why rent control doesn’t do what we want

Rent control — capping rents on rental properties — sounds like the right idea. After all, it goes right to the issue of working families being priced out of their homes. But why won’t it work? Or more to the point, what conditions are needed to make it work? After all, it works in other places (Germany has used it for decades and has very stable shelter costs).

It’s really down to this graphic I used in an earlier post.

But instead of wages and rents putting the squeeze on workers, it’s rising property values (and taxes) from the bottom and capped rents at the top. A finite supply of land makes land more valuable, we know, and taxes are assessed on the current value, ie what it would sell for. So if the value of a parcel, without or without improvements, doubles while the rent stays the same, the landlord will face some choices: how much maintenance can she afford? Maybe that repaint will have to be put off another year. And that leaky roof will have to be repaired, rather than replaced. The appliances are old but can’t be replaced now. The plumbing gets worse every year but it’s too big a job to do right now. See how rent control can create a slum property — and a slumlord — from a perfectly serviceable property?

This is not a defense of landlords so much as an illustration of how they can be a victim of the same scarcity game as working families and businesses in a city with high land values and no check on how that value is recaptured by and for the city.

A ground rent/land value tax that was based on the highest and best use of land, rather than what it would sell for, would force some properties to be redeveloped and others to be put to far better use than surface parking or an idle brownfield. The goal is to put land to work for everyone, for housing and business, where the value of the land is redistributed to everyone who created, rather than siphoned off by a small pool of speculators.

In our hypothetical above, the land value would not increase so rapidly as to force those hard decisions, though it may well rise as the highest and best of that land changes. Small low-density apartment buildings will be redeveloped more quickly into taller higher-density buildings as the ground rent and zoning change to meet those changing needs. As a city moves from a car-dependent model with lots of parking and other non-remunerative uses, developments without parking will be part of the zoning and land-use model, with increased density obviating the need for cars and transit to connect dense areas within the city where walking or cycling are impractical.

Cities should be developed for people, not cars, and housing policy would reflect that. More public space, funded by public wealth through a land value tax/ground rent, rather than thousands of small private parks — yards around homes on suburban streets — and the more diverse and dynamic commercial activity that comes with that.

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