Rent Contol: Open-and-Shut Case?

Barry Rene DeCicco bdecicco at umich.edu
Fri Jun 9 13:19:17 PDT 2000


I had three observations about Prof. Krugman's article:

1) When a lot of money comes into a city quickly,

I'd expect rents to rise, until new construction

can bring them down. And since much of the new

construction might be far from the center of the

city, rents near there might go up and stay at

an elevated level.

2) I would expect this effect to be more severe in,

(taking an example *totally* at random) a city

squeezed between a bay and some mountains, because

geography would constrain building and transportation.

3) A quantitative analysis would be necessary to figure

out how much of the housing price increase was due

to the swift inflow of dot-com cash, the geographic

constraints of San Fransisco, and rent control. Prof.

Krugman did not (IIRC) mention this even in passing

(a single sentence mentioning this would have sufficed

to those who know, and not been an obstacle to those who

don't know such things).

4) I live in a non-rent-controlled city. My landlord wanted

references. This is to give a good chance that I would

not trash the place, and that I wouldn't leave in the middle

of the lease period without paying (I live in a university

town - it's a landlord's market in general, but finding

a new tenant in the middle of the year can be hard). I can see

similar reasons for doing so in SF, with the added reason

that the dot-com employment situation is more volatile. A landlord

might want to make sure that the tenant will be able to pay

the steep rents for the reasonable future.

This leads me to the conclusion that Prof. Krugman was leaping from real-world event to the economic principle that he wanted to illustrate, bounding over the actual causality which might or might not be involved.

Barry



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