Rent controls and vacancies

In the latest edition of the Journal of Urban Economics, some evidence that easing rent controls reduces vacancies. 

One housing paradox in many markets is the simultaneous presence of high costs and high vacancy rates. India has expensive housing relative to incomes and an urban housing vacancy rate of 12.4%. We show how insecure property rights in India, as a result of rent control and weak contract enforcement, increases vacancy rates. Using a two-way linear fixed effects panel regression, we exploit changes in rent control laws in the states of West Bengal, Karnataka, Gujarat, and Maharashtra to find that pro-tenant laws are positively related to vacancy rates. A pro-landlord policy change liberalizing rent adjustments could potentially reduce vacancy rates by 2.8 to 3.1 percentage points. Contract enforcement measured by density of judges is negatively related to vacancy. We estimate that a policy change in rent control laws would have a net welfare benefit and could reduce India’s housing shortage by 7.5%.

If the risk of being expropriated by a tenant goes down, landlords are more likely to rent out a vacant spot. 

Afternoon roundup

So many tabs across so many windows. A selection:

• Tauranga has a gang problem. Cat burglars. And the problem is growing.


• Fun field experiment: telling people to discriminate less can do more harm than good. 


• Henry Cooke went through the Emissions Reduction Plan. He finds that, of 284 total actions, 158 are plans to have plans, 121 are policies, and 5 are 'barely relevant'. Check his work.


• Rather silly from Business NZ. They took the ILO "Preliminary list of cases as submitted by the social partners Committee on the Application of Standards", where they've raised complaint about the Fair Pay Agreements, and retitled it "Worst cases' breaches of international labour treaties." 


• Rent controls in St Paul, Minnesota, wound up not having the intended distributional effect. "...the tenants who gained the most from rent control had higher incomes and were more likely to be white, while the owners who lost the most had lower incomes and were more likely to be minorities."


• New Zealand has a massive shortage of housing. We have no shortage of land, agricultural or otherwise. If a developer is willing to pay enough for a paddock to convince the farmer to forgo all the net future value of all the future crop production on it, that's hard evidence it's worth more in housing. Mayors begging for government to ban development on agricultural land... well, it ain't going to help solve the housing shortage. All of this is being made worse by the pushes with the Emissions Reduction Plan. This government will wind up wrecking its housing supply agenda.


• Robin Hanson's guess for the best bang-for-buck altruistic research on a low(ish) budget? Better trials on figuring out how to boost uptake of prediction markets. 


• We'd caught a great podcast on the scandal around the 1950s rigging of American game show Twenty-One. The contestant had the answers, and was told when to take a dive. Meanwhile, Australia's election debate...

Afternoon roundup

The afternoon's closing of the browser tabs:

• Markets in everything: pretending to be other people so they can have a vax pass and you can have eight shots. Some people are willing to pay $200 to have a 60x increase in their odds of real bad stuff when they catch Covid. FFS. 
• The TVA is getting back into nuclear power. One of these units, the BWRX-300, looks to have a generation cost around NZD $75/MWh. That's getting into viable-in-NZ territory. 
• With zero notice, Statistics New Zealand killed NZ.Stat: the interface for access HES and a few other datasets. Infoshare is thankfully still available. I'm talking with other folks about setting up an external mirror of Infoshare, in case SNZ does this kind of thing again. Crazy. Will be writing my Newsroom column next week on it. Statistics New Zealand found however many millions of dollars it took to run a roadshow across the country on whether and how they should be measuring spiritual wellbeing, but wound up five versions behind on core systems. Priorities man. 
• RBNZ running inflation at 5.9% lets Labour claim generosity with a 6% minimum wage hike.
• Councils that like to plead poverty oughtn't put resource into this kind of thing. 
• Superb piece by James Graham summarising the lit on rent control. I expect to point to it a lot in future. 
• Shutting down immigration did not kickstart the Oz economy: Grattan institute.
• More evidence that moderate alcohol consumption is associated with higher wellbeing later in life. 
• UK rules mean Reddit and Twitter will either have to block adult content in the UK entirely, or come up with an age verification setup. Couldn't they just answer some simple questions that only adults can answer instead?

Morning roundup

The morning's worthies, from the accumulated browser tabs:

• A Manhattan Institute roundup, from last January, on the problems with rent control. What would be a fair price on iPredict for a contract paying $1 if Labour brings in rent controls. $0.60? Higher?


• Otago's tallying of the border system failures as at 30 March. Add to it this week's case of a border worker who caught it, and had somehow managed to miss vaccination appointments due to personal reasons. Minister Hipkins could issue a Public Health Order prohibiting unvaccinated workers from being at the front lines. DG Health Bloomfield could issue the same order, covering workers in Auckland. Neither has done it. They don't know which border workers are unvaccinated. The data systems are still being developed (they had to have known that they would need one since at least May of last year) and are currently a bit of a mess. Oh - and they're still not considering daily saliva-based PCR testing of everyone in MIQ, even though the capacity to do it is ready to go, right now. Instead, they're cutting down the number of MIQ spaces to reduce risk. Fundamentally, I think the problem is the one Jo Moir points to: lots of Kiwis are very happy for the country to turn into a hermit kingdom.


• NZ's unaffordable housing makes Bloomberg.


• NZ has a travel bubble coming with Australia - finally! Remember though that Taiwan has even fewer cases than NZ or Oz. We could add Taiwan to the bubble. Why aren't we adding Taiwan to the bubble? But keeping the bubble requires better practice at the border to keep the virus out.


• Jacques Steenkamp at BusinessDesk says that the government isn't bothering to process hundreds of investor visas, with billions of dollars consequently not making it here. Australia is making a better fist of it, as you'd expect. 


• I've seen a lot of snark about what counts as skilled in the skilled migrant immigration category. Brittany Keogh notes that NZ's Barista of the Year had a very hard time getting her skilled migrant visa - INZ had a hard time appreciating her skills. The result was that her employer had to go to market locally and prove that nobody local could do the job she could. It's a terrible way to run a system. It would have to be tempting to bring the award over to INZ HQ and wave it around saying "I told you!".  


• The government banned oil exploration at Taranaki. MBIE warned them that doing so would have consequence well before new fields would have started proving up. MBIE said, "any material change to the exploration side of their business may have an impact on how they view their existing producing assets, and vice versa. Should exploration opportunities be removed, it may have an impact on how oil and gas companies consider their overall presence in New Zealand, potentially incentivising them to either sell their existing producing assets or not to invest further in extending its production life." The government banned it anyway. Now, in a dry year, we're having production issues in the existing fields and gas shortages. That means old coal generators are being brought online and the cost of power has skyrocketed. And Minister Woods is shocked! that power prices are high and wants an enquiry into why. Would an official be fired for telling her that she caused it, that they warned her it would happen, and that uncertainty over the whole sector caused by this kind of policymaking combined with the potential effects of Onslow are hindering the investment in new generation that might possibly get us out of it? 


• After the government banned Taranaki, they held an utterly tone-deaf "Just Transitions" conference in New Plymouth. There, film subsidy mogul James Cameron said that Taranaki's dairy industry also needed to end, while highlighting his own more enlightened approach to farming - where he grew flax, industrial hemp, and vegetables. He now has hundreds of cows grazing in his paddocks, because what he was pitching at the conference doesn't stack up. 


• And now they're banning coal boilers. Recall that coal boilers are in the Emissions Trading Scheme. Every tonne emitted by one of those boilers is a tonne that cannot be emitted elsewhere. They're also suggesting banning other fossil-fuel boilers. Meanwhile, there's an electricity shortage caused by the Taranaki ban. So they're loading more pressure onto the power grid at the same time as they've screwed up electricity supply. The ban is in response to the draft recommendations from the Climate Commission. The Commission will barely have had time to start reading submissions on its proposals. If this government's last term includes mandating electric ambulances in the middle of power blackouts, it wouldn't surprise me. 

Afternoon roundup

The browser tabs, there are so many.

• I'm quoted in the Dom on the 1 April minimum wage increases. I hadn't gone through MBIE's advice before. MBIE's review has a decent summary of the literature, provides the necessary warnings about substantial real minimum wage increases in the current environment. Alas. The analyst would had to have known that the advice would be ignored, but be darned if the advice wasn't going to be provided anyway.


• If iPredict still existed, what would be the fair price on a contract paying $1 if NZ had US-style rent controls before 2022? $0.60? It feels like Robertson's set up a self-fulfilling prophecy. The changes to the tax deductibility of interest for debt on property investments are terrible policy. Bryce and I put out a short research note on it last week. Rents are likely to increase with the changes. Robertson has warned about rent controls if rents go up, or at least didn't rule them out. The Minister will "take action if necessary." Suppose you were a landlord who hadn't put up rents but you worried that the government was set to ban future rent increases if others put up their rents. You have no control over their rents, but you know they're running the same calculus that you are. Solve for equilibrium. Then Robertson will find himself pressured by journalists asking him to make good on his March threats, for the sake of tenants. And then we get rent control. 


• Berlin will tell you how great rent control can be. The freezing of rents in 2014 on existing builds, exempting new builds, saw shortages in existing builds (nobody moves out of them because you lose the low rent) combined with skyrocketing rents in the uncontrolled sector. Here's the IFO Institute paper on it, only the abstract is in English though. 


• Matthew Hooton's Herald column on the government's very slow vaccine rollout is excellent. The Herald also has a dataviz on it. 


• I wonder whether any of the building materials shortage would be eased if NZ didn't make it so hard to import building materials. BusinessDesk has been following the timber shortage. 


• My Newsroom column this week went through the rather cruddy legislate-in-haste policies we've been getting. 


• In praise of chain stores on Cuba Street. Finally. Excellent piece from Georgina Campbell. 


• And there's a new weird Creutzfeldt-Jakob kind of brain disorder in Canada's maritime provinces.
• Wellington's pipes? Nobody knows how much of a mess they're in. 


• Border workers who don't want to be vaccinated? This is dumb. Minister Hipkins has a giant sword. He can issue Public Health Orders. A Public Health Order could forbid anyone from border-facing work unless they had been vaccinated. Knot-sword-solved. Folks could redeploy or work elsewhere. There is unbelievable continued muppetry in the border system. It cannot afford to have unvaccinated people. 


• If I were still teaching Public Choice, the Tourism Industry Taskforce's report would feature in one of the assignments.
  
  "The Tourism Futures Taskforce report says:

  1.3 Efficient competition – Government endorsement of Commerce Commission authorisations for supplier collaboration We need to prevent competition that results in wasted surplus capacity and triggers downward competitive pricing. Authorising businesses to coordinate more sustainable pricing and supply through use of Commerce Commission authorisations will enable supplier-led capacity and price management, or government intervention. We recommend that the Government provides a policy direction to the Commission supporting such authorisations with a mechanism to value the public benefits in a consistent manner. The result of authorised collaboration will enable better economic returns on capital assets, more coordinated management of destinations and further investment by businesses in other wellbeings (which would be a clear requirement of the authorisations – for example: better wages, biodiversity, and climate and community outcomes).

  Discuss with reference to theory as developed in class. Particularly check through the weeks on rent-seeking, and sections on raising rivals' costs.