Housing and Regulation

Housing and Regulation June 21, 2010

There seems to be an underlying assumption that the US would be better off if more people rented and fewer people owned dwellings.  Often folks point to places like Europe where it isn’t unusual for the middle class to rent their dwellings.  Many people will point to economic incentives like the mortgage interest deduction while neglecting to note that price to rent ratios already indicated a significant discount for renters for comparable properties.  The magic factor that makes renting in Europe more attractive than renting in the US is regulation favorable to renters.  But a recent study by a George Mason university economics hack claimed that it was unenlightened to think that housing regulations could do anything but add cost.  A conundrum.


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  • I believe it’s the case that leases for family dwellings in Europe typically run for decades, rather than for a year or two at time, as they do here, and that they are transferrable from generation to generation, as is usually not the case here. I have no doubt that many more Americans would choose to rent, rather than to own, if there were more security and stability in it.

  • There seems to be an underlying assumption that the US would be better off if more people rented and fewer people owned dwellings.

    Who makes this assumption? Nobody I know.

  • M.Z.:

    Could you post links to your sources? Like Pauli, I also don’t see the better-off-renting assumption anywhere in the US besides (maybe) Manhattan.

    Regarding whether regulation adds cost,… how can regulation not add cost, since its purpose is to prevent the market from functioning at its unencumbered equilibrium? Ideally, societies impose regulation or taboo because they believe stability and other social benefits outweigh the economic costs.

  • Dan

    This is very bizarre. Owning creates an inheritable asset. Renting creates nothing for your offspring. The true issue isn’t ownership – it’s people living beyond their means and taking out mortgages that cripple them financially. You’d have the same problem if people rented dwellings that were well beyond their means.

  • Rodak

    You’d have the same problem if people rented dwellings that were well beyond their means.

    No. The people sitting on the curb next to their piled up belongings would have the same problem. But no bank would have the problem of a large, unrecoverable loan, which multiplied by the tens of thousands becomes a problem for society-at-large. And you still have homeless people to deal with, either way.

  • M.Z.
  • Cathy

    I am not sure about an underlying assumption. Common sense would dictate if a person can afford to purchase a home or not.

    I do not see the need for regulation to impose restrictions on short-term leases in my neighborhood. This is a neighborhood debate and not a national one. Leave this determination to city or county government and out of the federal government. Purchasing a home and becoming debt free is a better idea for me than to live a life saddled with a long-term lease.

    Of course regulation would add cost. The people enforcing the regulation would expect to receive a salary.

  • M.Z.

    What is more important in sustaining values is control and not ownership. If one lives in the place he owns, he has both ownership and control. More heavily regulated environments allow the leasee to have control without ownership. This in the end creates more value than the situation where the leasee has neither control nor ownership. In many parts of the country, it is not practical to have widespread ownership without going to ownership structures like condos and townhouses. This creates its own intractible problems.

  • Cathy

    If a leasee gains control through regulation, the owner would lose control as a result. Why would someone wish to risk capital and own real estate for rent? (Would cost of improving and maintaining the property shift to the leasee? Probably not.)

    Regulation would become costly and the condition of the property could suffer as a result. Or, the cost of rent would increase to cover the additional costs associated with regulation. (Regulation to prohibit a rent increase to cover the cost of regulation would not work because the owner would not have enough rental income to support maintenance and/or regulation costs.)

    Rental regulation would add a new set of problems.

    • M.Z.

      The owner still retains ownership. Their frictional costs have increased though. If I went to bulldoze the low income apartment building to make a big shopping center, then I just have to find a way for the tenants to surrender their leases. This is typically done with money.

      In a declining market, you very easily could see property deterioration. This is usually handled be assessing the property owner for repairs if they aren’t made after notice has been given. Generally, cause must be shown for rent increases over a certain percentage in heavily regulated markets. In the end, what the regulations tend to do is make building owners conservative. They don’t chase trends. They don’t make speculative improvements; they make sure bets. These aren’t exactly bad things.

  • Has anyone heard any details about how the new financial reform bill is going to affect mortgage brokers?