Rent Contol: Open-and-Shut Case?

Michael Perelman michael at ecst.csuchico.edu
Fri Jun 9 14:15:31 PDT 2000


Krugman does not read the NY Times. They have been publishing articles about full time workers in the Sunnyvale area that cannot afford housing, despite the absence of rent control. Rents in the area track the Russell 2000 stock index, not the state of rent control.

Barry Rene DeCicco wrote:


> 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

-- Michael Perelman Economics Department California State University Chico, CA 95929

Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu



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