Homelessness and Rent Control

The aspects of supply and demand combined with rent control is actually one of the more basic levels of price controls. It is known as a price ceiling, like minimum wage. How it create homelessness is by limiting the space available for use. The hoarding and changing the application of resources increases demand, while decreasing supply. The attempt here is to explain how this works with examples and limited resource material. Instead this is an overview. For more detail click here

Supply of a commodity is the price at which an item can be sold, while still making money. A supplier will provide zero of the commodity if the price is zero and well provide as many as possible as the price increases. Supply is an upward sloping line, as the price increases the supply increases. This price includes the costs to make the item, if an item costs money to make above the price it is sold for, it will not be supplied.

The demand of a commodity is a downward sloping line, as the price increases the demand decreases. If the cost for an item is zero, an item is demanded more, if the item is expensive, less is demanded…

The combination of demand and supply create an equilibrium value. When charted simply, the lines are straight and create a nice X. (Again, charted simply, the actual values of individual items can be weird when charted individually, a good example is labor supply, which is a backwards curving line….)

So, Value is created by the resources that go into a commodity, the alternate applications of those resources, and the demand for that commodity. An example: Milk can be used for many different things; Ice cream, cheese, or drinking it. If the demand is high for ice cream then more milk will be used to for it, increasing the costs, decreasing the amount of cheese. These values change as demand changes, as resources change.

A price ceiling a way a third party attempts to control the interactions of others. Price ceilings below the equilibrium value mean that a limited number of the commodity will be supplied, because the supplier no longer makes any money creating more items. This price also creates a level at which, if the cost of the commodity is greater than the price ceiling none of the item is create. Additionally, the demand for the item is increased, because it is being sold at a lower value than actual value. Because of the increased demand and the decreased supply, those that can afford to hoard do so. They have no incentives to apply their resources to other places. This obviously is altered based on the ability of the item to be hoarded. (Milk is not hoarded very often, especially in warm environments.)

There is an equilibrium value for rentable properties. This value is created by externalities, which come down to supply and demand, based off resources. Rent Control is a price ceiling, it limits the value at which the rentable properties are sold. The base effect is to limit the supply, while increasing the demand. An additional effect that is created, because this is land/space, is that the richer individuals that can afford to be patient, end up with more and they hoard it. This is why people like Mayor Marion Barry had multiple apartments, the rent was cheap enough and the value high enough. Additionally, spaces that would house many people instead only house a few, this is hoarding. In San Francisco, for instance, a great amount of rent control spaces only have one person [1]. The convex of limiting supply and increasing demand creates homelessness…

If the cost is too high in comparison to the income, the building owner can simply abandon the building. Leaving all those in the building without a place to live. Or, the building owner can burn down the building, and build something different, something without the quality requirements or price controls. This is compounded by, there is no reason to build new homes if the rent control price in not enough to offset the cost to create and upkeep the building. Especially if demands are made on the quality of the buildings that must be provided.

Supply and Demand models are hard to apply at times. And it is where third parties really fuck up the process. For example: Swag, a base glance at supply would suggest that swag is impossible, that paying for items to give away a supplied item with zero profit, and glance at demand would suggest an infinite amount of these items would be wanted… But who the hell wants an infinite amount of stickers with the Geico lizard on them? Simultaneously, Geico provides these stupid things free of charge… The reason is that the value for Geico is getting their name out there, with brand recognition. And the application for the stickers, on the demand side, is limited. But, if a third party came in, decided base on their current value system that the stickers are a waste of resources. Get a law passed banning Swag, no item can be given away for free! The result many fold. One, more legislation, which admittedly would make lawyers happy. Two, charity is not allowed, which would make a lot of organizations very unhappy. And so on…. Either way, no one really benefits from the influence, when instead they could just let the two parties, Geico and the convention goer, decide on the value.

[1]San Francisco Housing DataBook, a 2001 study commissioned by the city and produced by consultants called Bay Area Economics

Aren’t criticism like this only valid insofar as the reader is still wanting to mix a little capitalism with their socialism? The right-minded individual will respond to each of these points with “Well, making hoarding illegal then” and “Well, the Government will build a bunch of housing to counter the low supply, then” and so on.

DAMN YOU!

I guess I hadn’t thought of the, “well, I’m not gonna” counter argument. I can’t think of anything that counters that, except a good beating.

I thought of an interesting analogy to economy and its difficulties.

Rainfall happens, it is a natural part of the environmental cycle that and while we have a moderately good science, as sciences go, for predicting when it is going to happen. Additionally, we have physics and is abstracts, to predict the fall of each drop in the rain, where it starts, why it falls, how the things that effect it will affect it. But we just don’t have the ability to predict in advance where each raindrop is going to go, until it goes their. The foresight involved is currently beyond our capabilities of understanding. We are good at saying, well the rain fell here, this is why it fell here, at least this is what we think is the reason. We can use this knowledge to understand when and why future drops fall, but its just too much damned information to process… We can capture rain, channel it, but we cannot stop the rain. Even in channeling it, we have consequences beyond our understanding. Dams are built to stop too much damage, which works until the dam breaks… And even that does not always stop flooding.

This is economics and its models. We are incapable of predicting each transaction that occurs in day to day life. We are much better at predicting how and why each occurred… International economy is the the hurricane created by the butterfly wings. Each transaction every person makes, from buying coffee to blowing off checking the oil in the car, only to have it blow up later, is the movement of the wings. Attempting to control each consequence of the flap of a wings is absurd, further, it often just creates worse problems than the hurricane that would be created. Those that understand Economics should know enough to know we don’t know enough.

The governments have power. This power can be used for very negative actions. Giving more power to them by giving up the right to make transactions does not mean the negative aspects of those transactions will stop. Instead, the government gets to control the negative aspects. Government are run by people that are just as big of jerks as you and I. In Fact, because the power, the rain, is more centralized, it might cause bigger problems in the long run, as the dam breaks.

…Eh, maybe the analogy doesn’t work.

That is the part that people simply don’t get and leads to all of these hopeful theories on what needs to be done… by the government to protect and serve (but who).

Thanks for doing this. It’s a little confusing to me but i think i get the gist. The problem that i think rent control was intended to address (the road to Hell being paved with good intentions, perhaps) is when the equilibrium value of a needed resource (urban housing) gets inflated beyond the point where the people who actually need it the most are incapable of acquiring (or keeping) it. Say the yuppies decide a given neighborhood (once on the poorer side) is the new chic place to be and start buying up all the apartments there, and developers move in and start putting up luxury condos on every corner, and within a year or a few, all the previous residents find themselves priced out of the place where they were living (What do do now? Apply for section 8 maybe?). Sure, the value of those properties has increased in a “natural” supply-and-demand sort of way, but the people who actually NEED those properties can no longer afford them and, minus a third party intervention of the sort you decry, are left shit out of luck. Minus legislation, does supply and demand point to any more “natural” means of correcting the problem?

It never hurts to help!

Economics is all about cause and effect and thinking around issues. I enjoy it because it all about thinking and applying. But, I took me a while to really get there.

Oh, absolutely! The entire goal was to keep housing cheep. The problem is that it is a snap shot of humanity, which we then try to hold as truth.

This is a perfect example of what I mean by snap shot. The lament is the yuppies, or hipsters, or what ever other group, moves in and gentrifies the fuck out of the place. But, this is looking at the life that is there as a permanent glorious thing, the people that own those buildings would prefer it, because suddenly they can sell the land for more. To put it another way, we stopped using out houses in The US a long time ago, but the above is the equivalent to lamenting the loss and attempting to pass laws to limit the amount of people that can give up out houses. It is a visionary snap shot, held by good people, that just don’t want to see that the actions lead to worse things for everyone.

In the case of the people that NEED those properties, provided that we don’t have restrictions in other places (don’t get me started on open space laws) those people have more money as a group, than a singular person would have. When gentrification occurs, what happens in apartment buildings go up. Allowing more money to be made by the owner, than if they where to have the property be for singular housing. It’s not as if poor peoples money is worth less than a rich person, they just don’t have as much individually.

Here you get into fiddly and more complicated issues. One, legislation almost never does anything that is desired. Attempting to rely on that is foolish. Two, absolutely, the natural means is leaving it the fuck alone. In the long run it all works out, intervening just causes unintended consequences, many of which are far worse than it originally was.

The greatest example of this is the “great depression,” before the great depression other depressions had occurred, the cyclical cycle of economy just works this way. But in previous times the government stayed out of it, and as a result they ended rather quickly. In the great depression however, progressives/pragmatists where convinced something could and therefor had to be done. Looking back, with lovely hindsight, all accounts show that the US was working its way out of the “great depression” until people started passing laws, the New Deal came in and extended it, by many years.

There is two philosopher/economists that talk about “fixing” the problem. John Maynard Keynes and Friedrich Hayek. Hayek (for the record I am effectively a Hayekian) said no, there is not a damn thing any one can do to stop these natural cycles from occurring, intervening will only make it worse and in the long run, it works itself out. Keynes said, “yes but in the long run, we all die, lets do something about this shit up in this hizzy.” (quote may not be completely accurate)

In many ways, the current ideological split between the left and the right can be put down to these two. While there are lots of other factors, these two really emphasis the differences. I am currently working on understanding them better, reading through them…

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” - John Maynard Keynes

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Friedrich Hayek

And now a rap song.

Turns out, the government is full of people… just… people. This is known as public choice theory in economics.

This is a good explanation of this theory.

It's philosophy vs. economics!  A lot of the stuff in your post is very new to me, but I can still apply the basic rules of how facts hang together.  Your info is still very useful though of course.   I think in the end your rain example holds the key to refuting the point I made- the Government can solve each problem that comes up with additional regulations and mandates, and the end result will be them regulating everything and mandating everything. Whether or not a completely controlled economy is a good thing depends on if the State has the ability to predict/provide for everybody's needs and wants as well as a free market.

This is so very true, the biggest problem with socialism is that it fails, not that is out of hand bad. As a conservative, I’m not supposed to say this, but if there was a way for socialism/communism to work, I might be on board with it. There is still some morality aspects I would struggle with, but everyone working with everyone to make everyone better off is a great idea. It’s just the best way to apply this is with the free market.

Does this imply, then, that given sufficiently awesome computers or some other advance, socialism may become the right answer? Are its limitations just practicalities that can be overcome?

That is a damn good question. One that is much harder to answer than looking back at the actions of rent control and the consequences of homelessness. Economics suffers from being able to look back very easy, the whole science of the thing is set up for that. Looking forward is far more difficult.

An true illustrative example of the possible problems: There is a small preschool. This small preschool has a problem, at the end of each day a few parents are late to picking up their kids. This is bad because it requires a teacher to stay after, unpaid, and a couple of distressed children. Each time it happened the parent responsible would receive a strongly worded letter about the problems. Some economists come in, they suggest that a negative incentive be applied. If the parent fails to pick up a kid on time they get charged a fee. It seems like a reasonable application to disincentivise kids getting pick up late. But the result was more kids got pick up late. Changing the incentives from a moral exchange into a financial exchange took away all the problems the parents had. Worse, once switched back, the amount of late pick ups increase more, because now it was a free financial exchange. (Example taken from the book Freakonomics, which is a damned good read for those that want a good intro into the drudgery that is economics.)

Morality is a part of economics, all too often we see dollar symbols when it comes to economics, but money is a symptom, a viable indicator of the application of resources. And simply controlling it, via whatever possible conceived means does not mean suddenly there is no limitations to reality. I should have started out with it, but, the definition of economics is efficient application of limited resources. Hilariously, economics needs philosophy, and (IMHO) Philosophy needs economics. Economics is philosophy with numbers attached, for those so inclined.

One of the problems with Soviet Russia wasn’t just the lack of ability to adjust to reality “on the ground.” It also created a setting of people that did not have a way to get ahead, at least not in non-social means. A social person could still work their way up, but Tang doesn’t get invented by social people, it gets invented by a person that can use it to have more stuff, to live an easier life, to establish a better place for their children. If the end means is always equal, it’s not just easier to go with the lowest common denominator, it also limits the highest denominator. (If that makes sense.)

I would guess when the AI overlords kill all the humans that socialism will be the answer, until then we are stuck with Capitalism. I would compare it to democracy, it’s stupid, it sucks and if we had a great and wise King that rule justly and fairly, we could go with kingship… But that’s not what we have.

In other words, the parents went from thinking "This is an immoral thing that I should not do" to "This is a thing that costs 25 dollars"?   Obviously this plays on corporate regulation too: you come up with a fine or a regulatory law, and the corporate works the fine into their budget or finds a way to work around it without curbing the behavior you were trying to curb.  Why? Because the regulation is a financial transaction instead of a moral imperative.  If so, this gives 'You can't legislate morality" a new twist that is actually somewhat compelling. 

We played an economic game in my philosophy of justice class.  We had a staple  (dry popcorn) and a luxury item (cookies) that were handed out in non-equal measures to the students.  A certain amount of popcorn could be handed in to the teacher to get more cookies.    The object was to find a distribution method for the popcorn, since no one person had enough of it to turn in for cookies, but the method had to be agreed to because everybody owned their popcorn going in.  We ended up settling on a collective method where the people with no initial popcorn were tossed into small groups with people that had lots of popcorn, so they could pool their resources together, and all get some cookies.  Interestingly, everybody was so focused on helping the people with no popcorn that no value was placed on the cookies people already had.  So, I got into a collective with the people that had the most cookies, traded my popcorn to them for cookies they didn't care about.  A few trades down the road and I had half of everything in a class of 30- all the cookies, half the popcorn.  Nobody minded because what little they had left was distributed in an egalitarian manner, so they all felt good about themselves.

Interestingly, the opposite is “true.” Laws that are not moral undermine other laws. While we all understand, and largely agree, on murder being illegal, does anyone give a shit about the importing of Cuban Cigars? The result is the increase of price of cuban cigars, because of the cost of the risk involved with getting them, but also a dismissal of law. Once one law is dismissed, it is so easy to start dismissing the rest, and while few “dismiss” the law against murder, it becomes much easier once a few have been ignored… This is one example of why I enjoy thinking about economics. It is not that we need laws to back up morality, it is that we need morality to back up laws. If a law is not moral, it doesn’t accomplish the goal.

An example: marijuana laws, as time has passed laws have not matched up with the morality of not smoking pot. The result may be the undermining of other laws.

LOL, that is brilliant!

In that case, the cost for the egalitarian actions was less cookies for all but a few. It gets a lot more complicated when you add in an infinite amount of goods, combined with people needing to work for the production of cookies/popcorn. I bet it would change, and be more accurate, should the professor give popcorn/cookies out based on another project.

Which goes back to socialism nicely- in order to have a socialist state, you have to ban all sorts of things like investing money in other people’s projects, lemonade stands, etc. which people will not see as moral laws, and hence, people will just ignore them. I suppose this is why social states end up being so violent to their own people- when you have a bunch of laws that nobody feels any moral compulsion to obey, all you can do is scare the hell out of them.

He gave them out based on hypothetical criteria written on a card. You'd get something like "You belong to a religious minority- 1 popcorn, no cookies" or "You come from a wealthy family, 2 popcorn, 3 cookies" or whatever. My running hypothesis that I was quietly trying to prove is that any bureaucracy creates a "skilled at manipulating the bureaucracy" class.  That's the primary reason I'm not a socialist- the economic reasons why it doesn't work are something I'm not well versed on, but I do believe that aggressive government controls in the end just result in an aristocracy that manipulates the controls.

At one point, England was considered a den of thieves. They were known as smugglers and cut throats. Eventually, they also became known as incorruptible, the freedom to act within their morality without bad laws, resulted in solid morality… Where as socialism/communism results in the opposite, creating a people that ignores laws and eventually large junks of their own morality…

Though that would take a long time to explain and back up. So please take it with a grain of salt.

You could simply state, “in a bureaucracy the incentives reward a social and manipulative group of people.” You now have the economic reasons why it doesn’t work. Economics in some ways is just a dialect, like legalese. Now, you would have to find the numbers to back it up, but that is the economic reasons/thesis.

The random assigning of roles creates a different set up, than if the professor had assigned a value to grades, or the grades of a previous project. More so, if they had an impact on the next project. As it was, the most the experiment found out was that the group was willing to share when the only consequences where that some didn’t get as much cookies/popcorn as if they where serious about obtaining it. What if it was medical care? Or literal years of life? They had no respect for the cookies, they gained them for no cost and lost the same by giving them away… (I know there are rules against exposing grades to public at this point, so I’m not sure if it could be done.)

I think it was just a premise in[i] Road to Serfdom[/i] I was testing, but I could be wrong. Anyway, I didn't come up with it myself. I do like your phrasing better though. 
You see a lot of tongue-in-cheek 'evil' statements that come from the conservatives I read, like "there's nothing worse than a do-gooder" and "The worst thing a president can do is try to fix everything". I think this gets at what you're saying about laws.  It also gets to why social justice is bunk.  That would be a good subject for another thread though probably. 

So anyway, back to homelessness. Is there an argument for why something like housing should be a market-driven product in the first place, as opposed to a government service? Clearly the mixing of the two is crappy, but how do you decide to make something wholesale one way or the other? Can you excise an industry like healthcare, or housing, or energy, or whatever from the private sector, and successfully manage the impact it has on other industries?

But its not the owners of the buildings that i’m concerned about, it’s the people who live in them prior to the place getting gentrified. Gentrification causes homelessness too, it’s just that gentrified neighborhoods export their homeless people, whereas rent-control areas (lower income areas) can’t. And i know that gentrification has all sorts of benefits for property values, but that’s only good if you happen to own property.

Sure, but how many poor people have to combine their paychecks to afford to live in a one-bedroom condo priced at 500K? No doubt more than could possibly ever fit in said one-bedroom condo.

Nonsense.

Yeah, but the natural means is far from being always the best means.

Alas, untrue - at least in my experience and research.

All accounts?

What are the practical, ethical and moral reasons to provide anything for others? Why have that responsibility on top of your own hard responsibilities? Give me more than warm fuzzy reasons, if you can. The only practical reason I can honestly coldly find is as a bribe to keep violence and certain crimes down.

Practical reason: One day you might need something too.

Ethical reason: People who lack your advantages aren’t any less deserving than you, they simply lack your advantages.

Ok so at the core of yours is greed and guilty feelings.
We do use them but, is it right or real?