Can Rent Control Be Fixed?

I've been thinking of moving out of my apartment, so lots of thoughts about rent prices in New York have been dancing in my head. For the record, my apartment is not rent controlled, but in the three years I've been living here, there's been no rent increase. I think it's because our landlords like us a lot, and have had terrible luck with the other tenants in our building. I know we pay sub-market rates, though I also know that everyone in NYC think they lucked into a great deal somehow.

You already know I think rent control by fiat is a bad idea. But I don't see it going away anytime in NYC. So the question is: can it be fixed? It's not totally absurd that public policy should be brushed with a light patina of egalitarianism, but it should be done in the right way.

So here's my rethink: Rent control becomes a meaningful factor when a gap starts to grow between what a landlord is legally allowed to charge, and what the landlord could charge in a totally free market. Basically, this gap represents a transfer of equity from the landlord to the tenant. But there's obviously a lot more than the monthly rent savings that the tenant sees. There's also a distinct value in the right an apartment at sub-market rents for an indefinite period of time in the future.

That right is a real asset, but it's not a tradable asset. You can't sell that right (legally) to someone else and you can't borrow against it. It's an a-liquid derivative of the underlying asset -- the apartment. The only thing you can do with that asset is lose it, by moving out of your place. As such, if you've been in a place long enough, and there's a yawning gap between what you pay, and what the market will brook, then the act of moving out becomes a huge destroyer of wealth. This situation leads to immobility and corruption.

What if instead of the renters pocketing the difference between their rent-controlled rate and the market price, they were forced to contribute that difference to some sort of investment fund. So for example, if you're paying $1,000 per month, and the market rate is $1500, then you'd pay $1,000 to the landlord and some percentage of $500 to a fund. Maybe 90 percent, so you'd pay $450 to the fund.

The first thing you could do is have the interest from this fund set aside for house maintenance. It's a problem of rent-controlled places that without much money coming in, the owner doesn't have much incentive to pay for upkeep. And renters never feel particularly compelled to pay for upkeep.

The fund, then, also represents a real asset. You get access to the cash when you leave the house. Or you can sell someone else the entire fund, and with the right to rent the apartment at sub-market rates.

Also, I'm envisioning some sort of equity stake for the owner, especially if the fund/the right to inhabit the apt. at sub-market rates is sold.

...Well, as you can see, the idea needs some ironing out. But the basic idea is to turn the asset "access to a rent-controlled apt." into something that can be traded, so as to prevent the destruction of wealth, while also giving a break to people that might otherwise be priced out of a neighborhood. In addition, it might not be a bad idea to create an ownable asset for renters, which would (ideally) give them a greater stake in the maintenance and value of the underlying asset.

Comments

[ShortWoman]

What about the other problem of rent control: the fact that over time it creates a shortage of rental housing (there is little incentive to create new rental housing) and thereby raises prices of purchased housing?

[Chinarut]

I have no idea if this is a new concept but as soon as I moved to Tokyo - the idea of an auction uncovered itself!

http://www.monthly-auction.com/tokyo/

i can't read japanese and can see it might benefit to do so!

clearly, this person has other cities in mind- should be an interesting game to watch!

had to happen :)