Funny, I have always heard the “invisible hand” as referring to the interchange of supply and demand that moves prices (or in reaction thereto), driven by the self-interest of massive amount of opposing parties with diametrically opposed interests (one wants as much as possible at the least cost possible, the other wanting to give as little as possible at the most cost possible) results in an equilibrum without having to establish a policy on prices.
This is not the same as “laissez-faire” in which government regulations are taken to be detrimental in the vast majority of cases.
Even the liberal economists who oppose rent control all agree that a price cap has an impact on supply, even though the same economists would strongly oppose laissez-faire.
This young lady is paying 69,000-yen a month for an 8[sup]2[/sup]-meter apartment in Tokyo. In the final minutes she says it is a bit high for the size but among other things, she likes the bed being in a loft rather than everything being in one tiny room, and they rent by the month rather than two-year leases like most places offer; her work-visa has to be renewed every months.
To state a little differently, free markets are the best way to most efficiently distribute limited resources, with rare exceptions. But society can always, and modern countries always do, decide to sacrifice efficiency to some degree at the margins in favor of subjectively perceived ‘fairness’. It’s a judgement call how to do that, but one basic point of disagreement would be whether to do it by interfering with the basic functioning of markets, or to just subsidized people who are deemed to suffer unacceptable outcomes in market competition.
Almost no economists really believe that invasive interference in the basic workings of markets, like setting prices, like rent control, is really the best way to modify market outcomes to what’s perceived as acceptable from a ‘fairness’ POV. The best way would be to tax incomes, property etc and given some of that money to people who can’t afford market rents* but are deemed to have a ‘right’ to live in a very expensive area, [City of] NY for example, rather than just move somewhere where they can afford rents. That would waste fewer resources and create fewer perverse incentives.
The reason not to do that is basically pandemic economic illiteracy. Although simply subsidizing people who cannot achieve ‘acceptable’ outcomes in market competition is usually the least inefficient way to balance efficiency and fairness, very few ordinary people believe that. It’s kind of like ordinary people’s tendency to oppose free trade (unless there’s some extraneous reason to start supporting it, like Trump is seen to oppose it and they can’t be seen to agree with him on anything). The seat of pants sense is that price fixing like rent control doesn’t really cost anything, so why do something that does, like rent subsidies? Though actually rent control costs more. Politicians have to live in the real world, and the real choice is whether a known bad policy like rent control is less worse than nothing. Assuming politicians understand rent control is a bad policy that is. Some of the more sophisticated ones must, though others are also economically illiterate and do not.
*keeping in mind, sticking with the example of NY, that ‘market rents’ would be considerably lower than now if all the Stabilized properties were allowed to rent at market. The ‘market’ rent is for a marginal subset of properties tenants have to compete for, the market clearing price for the whole of rental stock would be lower. That said, with even a gradual transition to no RS, but no subsidies, some less well off people would have to move out of NY. It’s a judgement call which of them ‘shouldn’t’ have to.
Edit to add while kind of beating a dead horse, Ravenman has covered this very well, Smith did not say the functioning of markets depended on any enlightenment by market participants. Nor have any serious pro market theorists since.
It’s anti-capitalist people who say markets only work if participants are moral or enlightened in some way. And since people usually aren’t when it comes to commerce, markets don’t work. But free market theory from Smith onward does not actually depend on people being a priori, ethnical or looking at their long term interest. Which is different than people acting ethically because they learn it benefits their market outcomes, or IOW would cost them money not to.
Although this relates to the issue of setting neutral rules. Libertarian extremists reject neutral rules, but being a free market proponent does not mean you do. For example it’s illegal to threaten a tenant with violence if they don’t move out. An extreme libertarian would say that’s govt interference but common sense says coercion of tenants would only be kept under control in that case if landlords were ethical. A free market proponent accepts a neutral rule like that, which doesn’t directly interfere with the setting of prices. Assuming landlords (or tenants) don’t use tactics like violence to get their way, the price set in the market, and value of efficient allocation of resources by market price, does not depend on either tenants or landlords being ethical or enlightened. The market just settles at a price where another tenant/landlord will outbid the tenant/landlord who demands a lower/higher rent, doesn’t matter if it’s ‘greedy’ for them to want that lower/higher rent, they cannot get it. Again separate from whether one or the other side should be subsidized by the public in the interest of perceived fairness.
The lesson learned from the robber barons in England and the uSA, with disastrous crippling monopolies and terrible attack on competitors shows that this simply isnt true. Left to itself, the "free market’ with in a few years no longer be "free’.
That’s back to the distinction between govt trying to set prices and govt setting neutral rules. Anti-trust laws are price neutral rules. They don’t say what price you have to sell something for, in fact they are specifically to prevent price fixing. That’s different in kind not just degree from govt price fixing like rent control.
Rent control, the topic here, is a much easier one than an open ended question ‘what is the role of govt in the economy?’ or strawman type question like ‘what if there were no market rules whatsoever?’
Rent control is price fixing. Price fixing creates misallocation of resources and perverse incentives as compared to market price discovery. If the outcome of market pricing is judged unacceptably ‘unfair’, a subjective judgement call, then collecting taxes to subsidize people who cannot pay market prices is virtually always preferable to govt price fixing.
If you’re talking resources, this is true. If you’re talking about money, the answer is a lot more difficult to state unequivocally.
From a fairness standpoint, most people will work 40 hour weeks through the majority of their prime and, probably, most of us would think that amount of labor for society is roughly worth a house, enough money to retire, to raise 2-4 kids, etc. And, I should note, that’s not just “fair”. If humans were all mostly rational, we would probably expect the free market to do that, because anything less should be inefficient for the market. Workers who spend their lives creating and distributing the things to support the whole population need to be able to continue on from generation to generation, or the engine will stop. But to create and distribute things, you need to be able to get trained up, feel like there’s value in spending your life working, and be able to afford creating the next generation.
But, as it is right now, among that same group of people who work 40 hour weeks, in the American system (which is more free than most, but not quite free) only about 2/3rds of those people earn enough money to afford all of that, via their wages. This should be inefficient for the market since, as said, you can’t lose 1/3rd of your workforce every generation, because they’re not earning a true living wage.
The issue is that the average person is sufficiently bad with money and with planning for the future that they fail to bargain appropriately for a wage sufficient to see them able to retire, put their kids through college, cover their medical expenses, etc. In those cases where they get extra money (a bonus, win the lottery, become a famous actor/sports star, etc.) they tend to just throw it all away and (with sufficient money) drive themselves insane and gain some form of addiction.
If you manipulated wages enough to give people a wage equivalent to their contribution to society, we would expect that most of what you would see is a boost to things like cannabis use, use of casinos, etc. You would be giving people enough money to save to buy a house and retire, one day, but that’s not what would actually happen in practice.
In the free market, about 1/3rd of people would go from working to “the pasture” once they’re too old to work anymore (assuming that there was no family willing to take them in). They’d burn through the few hundred dollars in their account, take out a few payday loans, and then be out on the street within a few months.
In historic times, this was handled by it being that people expected to live with their children, when they got older. The next generation would route their “casino money” to, instead, supporting their elders. In cases where that wasn’t an option, than the retiree was headed to the poor house - usually run partly through the charitable donations of others. Poor houses aren’t really a free market solution, though.
The free market works well in the cases where people are objective and rational. Businesses are largely able to do this. The average individual, not so much.
From a policy standpoint, leaving businesses alone pretty well makes sense. They do what they do just fine (with exceptions). It’s the worker side of thing where you need to do some fiddling.
Not really. If the landlords are allowed to reset rents when a vacancy occurs, and are allowed to raise the rents a reasonable amount a year, then it’s fluctuation control, not price fixing. That’s how it is in San Jose. It just protects both sides from weird short term market fluctuations.
That also includes all utilities and internet - which is probably around Y12,000 a month - plus the contract is month-to-month with no key money required, and it’s near a Yamanote Line station, which is -very- central Tokyo.
It’s a pretty good deal all told. It’s not just the size it’s the location.
After have had lived in Japan on and off for several years over a ten-year period, I married a Japanese woman and moved to Japan in 1990. I’ve been in Asia since then. My wife and I lived with her parents for a year while we saved money.
I wasn’t working for a foreign company, but I was working for a Japanese one. I was married to a Japanese. I had a guarantee from my Japanese father-in-law. I spoke close to fluent Japanese and could read and write Japanese.
We decided to move out on our own in about 1992ish. As you put it, Fuck’A. My wife was doing apartment shopping and would go someplace. They would look at some interesting places and she would ask if it would be a problem if her husband was a foreigner. “No problem.” Until I showed up in my light brown hair and hazel eyes. Suddenly there were absolutely no apartments to rent.
One realtor was very kind, explained it was difficult to find places and spent a while on the phone calling the realtors who represented the landlords only to get turned down a number of time.
One place in particular, I wanted to come back with a fucking shotgun. The bored realtor was reading a newspaper but jumped to attention when the bell on the door rang as we opened it. He saw me, his eyes went right back to the paper and he simply waved his hands in dismissal, as if shooing away a fly.
I also came away from that experience with a greater appreciation of what people of color experience.
I had a relationship for a while with a divorced woman I picked up in Roppongi. As her part of divorce, she had three or four apartments in central Tokyo which she was able to live off of. She wouldn’t rent to foreigners. She had absolutely no problem getting picked up and fucking them, she just wouldn’t rent to them.
I knew hundreds of foreigners in the 25 plus years I lived there. All of them were living in fixed abodes and not just crashing in the park, so people would find places.
I didn’t have any problem purchasing a house. I also had a couple of friends who made money by renting apartments and then subleasing them to foreigners.
How do you increase supply when the only land left unbuilt is streets and parks, and it’s all already high rises (by US standards)? The total supply of living units isn’t very manageable; you need to work on own/rent balance. Doing this has two facets: a cultural one which is long-term, and a price-based one which is short-term. One of the biggest, if not the biggest, problems with the AirBnB market is that the short-term rentals are prohibitive for anybody who doesn’t have Daddy Corporate to pay for him and the long-term rentals are being replaced by short-term rentals, so the growth in the total rental market is actually lowering the amount of units available for “real renters”.
The places we are talking about is NOT already all high rises. Not even close. Go around the Bay Area and you see tons and tons of single family homes built just after World War II. I’m not talking about the parts of San Francisco like the Marina District or Nob Hill; look at the Sunset, most of Silicon Valley, most of the East Bay, etc. But for the most part, these communities have chosen policies that stop redevelopment of these neighborhoods.
I agree. I have no issue with regulating homeshares, like limiting it to owner-occupied units.
As I have said before, not a lot of landlords are savvy. They will kick out good solid tenants to chase new tenant with higher rents, not realizing that in a year, the cycle changes and rents will go down, and those rich dot.com guys will either have their own house or be broke. Thus they will have lost good solid clean tenants who have paid on time for five years to chase quick, cheap profits, and int he end, lose.