00:04:38.079 not the unit. While you are living there, the 00:04:38.079 --> 00:04:40.860 rent increases are capped, maybe at inflation, 00:04:40.980 --> 00:04:46.100 or 2 -3%. You are protected. Okay, that sounds 00:04:46.100 --> 00:04:48.600 pretty standard. But, and this is the massive 00:04:48.600 --> 00:04:51.759 but, the moment you move out, the unit is decontrolled. 00:04:51.899 --> 00:04:54.379 The landlord can reset the price to whatever 00:04:54.379 --> 00:04:56.540 the market will pay for the next guy. Exactly. 00:04:56.540 --> 00:04:59.639 The price snaps back to reality. Or... you know, 00:04:59.680 --> 00:05:01.420 what the market calls reality. And is there a 00:05:01.420 --> 00:05:03.139 middle ground, something between a hard freeze 00:05:03.139 --> 00:05:05.860 and a total reset? There is. It's called vacancy 00:05:05.860 --> 00:05:08.920 control without the D. Oh. That's where the price 00:05:08.920 --> 00:05:12.060 is regulated, even between tenants. If you leave, 00:05:12.240 --> 00:05:15.240 the landlord can only charge the new guy roughly 00:05:15.240 --> 00:05:17.879 what you were paying. Maybe a small bump, but 00:05:17.879 --> 00:05:21.259 not a reset to market rate. So to recap, first 00:05:21.259 --> 00:05:24.339 gen is a total freeze. The price is locked. Second 00:05:24.339 --> 00:05:26.720 gen vacancy decontrol protects the current tenant, 00:05:26.779 --> 00:05:29.100 but resets for the new one. And vacancy control 00:05:29.100 --> 00:05:31.120 tries to keep the price low for the new tenant, 00:05:31.160 --> 00:05:33.740 too. You've got it. And the reason this matters 00:05:33.740 --> 00:05:36.680 so much and why we're spending time on it is 00:05:36.680 --> 00:05:38.980 that the economic incentives for the landlord 00:05:38.980 --> 00:05:41.699 change drastically depending on which system 00:05:41.699 --> 00:05:43.980 you're in. Which is the perfect segue. Let's 00:05:43.980 --> 00:05:46.399 walk onto the battlefield then. Section one, 00:05:46.540 --> 00:05:49.540 the economic battlefield. You brought up something 00:05:49.540 --> 00:05:51.220 right away in the notes, the elephant in the 00:05:51.220 --> 00:05:54.319 room. There is a stereotype that economists hate 00:05:54.319 --> 00:05:57.240 rent control. Is that just a stereotype or is 00:05:57.240 --> 00:05:59.699 it reality? It is one of the few things in the 00:05:59.699 --> 00:06:01.660 social sciences that approaches a law of nature. 00:06:01.899 --> 00:06:04.800 If you look at the data, the consensus is overwhelming. 00:06:05.000 --> 00:06:06.980 It's actually staggering how much agreement there 00:06:06.980 --> 00:06:08.540 is. Give me the numbers. Well, there was a famous 00:06:08.540 --> 00:06:12.360 stratified random survey of 464 U .S. economists 00:06:12.360 --> 00:06:15.319 back in 1992. Okay. These were members of the 00:06:15.319 --> 00:06:17.800 American Economic Association, graduate students, 00:06:18.000 --> 00:06:20.519 serious people. They were asked about the statement, 00:06:20.740 --> 00:06:24.139 a ceiling on rents reduces the quantity and quality 00:06:24.139 --> 00:06:25.959 of housing available. And what was the verdict? 00:06:26.589 --> 00:06:30.569 93 % agreed. 93%. You can't get 93 % of people 00:06:30.569 --> 00:06:33.129 to agree that the sky is blue. I know. In the 00:06:33.129 --> 00:06:35.029 world of economics where people argue about everything, 00:06:35.189 --> 00:06:37.430 that is essentially unanimity. Has that number 00:06:37.430 --> 00:06:40.009 changed at all? I mean, 1992 was a while ago. 00:06:40.110 --> 00:06:43.170 It really hasn't softened over time. A 2009 review 00:06:43.170 --> 00:06:45.810 by Blair Jenkins looked at decades of literature 00:06:45.810 --> 00:06:48.389 and concluded, quote, the economics profession 00:06:48.389 --> 00:06:52.269 has reached a rare consensus. Rent control creates 00:06:52.269 --> 00:06:54.899 many more problems than it solves. Creates more 00:06:54.899 --> 00:06:57.220 problems than it solves. That is damning. It's 00:06:57.220 --> 00:06:58.800 about as direct as you can get in an academic 00:06:58.800 --> 00:07:01.839 paper. So walk us through the mechanism of failure 00:07:01.839 --> 00:07:03.839 here. Why does it break things? We're not just 00:07:03.839 --> 00:07:05.779 talking about landlords making less money. I'm 00:07:05.779 --> 00:07:08.180 sure there are plenty of listeners playing the 00:07:08.180 --> 00:07:10.139 world's smallest violin for the landlords right 00:07:10.139 --> 00:07:12.339 now. Sure. And that's a fair emotional response. 00:07:13.060 --> 00:07:15.000 But we have to look at the behavioral response. 00:07:15.279 --> 00:07:18.060 It goes back to basic supply and demand. If you 00:07:18.060 --> 00:07:20.949 cap the price of a good... in this case, an apartment 00:07:20.949 --> 00:07:23.490 below what the market is willing to pay, you 00:07:23.490 --> 00:07:25.870 reduce the producer's surplus. Which is just 00:07:25.870 --> 00:07:28.250 fancy talk for profit. Fancy talk for profit, 00:07:28.350 --> 00:07:31.069 yes. When you slash the return on investment, 00:07:31.389 --> 00:07:34.110 the landlord responds rationally. They don't 00:07:34.110 --> 00:07:36.110 just sit there and take the loss. First, they 00:07:36.110 --> 00:07:38.350 stop maintaining the building. Right. Why replace 00:07:38.350 --> 00:07:41.230 the carpets, fix the leaky faucet, or paint the 00:07:41.230 --> 00:07:43.769 lobby if you can't raise the rent to cover the 00:07:43.769 --> 00:07:46.519 cost? And more importantly, why do it if there 00:07:46.519 --> 00:07:48.740 are 10 people lined up outside desperate for 00:07:48.740 --> 00:07:51.339 the apartment anyway? So the quality drops because 00:07:51.339 --> 00:07:54.029 there is no competition for the tenant? The tenant 00:07:54.029 --> 00:07:56.410 is captive. Drastically. We call this housing 00:07:56.410 --> 00:07:59.569 deterioration. Secondly, landlords pull units 00:07:59.569 --> 00:08:01.509 off the market entirely. How do they do that? 00:08:01.610 --> 00:08:04.110 If renting becomes a losing game, they might 00:08:04.110 --> 00:08:06.730 convert the building to condos, sell it to owner 00:08:06.730 --> 00:08:09.709 -occupiers, or even Airbnb it if the law allows. 00:08:10.149 --> 00:08:12.889 They find an exit. So the actual quantity of 00:08:12.889 --> 00:08:15.189 rental housing drops. You shrink the pool. You 00:08:15.189 --> 00:08:18.490 shrink the pool. Which brings us to that incredibly 00:08:18.490 --> 00:08:21.410 dark but apparently famous analogy you shared 00:08:21.410 --> 00:08:23.910 with me. The bombing analogy. I read this and 00:08:23.910 --> 00:08:26.629 thought, there is no way a serious academic said 00:08:26.629 --> 00:08:30.069 this. But it was Saar Lindbeck, a Swedish economist, 00:08:30.410 --> 00:08:34.450 in 1971. Right. He wasn't being hyperbolic just 00:08:34.450 --> 00:08:36.710 for fun. He was looking at the post -war data 00:08:36.710 --> 00:08:39.629 from Europe. He said, rent control appears to 00:08:39.629 --> 00:08:41.470 be the most efficient technique presently known 00:08:41.470 --> 00:08:44.690 to destroy a city, except for bombing. That is 00:08:44.690 --> 00:08:46.830 heavy. He's literally saying the only thing worse 00:08:46.830 --> 00:08:49.210 you can do to your city's housing stock is drop 00:08:49.210 --> 00:08:51.940 bombs on it. It implies that the physical degradation 00:08:51.940 --> 00:08:55.279 of the city under strict rent control looks indistinguishable 00:08:55.279 --> 00:08:58.080 from a city that has been under siege. Crumbling 00:08:58.080 --> 00:09:00.299 facades, broken infrastructure, that sort of 00:09:00.299 --> 00:09:02.120 thing. But it wasn't just a Western capitalist 00:09:02.120 --> 00:09:04.080 saying this, right? You found a quote from Vietnam 00:09:04.080 --> 00:09:07.379 that I found even more striking. Yes. This is 00:09:07.379 --> 00:09:09.360 crucial because it strips away the ideology. 00:09:09.679 --> 00:09:11.779 This comes from a socialist government official. 00:09:12.410 --> 00:09:16.330 In 1989, Vietnam's foreign minister, Nguyen Khatak, 00:09:16.570 --> 00:09:18.330 was reflecting on the state of Hanoi. Yeah, and 00:09:18.330 --> 00:09:20.769 Hanoi had very strict price controls, first -generation 00:09:20.769 --> 00:09:24.350 stuff. Extremely strict. And he looked at the 00:09:24.350 --> 00:09:27.230 crumbling buildings and said, the Americans couldn't 00:09:27.230 --> 00:09:29.509 destroy Hanoi, but we have destroyed our city 00:09:29.509 --> 00:09:33.250 by very low rents. Wow. He literally compared 00:09:33.250 --> 00:09:35.809 his own policy to the bombing campaigns of the 00:09:35.809 --> 00:09:38.909 Vietnam War. That's an incredible admission. 00:09:39.269 --> 00:09:41.450 He realized that by keeping rents artificially 00:09:41.450 --> 00:09:44.309 low, No one had the money or the incentive to 00:09:44.309 --> 00:09:46.809 fix anything. The capital stock of the city, 00:09:46.909 --> 00:09:49.929 the bricks and mortar was dissolving. So if the 00:09:49.929 --> 00:09:53.190 math is so bad and if economists and even socialist 00:09:53.190 --> 00:09:55.909 foreign ministers are shouting from the rooftops 00:09:55.909 --> 00:09:58.809 that this destroys cities. Why do we still do 00:09:58.809 --> 00:10:01.330 it? Why is it so popular? That is the million 00:10:01.330 --> 00:10:03.169 dollar question. And to be fair, we have to look 00:10:03.169 --> 00:10:04.970 at the counter arguments. There are dissenting 00:10:04.970 --> 00:10:07.110 voices and there are valid reasons why voters 00:10:07.110 --> 00:10:09.070 want this. Play devil's advocate. What's the 00:10:09.070 --> 00:10:11.149 defense? Well, some economists argue that the 00:10:11.149 --> 00:10:13.610 negative impact on supply isn't always statistically 00:10:13.610 --> 00:10:16.190 significant. They'll say, you know, real world 00:10:16.190 --> 00:10:18.730 markets are messy and don't always follow the 00:10:18.730 --> 00:10:21.549 perfect textbook model. OK, so it's complicated 00:10:21.549 --> 00:10:24.190 argument. A little bit. Yeah. But the strongest 00:10:24.190 --> 00:10:26.399 argument. And the one that resonates most with 00:10:26.399 --> 00:10:30.460 voters is the insurance value. Insurance. Explain 00:10:30.460 --> 00:10:33.799 that. A 2021 study from Columbia Business School 00:10:33.799 --> 00:10:37.460 frames it this way. Rent regulation acts as insurance 00:10:37.460 --> 00:10:40.639 for low -income households against market volatility. 00:10:41.279 --> 00:10:44.220 The free market is volatile. Rents can spike 00:10:44.220 --> 00:10:47.039 20 % in a year if a tech company moves into town 00:10:47.039 --> 00:10:49.860 or a new subway line opens. Right. Suddenly your 00:10:49.860 --> 00:10:51.960 neighborhood is hot and you can't afford to live 00:10:51.960 --> 00:10:54.820 there anymore. You're priced out. Exactly. Rent 00:10:54.820 --> 00:10:56.940 regulation protects sitting tenants from those 00:10:56.940 --> 00:11:00.080 shocks. It offers stability that the market refuses 00:11:00.080 --> 00:11:02.500 to provide. It says you can stay in your home 00:11:02.500 --> 00:11:05.399 and your costs will be predictable. So it's valuing 00:11:05.399 --> 00:11:08.279 stability over efficiency. That's the tradeoff. 00:11:08.340 --> 00:11:10.889 And it's a powerful emotional argument. And then 00:11:10.889 --> 00:11:12.850 there's the anti -gentrification argument. Right, 00:11:12.950 --> 00:11:15.149 which is often the main selling point. It is. 00:11:15.350 --> 00:11:18.690 A 2016 study by the NYU Furman Center found that 00:11:18.690 --> 00:11:20.950 while rent regulation is very bad at redistributing 00:11:20.950 --> 00:11:23.669 wealth efficiently, because, as we'll see, rich 00:11:23.669 --> 00:11:25.830 people often get these apartments too, it is 00:11:25.830 --> 00:11:27.769 actually quite good at keeping sitting tenants 00:11:27.769 --> 00:11:30.230 in their homes during market spikes. So if your 00:11:30.230 --> 00:11:32.549 goal is solely keep grandma in her apartment, 00:11:32.769 --> 00:11:35.649 it works. It works for grandma. But as we move 00:11:35.649 --> 00:11:38.789 into Section 2, we have to ask, at what cost 00:11:38.789 --> 00:11:40.950 to everyone else? What happens to the person 00:11:40.950 --> 00:11:43.250 who isn't grandma but is trying to find their 00:11:43.250 --> 00:11:45.289 first apartment? Let's talk about those costs. 00:11:45.629 --> 00:11:49.669 Section 2, unintended consequences. Because when 00:11:49.669 --> 00:11:52.029 you interfere with a complex system, the side 00:11:52.029 --> 00:11:54.649 effects are often worse than the disease. We 00:11:54.649 --> 00:11:57.470 have some brutal U .S. case studies here. Let's 00:11:57.470 --> 00:12:01.090 go back to the 1940s. The WWII experiment. This 00:12:01.090 --> 00:12:03.470 was a massive implementation of rent control. 00:12:03.870 --> 00:12:07.350 In 1941, roughly 80 % of U .S. rental housing 00:12:07.350 --> 00:12:09.909 was put under control to prevent gouging during 00:12:09.909 --> 00:12:12.590 the war effort. Which sounds noble. You don't 00:12:12.590 --> 00:12:15.570 want war profiteering. Of course. The intent 00:12:15.570 --> 00:12:18.250 was solid. But the economic gravity didn't turn 00:12:18.250 --> 00:12:20.450 off just because there was a war. Landlords did 00:12:20.450 --> 00:12:22.389 the math. They realized they couldn't make money 00:12:22.389 --> 00:12:24.669 renting under these caps. So what did they do? 00:12:24.830 --> 00:12:26.850 They sold the unit. They exited the market en 00:12:26.850 --> 00:12:29.169 masse. It sparked a massive sell -off. Now you 00:12:29.169 --> 00:12:30.990 could argue, great, more home ownership. Which 00:12:30.990 --> 00:12:33.649 some people did, right? They did. But it killed 00:12:33.649 --> 00:12:36.629 the rental market. If you were a young person, 00:12:36.750 --> 00:12:38.929 a soldier coming home, or someone who couldn't 00:12:38.929 --> 00:12:41.769 afford a down payment, there were simply no apartments 00:12:41.769 --> 00:12:45.629 to rent. The supply evaporated. It pushed the 00:12:45.629 --> 00:12:48.169 market away from rentals entirely. But let's 00:12:48.169 --> 00:12:50.029 look at something more recent. Because I think 00:12:50.029 --> 00:12:52.929 people hear 1940s and think it's ancient history. 00:12:53.269 --> 00:12:56.090 You found a fascinating comparison between St. 00:12:56.250 --> 00:12:58.129 Paul and Minneapolis from just a couple years 00:12:58.129 --> 00:13:02.299 ago. Yes. 2021 this feels like a perfect laboratory 00:13:02.299 --> 00:13:05.039 experiment it really is a tale of two cities 00:13:05.039 --> 00:13:07.860 you have twin cities geographically next to each 00:13:07.860 --> 00:13:10.259 other similar economies similar demographics 00:13:10.259 --> 00:13:14.379 in november 2021 st paul voters passed a very 00:13:14.379 --> 00:13:17.320 strict rent control ordinance it capped increases 00:13:17.320 --> 00:13:19.480 at three percent per year that sounds standard 00:13:19.480 --> 00:13:22.159 for rent control but here's the kicker it had 00:13:22.159 --> 00:13:24.379 no exemption for new construction and it included 00:13:24.379 --> 00:13:27.460 vacancy control oh wow okay that's huge it's 00:13:27.460 --> 00:13:29.700 huge it meant even if you built a brand new building, 00:13:29.779 --> 00:13:32.039 you were capped at 3%. And if a tenant left, 00:13:32.240 --> 00:13:34.360 you couldn't reset the rent to market rate. Oof. 00:13:34.659 --> 00:13:37.259 If I'm a developer, I'm looking at that and sweating. 00:13:37.960 --> 00:13:40.139 I'm taking on millions of dollars of debt to 00:13:40.139 --> 00:13:41.759 build a building, and you're telling me I can 00:13:41.759 --> 00:13:44.360 never raise rents to cover unexpected costs or 00:13:44.360 --> 00:13:46.279 even just keep up with market demand. You're 00:13:46.279 --> 00:13:48.899 not just sweating. You're leaving. The result 00:13:48.899 --> 00:13:51.639 was immediate. Requests for new multifamily housing 00:13:51.639 --> 00:13:54.840 permits in St. Paul dropped 80 percent. 80 percent. 00:13:54.919 --> 00:13:57.480 That is a collapse. A total collapse. The capital 00:13:57.480 --> 00:14:00.360 just vanished. Now look across the river to Minneapolis. 00:14:00.799 --> 00:14:03.360 What did they do? Voters there authorized the 00:14:03.360 --> 00:14:05.500 city council to craft an ordinance, but they 00:14:05.500 --> 00:14:07.399 didn't enact one immediately, and it was widely 00:14:07.399 --> 00:14:09.679 understood they would exempt new construction. 00:14:10.000 --> 00:14:12.480 So the developers felt safe there. The rules 00:14:12.480 --> 00:14:15.990 were predictable. They did. And the result. Permits 00:14:15.990 --> 00:14:18.649 in Minneapolis went up 68 % in the same period. 00:14:18.830 --> 00:14:21.929 That is staggering. St. Paul down 80%, Minneapolis 00:14:21.929 --> 00:14:24.690 up 68%. You can literally see the money moving 00:14:24.690 --> 00:14:26.929 across the river. It's a real -time lesson in 00:14:26.929 --> 00:14:29.370 how capital flees uncertainty and strict caps. 00:14:29.809 --> 00:14:32.289 If you tell developers you cannot make a return 00:14:32.289 --> 00:14:34.309 on your investment here, they will simply go 00:14:34.309 --> 00:14:36.389 five miles down the road where they can. And 00:14:36.389 --> 00:14:39.090 the irony is, St. Paul wanted to make housing 00:14:39.090 --> 00:14:41.870 affordable. But by stopping all new construction, 00:14:42.169 --> 00:14:44.350 they guaranteed a shortage in the future. Which 00:14:44.350 --> 00:14:47.009 creates scarcity, which drives prices up in the 00:14:47.009 --> 00:14:50.110 long run. It's a cell phone. A massive cell phone. 00:14:50.610 --> 00:14:54.350 Which brings us to San Francisco. The land of 00:14:54.350 --> 00:14:57.850 the Golden Gate and the $1 ,000 closet. San Francisco 00:14:57.850 --> 00:15:00.450 is the poster child for the gentrification paradox. 00:15:01.289 --> 00:15:04.090 There was a major study in 2019 by researchers 00:15:04.090 --> 00:15:07.710 at Stanford Diamond, McQuaid, and Keehan. What 00:15:07.710 --> 00:15:09.419 did they look at? They looked at what happened 00:15:09.419 --> 00:15:11.779 after San Francisco expanded rent control in 00:15:11.779 --> 00:15:15.139 1994 to cover small multi -unit apartments that 00:15:15.139 --> 00:15:17.120 were previously exempt. And again, the intent 00:15:17.120 --> 00:15:19.460 was to protect renters and stop gentrification. 00:15:19.740 --> 00:15:22.340 Right. Noble goal. But landlords are clever. 00:15:22.720 --> 00:15:24.779 Faced with these new caps, they responded by 00:15:24.779 --> 00:15:27.159 removing units from the rental market. How? Same 00:15:27.159 --> 00:15:29.460 as in the 40s. They just sold them. Pretty much. 00:15:29.720 --> 00:15:32.220 They converted them into condos, tenancies in 00:15:32.220 --> 00:15:35.679 common, TIs, or moved into them themselves. The 00:15:35.679 --> 00:15:37.600 study found that landlords removed 30 percent 00:15:37.600 --> 00:15:39.419 of the regulated units from the rental stock. 00:15:39.679 --> 00:15:41.700 30 percent. That's almost a third of the housing 00:15:41.700 --> 00:15:44.080 stock just gone. Gone from the rental market. 00:15:44.419 --> 00:15:46.820 And because the supply of rentals dropped by 00:15:46.820 --> 00:15:49.730 15 percent citywide. The rents for everyone else, 00:15:49.730 --> 00:15:52.009 the people in non -controlled units, went up 00:15:52.009 --> 00:15:55.009 by 7%. Wait, hold on. So the law designed to 00:15:55.009 --> 00:15:57.629 keep rents low actually raised rents for the 00:15:57.629 --> 00:16:00.210 city as a whole? Yes. By shrinking the supply, 00:16:00.549 --> 00:16:02.250 it made the remaining apartments more expensive 00:16:02.250 --> 00:16:04.250 for everybody who wasn't lucky enough to have 00:16:04.250 --> 00:16:06.730 a rent -controlled unit. And here's the paradox. 00:16:07.529 --> 00:16:11.070 By converting rentals to expensive condos, who 00:16:11.070 --> 00:16:13.429 do you think moved in? Wealthier people who could 00:16:13.429 --> 00:16:17.039 afford to buy. Exactly. The policy actually fueled 00:16:17.039 --> 00:16:19.320 the gentrification it was trying to stop. It 00:16:19.320 --> 00:16:21.220 attracted higher income people who could afford 00:16:21.220 --> 00:16:23.940 to buy while pushing out working class renters 00:16:23.940 --> 00:16:26.340 who could no longer find a place to rent. That 00:16:26.340 --> 00:16:28.899 is the ultimate task failed successfully moment. 00:16:29.059 --> 00:16:31.440 You achieve the opposite of your stated goal. 00:16:31.679 --> 00:16:33.779 It gets worse when you look at who benefits from 00:16:33.779 --> 00:16:36.659 the units that stay. This is the haphazard targeting 00:16:36.659 --> 00:16:38.919 issue. This is the Cambridge, Massachusetts story. 00:16:39.080 --> 00:16:41.399 This is my favorite piece of trivia in the whole 00:16:41.399 --> 00:16:44.950 research stack. It is wild, isn't it? Cambridge 00:16:44.950 --> 00:16:49.169 had rent control from 1970 to 1994. And the assumption 00:16:49.169 --> 00:16:52.389 is always that rent control helps the poor. As 00:16:52.389 --> 00:16:55.330 it should. As it should. But because these units 00:16:55.330 --> 00:16:57.549 aren't means tested, you don't have to prove 00:16:57.549 --> 00:16:59.970 you're poor to get one. You just have to be lucky 00:16:59.970 --> 00:17:02.629 enough to sign the least wealthy people often 00:17:02.629 --> 00:17:05.470 end up in them. And you found a specific royal 00:17:05.470 --> 00:17:08.829 example. I did. While rent control was active 00:17:08.829 --> 00:17:11.289 in Cambridge, one of the tenants in a rent -controlled 00:17:11.289 --> 00:17:13.710 apartment was Frederick, the crown prince of 00:17:13.710 --> 00:17:15.990 Denmark. The actual crown prince, like future 00:17:15.990 --> 00:17:18.329 king of Denmark. The crown prince he was studying 00:17:18.329 --> 00:17:20.769 at Harvard. So you have local landlords in Massachusetts 00:17:20.769 --> 00:17:23.309 subsidizing the housing of European royalty. 00:17:23.569 --> 00:17:26.089 Exactly. And the data showed that at least 20 00:17:26.089 --> 00:17:29.029 % of controlled units in Cambridge housed people 00:17:29.029 --> 00:17:31.190 in the top half of the income bracket. Which 00:17:31.190 --> 00:17:34.490 is just, it's absurd. It illustrates the problem 00:17:34.490 --> 00:17:36.529 perfectly. Yeah. Benefit doesn't go to the person 00:17:36.529 --> 00:17:38.190 who needs it most. It goes to the person who 00:17:38.190 --> 00:17:41.150 gets there first. It's a lottery, not a social 00:17:41.150 --> 00:17:43.930 safety net. That is a crucial distinction. It's 00:17:43.930 --> 00:17:46.529 not based on need. It's based on tenure. If you 00:17:46.529 --> 00:17:49.049 get in, you win. If you're late, you lose. Right. 00:17:49.089 --> 00:17:51.130 And everyone who comes after you pays a higher 00:17:51.130 --> 00:17:53.509 price because you took a unit off the market. 00:17:53.789 --> 00:17:56.029 OK, so we've seen the economic wreckage in the 00:17:56.029 --> 00:17:59.410 U .S. Let's zoom out. Section three, global perspectives 00:17:59.410 --> 00:18:02.930 and history, because the U .S. is. Definitely 00:18:02.930 --> 00:18:05.029 not the only place grappling with this. And you're 00:18:05.029 --> 00:18:06.970 telling me this all started with the Pope? Believe 00:18:06.970 --> 00:18:09.589 it or not, yes. One of the earliest recorded 00:18:09.589 --> 00:18:12.210 instances of rent control comes from the papal 00:18:12.210 --> 00:18:15.910 states in Rome around 1470. 1470. That is unexpected. 00:18:16.309 --> 00:18:19.029 What was the context? It was actually a religious 00:18:19.029 --> 00:18:22.150 protection measure. At the time, Jews in Rome 00:18:22.150 --> 00:18:24.950 were forbidden from owning property. This meant 00:18:24.950 --> 00:18:26.890 they were 100 percent dependent on Christian 00:18:26.890 --> 00:18:29.289 landlords. Which puts them in a terrible bargaining 00:18:29.289 --> 00:18:32.420 position. The landlord has total leverage. Total 00:18:32.420 --> 00:18:34.079 leverage. They could charge whatever they wanted 00:18:34.079 --> 00:18:36.279 and the tenants had nowhere else to go. They 00:18:36.279 --> 00:18:39.640 could be exploited. So to prevent price gouging 00:18:39.640 --> 00:18:42.839 and abuse, Pope Paul II and later Pope Sixtus 00:18:42.839 --> 00:18:46.940 V in 1586 issued orders. They froze the rents 00:18:46.940 --> 00:18:48.740 for Jewish tenants. So the first rent control 00:18:48.740 --> 00:18:51.359 was basically an anti -discrimination law. In 00:18:51.359 --> 00:18:54.279 a way, yes. It was about protecting a vulnerable 00:18:54.279 --> 00:18:57.039 minority from a market where they had no power. 00:18:57.690 --> 00:18:59.950 It's a surprising origin story that highlights 00:18:59.950 --> 00:19:02.670 that the intent of these laws is almost always 00:19:02.670 --> 00:19:06.049 noble. It's about protection. Speaking of protection 00:19:06.049 --> 00:19:08.990 and where it can go wrong, we have to talk about 00:19:08.990 --> 00:19:10.910 Egypt. This was the most shocking part of the 00:19:10.910 --> 00:19:13.069 research for me. I've been to Cairo and I know 00:19:13.069 --> 00:19:16.190 the buildings can be chaotic, but I didn't know 00:19:16.190 --> 00:19:19.230 about old rent. Egypt is the extreme example 00:19:19.230 --> 00:19:22.109 of first generation rent control. The rent freeze 00:19:22.109 --> 00:19:24.690 gone on for too long. It's a cautionary tale 00:19:24.690 --> 00:19:26.529 of what happens when you freeze a price and then 00:19:26.529 --> 00:19:28.430 just walk away for 80 years. Set the scene for 00:19:28.430 --> 00:19:32.869 us. So laws from the 1920s and 1940s froze rents 00:19:32.869 --> 00:19:34.869 in Cairo and other cities to protect tenants. 00:19:35.230 --> 00:19:37.210 But they didn't just freeze them for a few years. 00:19:37.269 --> 00:19:39.210 They stayed frozen for decades. Through massive 00:19:39.210 --> 00:19:41.849 inflation, political change, everything. Everything. 00:19:42.420 --> 00:19:45.200 Then, in 1996, the government introduced new 00:19:45.200 --> 00:19:48.460 rent, which deregulated new contracts. But they 00:19:48.460 --> 00:19:50.519 left the old rent contracts alone because they 00:19:50.519 --> 00:19:52.539 were terrified of mass evictions. So you have 00:19:52.539 --> 00:19:55.859 a two -tier system. A massive one. Today, about 00:19:55.859 --> 00:19:59.059 1 .6 million households, that's 7 % of Egypt, 00:19:59.240 --> 00:20:01.960 are still onto these old rent contracts. And 00:20:01.960 --> 00:20:03.779 because of inflation over the last 80 years, 00:20:03.920 --> 00:20:07.220 the prices are absurd. How absurd? We are talking 00:20:07.220 --> 00:20:10.829 about rents of 50 Egyptian pounds or less. That 00:20:10.829 --> 00:20:15.089 is roughly USD $1 per month. Wait, pause. $1 00:20:15.089 --> 00:20:18.369 a month for an apartment in Cairo? Yes, in the 00:20:18.369 --> 00:20:22.849 heart of the city. You have sprawling, beautiful, 00:20:23.029 --> 00:20:25.589 high -ceilinged apartments overlooking the Nile 00:20:25.589 --> 00:20:27.829 that rent for the price of a pack of gum. That 00:20:27.829 --> 00:20:29.630 is mind -blowing, but I assume the buildings 00:20:29.630 --> 00:20:32.049 are falling apart. Completely. And this is the 00:20:32.049 --> 00:20:34.990 tragedy. Why would a landlord fix the elevator, 00:20:35.269 --> 00:20:37.750 paint the lobby, or repair the structural beams 00:20:37.750 --> 00:20:40.549 when the total rental income for the whole building 00:20:40.549 --> 00:20:42.930 is $20 a month? It wouldn't even cover the electricity 00:20:42.930 --> 00:20:45.950 for the hallway lights. Exactly. Entire neighborhoods 00:20:45.950 --> 00:20:48.150 are crumbling because of this. It's the new and 00:20:48.150 --> 00:20:50.809 cut thatch, quote, come to life. The city is 00:20:50.809 --> 00:20:52.789 destroying itself with low rents. It's a zombie 00:20:52.789 --> 00:20:55.250 market. The buildings are dead, but people are 00:20:55.250 --> 00:20:57.650 still living in them. But I read in the notes 00:20:57.650 --> 00:20:59.910 that this is finally changing. It is, and it 00:20:59.910 --> 00:21:03.029 is going to be painful. In 2025, a new law law, 00:21:03.269 --> 00:21:08.829 12034 .25, was ratified to finally end this system. 00:21:08.930 --> 00:21:11.390 What does the undoing look like? How do you unwind 00:21:11.390 --> 00:21:13.349 something like that? It's a shock to the system. 00:21:13.740 --> 00:21:15.839 Rents for these regulated apartments will jump 00:21:15.839 --> 00:21:18.539 10 to 20 times in the first year alone. Then 00:21:18.539 --> 00:21:21.480 they will rise 15 % annually until they hit market 00:21:21.480 --> 00:21:23.700 rates. That sounds terrifying for the tenants. 00:21:24.019 --> 00:21:26.500 It is. The source gives an anecdote of a tenant 00:21:26.500 --> 00:21:28.440 who has lived there since 1984. Perfect analogy. 00:21:28.819 --> 00:21:31.019 Okay, let's look at a place that usually values 00:21:31.019 --> 00:21:34.160 order and structure, Germany. They do things 00:21:34.160 --> 00:21:36.039 differently there. They seem to have found a 00:21:36.039 --> 00:21:37.900 middle path. Germany is interesting because they 00:21:37.900 --> 00:21:39.839 rely on the Mietzsche Beagle. Mietzschpiegel, 00:21:39.920 --> 00:21:42.420 I love German compound words. What does it translate 00:21:42.420 --> 00:21:46.180 to? It translates to rent mirror. Ooh, poetic. 00:21:46.299 --> 00:21:49.500 I like that. It's a database, a mirror of the 00:21:49.500 --> 00:21:52.660 market. It reflects the local reference rents 00:21:52.660 --> 00:21:55.160 based on new contracts from the past four years. 00:21:55.359 --> 00:21:58.319 So how does it work? Is it a hard cap? No. Instead 00:21:58.319 --> 00:22:01.740 of hard cap like 3%, landlords can only increase 00:22:01.740 --> 00:22:04.579 rent in line with this index, the Mietzschpiegel. 00:22:04.759 --> 00:22:06.779 If the average rent in the neighborhood goes 00:22:06.779 --> 00:22:09.839 up, you can raise yours. If it stays flat, you 00:22:09.839 --> 00:22:12.299 stay flat. And there are limits to that, I assume. 00:22:12.519 --> 00:22:15.220 Yes. They have strict usury laws. Any price rise 00:22:15.220 --> 00:22:18.039 above 20 % over three years is illegal. So it's 00:22:18.039 --> 00:22:20.539 not a freeze. It is a dampener. It smooths out 00:22:20.539 --> 00:22:22.579 the spikes. Exactly. It allows the market to 00:22:22.579 --> 00:22:25.519 move, but it prevents the shocks. Germany generally 00:22:25.519 --> 00:22:28.000 balances tenants. Stability tenants have unlimited 00:22:28.000 --> 00:22:29.920 contract durations. You can't just kick them 00:22:29.920 --> 00:22:32.339 out with regulated increases. It worked reasonably 00:22:32.339 --> 00:22:36.029 well. Except. Berlin tried to get fancy recently. 00:22:36.349 --> 00:22:40.230 Ah, yes. The Berlin Mietendeckel or rent lid 00:22:40.230 --> 00:22:43.910 of 2020. They tried a hard freeze. First generation 00:22:43.910 --> 00:22:47.950 stuff. Same old story. It benefited the people 00:22:47.950 --> 00:22:50.809 already living there. But the supply of new housing 00:22:50.809 --> 00:22:53.569 for people looking for a home plummeted. The 00:22:53.569 --> 00:22:55.410 number of apartments available for rent dropped 00:22:55.410 --> 00:22:58.549 by more than half in one year. Wow. It was actually 00:22:58.549 --> 00:23:01.700 repealed by the courts in 2021. It showed that 00:23:01.700 --> 00:23:03.720 even in a well -regulated market like Germany, 00:23:03.880 --> 00:23:06.720 hard freezes break the machine. Let's make a 00:23:06.720 --> 00:23:08.579 quick stop in Australia. I feel like Australia 00:23:08.579 --> 00:23:10.819 is usually a pretty free market with housing. 00:23:11.039 --> 00:23:13.339 They are, with one exception, the Australian 00:23:13.339 --> 00:23:15.960 Capital Territory, basically Canberra. The capital. 00:23:16.160 --> 00:23:18.579 Right. It's the only place in Australia with 00:23:18.579 --> 00:23:21.910 maximum rent increase caps tied to CPI. Everywhere 00:23:21.910 --> 00:23:24.609 else Sydney, Melbourne relies on freedom of contract. 00:23:24.890 --> 00:23:27.109 So if you're in Sydney, the landlord can say 00:23:27.109 --> 00:23:29.309 rent is doubling next month and if you don't 00:23:29.309 --> 00:23:31.650 like it, you leave. There are some notice periods, 00:23:31.849 --> 00:23:34.730 but essentially, yes, it creates a very dynamic 00:23:34.730 --> 00:23:38.309 but also very volatile market for renters. It's 00:23:38.309 --> 00:23:41.049 the opposite of Egypt. High churn, high prices, 00:23:41.089 --> 00:23:44.029 but generally high quality because landlords 00:23:44.029 --> 00:23:46.009 have to compete for tenants who can leave at 00:23:46.009 --> 00:23:48.480 any time. Okay, we've toured the world. We've 00:23:48.480 --> 00:23:50.680 seen the wreckage of first -gen controls in Egypt, 00:23:50.920 --> 00:23:53.319 the gentrification paradox in San Francisco, 00:23:53.440 --> 00:23:56.599 and the collapse of permits in St. Paul. This 00:23:56.599 --> 00:23:59.460 brings us to section four. Alternatives and solutions. 00:23:59.619 --> 00:24:01.960 Right. Because the problem is real. Rents are 00:24:01.960 --> 00:24:04.759 too high. People can't afford to live. If economists 00:24:04.759 --> 00:24:06.900 hate rent control, what do they actually suggest? 00:24:07.180 --> 00:24:09.019 We can't just say let the market rip and let 00:24:09.019 --> 00:24:11.559 poor people be homeless. Absolutely not. And 00:24:11.559 --> 00:24:13.500 economists aren't heartless. They just prefer 00:24:13.500 --> 00:24:16.220 efficient tools. This is where we have to pivot 00:24:16.220 --> 00:24:18.960 from price controls to supply and subsidy. OK. 00:24:19.039 --> 00:24:21.299 If the goal is affordable housing, there are 00:24:21.299 --> 00:24:24.119 two main levers economists prefer. The first 00:24:24.119 --> 00:24:27.170 is the demand side. Vouchers. Explain that. How 00:24:27.170 --> 00:24:29.750 is that different from rent control? Lisa Sturdivant's 00:24:29.750 --> 00:24:33.210 review points this out. Rent control tries to 00:24:33.210 --> 00:24:36.269 lower the price of the bread. Vouchers give the 00:24:36.269 --> 00:24:38.789 hungry person money to buy the bread at the market 00:24:38.789 --> 00:24:40.849 price. I like that analogy. It's much clearer. 00:24:41.069 --> 00:24:43.450 We're talking about federal housing vouchers 00:24:43.450 --> 00:24:46.470 or expanding the Low Income Housing Tax Credit, 00:24:46.630 --> 00:24:50.130 LIHTC. Instead of breaking the price mechanism 00:24:50.130 --> 00:24:53.710 of the market, you give money directly to the 00:24:53.710 --> 00:24:56.119 poor people who need it. So let the landlord 00:24:56.119 --> 00:24:58.700 charge $2 ,000, but give the low -income tenant 00:24:58.700 --> 00:25:02.279 $1 ,000 to help pay for it. Precisely. This does 00:25:02.279 --> 00:25:05.059 two things. One, it targets the help. Remember 00:25:05.059 --> 00:25:06.940 the crown prince of Denmark? Hard to forget. 00:25:07.119 --> 00:25:08.980 He wouldn't qualify for a voucher. You have to 00:25:08.980 --> 00:25:11.220 prove income. So the money goes only to the poor. 00:25:11.460 --> 00:25:14.079 Two, it keeps the incentive for the landlord 00:25:14.079 --> 00:25:16.160 to maintain the building. Because they're still 00:25:16.160 --> 00:25:18.059 getting the market rate. Exactly. If they're 00:25:18.059 --> 00:25:20.250 getting market rate... partly from the tenant, 00:25:20.349 --> 00:25:21.789 partly from the government. Yeah. They have the 00:25:21.789 --> 00:25:23.829 cash flow to fix the roof. They don't pull the 00:25:23.829 --> 00:25:25.950 unit off the market. That makes sense. It solves 00:25:25.950 --> 00:25:28.289 the haphazard targeting and the housing deterioration 00:25:28.289 --> 00:25:30.349 problems. But vouchers are expensive for the 00:25:30.349 --> 00:25:32.569 government. What's the second lever? The supply 00:25:32.569 --> 00:25:35.670 side. This is the argument from groups like the 00:25:35.670 --> 00:25:38.289 Reason Foundation and the YMBY movement. Yes. 00:25:38.529 --> 00:25:40.970 In my backyard. I've heard of them. They argue 00:25:40.970 --> 00:25:44.049 the problem is simply a lack of supply. We aren't 00:25:44.049 --> 00:25:46.750 building enough homes. Full stop. And why aren't 00:25:46.750 --> 00:25:49.730 we? Is it just... greedy developers holding back. 00:25:49.910 --> 00:25:51.950 Quite the opposite. Developers want to build. 00:25:52.170 --> 00:25:55.910 The problem is zoning and regulation. It is incredibly 00:25:55.910 --> 00:25:58.250 expensive and difficult to build in cities like 00:25:58.250 --> 00:26:00.930 San Francisco or New York. If you have restrictive 00:26:00.930 --> 00:26:03.539 zoning. height limits and endless community review 00:26:03.539 --> 00:26:06.200 processes, you inflate the cost of development. 00:26:06.420 --> 00:26:08.500 So if it costs me a million dollars just to get 00:26:08.500 --> 00:26:10.859 the permit, I can only build a luxury condo to 00:26:10.859 --> 00:26:13.200 make my money back. I can't build a starter home. 00:26:13.420 --> 00:26:16.279 Exactly. You can't build affordable housing if 00:26:16.279 --> 00:26:19.000 the land and legal fees cost a fortune. If you 00:26:19.000 --> 00:26:22.019 deregulate the building process, simplify approvals, 00:26:22.099 --> 00:26:24.440 allow more density, let people build taller, 00:26:24.680 --> 00:26:27.480 you lower the cost of construction. This is the 00:26:27.480 --> 00:26:31.359 housing first concept. Yes. Focus on increasing 00:26:31.359 --> 00:26:33.980 the total pile of housing. If there is a surplus 00:26:33.980 --> 00:26:36.319 of apartments, landlords have to compete for 00:26:36.319 --> 00:26:39.900 tenants. When supply exceeds demand, prices fall 00:26:39.900 --> 00:26:42.140 naturally. You don't need a law to lower the 00:26:42.140 --> 00:26:44.680 price. The market does it for you. It sounds 00:26:44.680 --> 00:26:47.599 so simple. Supply and demand, build more, prices 00:26:47.599 --> 00:26:50.220 drop. Yet it seems so hard to do politically. 00:26:50.559 --> 00:26:53.480 Because building more takes years. Rent control 00:26:53.480 --> 00:26:56.039 can be passed overnight. Politicians like solutions 00:26:56.039 --> 00:26:58.819 that voters can feel immediately. That is a profound 00:26:58.819 --> 00:27:01.730 point. Rent control is a quick fix that causes 00:27:01.730 --> 00:27:04.609 long term pain. Building supply is short term 00:27:04.609 --> 00:27:06.730 pain construction noise, changing neighborhoods, 00:27:07.069 --> 00:27:09.829 ugly cranes on the skyline for long term gain. 00:27:09.950 --> 00:27:13.230 You nailed it. And humans are very bad at delayed 00:27:13.230 --> 00:27:16.089 gratification. especially when it comes to politics. 00:27:16.289 --> 00:27:18.329 So we are coming to the end of our deep dive. 00:27:18.450 --> 00:27:20.529 Let's try to synthesize all this. We've gone 00:27:20.529 --> 00:27:23.009 from the papal states protecting Jewish tenants 00:27:23.009 --> 00:27:25.869 to the modern rent mirror in Berlin. We've seen 00:27:25.869 --> 00:27:28.329 that strict price freezes, first generation control 00:27:28.329 --> 00:27:30.849 are almost universally disastrous. They are the 00:27:30.849 --> 00:27:33.170 bombing effect. They kill supply. They kill quality. 00:27:33.230 --> 00:27:35.970 And undoing them like in Egypt is a nightmare. 00:27:36.190 --> 00:27:39.779 We've seen that. Second generation vacancy decontrol 00:27:39.779 --> 00:27:42.799 is the modern standard, but it has its own demons. 00:27:43.160 --> 00:27:46.160 It can fuel gentrification, incentivizing landlords 00:27:46.160 --> 00:27:48.819 to convert to condos. Right. And it creates this 00:27:48.819 --> 00:27:51.240 weird lottery system where the crown prince gets 00:27:51.240 --> 00:27:53.759 a cheap apartment while a working class family 00:27:53.759 --> 00:27:56.940 pays market rate next door. It creates an insider 00:27:56.940 --> 00:27:59.299 outsider market. Yeah. If you are inside, you 00:27:59.299 --> 00:28:01.619 are safe. If you are outside trying to get in, 00:28:01.680 --> 00:28:04.619 the door is locked. And the consensus from economists, 00:28:04.859 --> 00:28:08.259 93 percent of them, is that price ceilings reduce 00:28:08.259 --> 00:28:11.420 the quantity and quality of housing. It's a tradeoff. 00:28:11.440 --> 00:28:13.940 You buy stability for the current tenant at the 00:28:13.940 --> 00:28:15.900 expense of everything else. That's the summary 00:28:15.900 --> 00:28:18.039 in a nutshell. So I want to leave our listeners 00:28:18.039 --> 00:28:20.440 with a final thought. We always try to end with 00:28:20.440 --> 00:28:22.079 something provocative. Here's what I want you 00:28:22.079 --> 00:28:24.200 to think about. When you hear a debate about 00:28:24.200 --> 00:28:27.579 rent control. It is almost always framed as the 00:28:27.579 --> 00:28:30.200 greedy landlord versus the struggling tenant. 00:28:30.359 --> 00:28:33.019 Right. It's a story of profit versus people. 00:28:33.319 --> 00:28:35.319 Right. That's the movie script. Good guy, bad 00:28:35.319 --> 00:28:38.640 guy. But the data suggests the real conflict 00:28:38.640 --> 00:28:41.779 is different. The real conflict is between the 00:28:41.779 --> 00:28:44.160 current tenant and the future tenant. Oh, that's 00:28:44.160 --> 00:28:46.380 interesting. The current tenant wants to stay 00:28:46.380 --> 00:28:49.539 put, pay a low price, and never be forced to 00:28:49.539 --> 00:28:52.859 move. Rent control is great for them. But the 00:28:52.859 --> 00:28:55.740 future tenant? The future tenant is the young 00:28:55.740 --> 00:28:58.819 graduate, the immigrant family, the person moving 00:28:58.819 --> 00:29:01.299 for a new job. They can't find a place to live 00:29:01.299 --> 00:29:03.720 because no one is moving and nothing is being 00:29:03.720 --> 00:29:06.680 built. Rent control locks the door in their face 00:29:06.680 --> 00:29:09.240 to protect the person already inside. So the 00:29:09.240 --> 00:29:11.619 question isn't just, are landlords greedy? The 00:29:11.619 --> 00:29:14.740 question is, who does the city owe more to? The 00:29:14.740 --> 00:29:16.539 person who is already there or the person who 00:29:16.539 --> 00:29:18.900 wants to come? That is the question. And there 00:29:18.900 --> 00:29:21.569 is no easy answer. That is going to keep me up 00:29:21.569 --> 00:29:23.390 tonight. Thank you for taking this deep dive 00:29:23.390 --> 00:29:25.589 with us. My pleasure. It was a lot to get through. 00:29:25.710 --> 00:29:27.650 And thank you to you, the listener. Check your 00:29:27.650 --> 00:29:29.990 lease, check your local laws, and we will see 00:29:29.990 --> 00:29:30.529 you next time.