Monday, October 21, 2019

Does Rent Control Make Sense for Minneapolis? What Theory and Evidence Tell Us

Minneapolis like many American cities is facing a housing affordability crisis.  Rents  are going up rapidly,  placing middle class and low income households into units beyond what they can afford, if in fact they can even find suitable unit at all.  Among solutions  being considered in Minneapolis and elsewhere is rent control or stabilization.  Is that a viable solution?

            The case for rent control is simple:  Freeze rents or limit increases  to reasonable costs plus indexed inflation.  The hope is that this will squeeze unfair profiteering out of the housing market and  eventually make units more affordable.  Evidence does suggest that rent control  helps existing tenants, including  encouraging them  to remain in their current units for years.  This may stabilize  neighborhoods in healthy ways, perhaps increasing a sense of community and the building of social capital.  Rent control done right, will possibly stem the migration of middle class out of a city, also an important goal.

            But the textbook  economist’s  answer to whether rent control works is no.  For an economist, housing is like any other commodity that responds to market forces of supply and demand.  The only way to decrease the cost of housing is to increase the supply.  However,  this solution does not always work.  Developers, left to their own devices and market incentives, will build units that yield the highest profit  margin, and that is not necessarily middle class or low income housing.  Housing markets are segregated by income or class, and simply building more units will not translate into serving the overall housing market or populations.  The best way to provide affordable middle class or low income units is to build them to serve that market.

            But economists will argue that rent control does not work because of the market externalities it produces.    One, place caps on the rent that landlords can charge, and they will delay maintenance.  Two, rent control creates disincentives to build new units since the profits will not be there.  Three, owners will convert existing rental units to condos or coops in avoid rent control, thereby exacerbating the rental shortage.  Four, developers will move housing construction outside of the rent control jurisdiction, again  aggravating shortages.  Five, rent control make encourage tenants to stay in units for too long or in units that no longer serve their needs, creating a mismatch between apartments and occupants.  Empirical studies of what happened in San Francisco, California  and Cambridge, Massachusetts lend evidence to these claims.

            Overall, economists and critics assert that while rent control might benefit current tenants or occupants, longer term its impact is more destructive.  A parallel to this is what happened in 1978 with California’s Proposition 13 that froze property taxes on existing housing.  Its impact was to shift property taxes to new construction, driving up its cost and leading to some of the rental shortage and cost problems one sees lingering to this day.

            Moreover, in the case of Minneapolis, rent control cannot be examined in isolation, but in conjunction with other policies, such as the 2040 Comprehensive Plan.  It calls for significantly new construction through the elimination of single gamily zoning. The hope is that increased densification of housing will, among other things, reduce or stabilize rents.  Simply rezoning will not necessarily produce the type of housing units that help middle class or low  income households or ensure that  historically segregated neighborhoods will equitably integrate.  Here, rent control may counteract and benefits  that come from Minneapolis 2040 by again decreasing incentives to build more units of any kind.  It may push development into higher end condos or shift development outside the city.

            Finally, rent control may work well when there is a surplus of units to prevent speculation.  But as in the case of Minneapolis where there is already a shortage of units, squeezing rents will not solve a pre-existing problem, only make it worse.

            How can one address the lack of affordable housing?  Specifically building those types of units combined with rent stabilization policies is one way to do it.   Rental subsidies are another solution.  Three, Minneapolis is part of a larger metro-wide housing market and it needs to operate in concert with other jurisdictions or the Met Council to fix the problem.  Four, consider alternative housing strategies, such as  encouraging the construction of  micro-housing.  Five, more creative development solutions, such as waivers on height or unit  numbers in return for dedicated construction of middle class or low income units, should be considered.  Six, allow for pre-fab units, which are cheaper to build, to be sited in Minneapolis.

            Rent control alone is a crude solution to a serious problem.  The real problem is that  housing is a basic human need commodified, meaning its delivery is mostly subject to the laws of marketplace.  Rent control is a band aid on a larger problem  and if implemented wrongly it produces secondary effects that distort housing markets for decades.  Used more carefully and in conjunction with  other strategies, it may serve as a partial tool to addressing the problem that a free market delivery of housing produces.

Wednesday, October 2, 2019

The Myth of Partisan Backlash: The Real Lessons of Past Impeachments

Nancy Pelosi=s decision for so long not to pursue impeachment against Donald Trump   The basis of this wisdom is the 1998 Republican impeachment of Bill Clinton.  The real lesson of 1998 and other prior impeachments  may far different than what the national media and Washington insiders may believe, and, in fact, past impeachments may provide little clue to what might happen this time.was based on national media Washington, D.C. conventional wisdom that it will backlash against Democrats, ensuring his reelection in 2020, if not the loss of the House.
Each impeachment and trial is politically unique, taking place under specific factual circumstances.  Consider the three impeachments of presidents that have thus far occurred.
The first was Andrew Johnson in 1868.  He was a Tennessee Democrat, Abraham Lincoln=s 1864 vice-president who  became president upon the latter=s assassination.  Lincoln chose him as appeasement to the border states to hold them within the Union.  Yet Johnson opposed the abolition of slavery, impeded  Reconstruction, and did his best to stymie it via vetoes, non-administration, and the firing of holdover Lincoln  appointees.  While the 11 Articles of Impeachment that the House voted on were mostly about the firing of Secretary of War Edwin Stanton contrary to congressional law, the real issue was a congressional-presidential fight over Reconstruction.
The impeachment came at a time when many southern states from Confederacy were effectively under federal control, with 10 of them not readmitted for representation in Congress.  The House of Representatives voted 126 to 47 (with 17 members not voting), to impeach.  Given how few Democrats in the House, this was mostly a Republican effort.   The Senate acquitted Johnson by one vote.  It was a body heavily dominated by Republicans.
There was no partisan backlash among voters that appeared in the 1968 election.  The Republican Ulysses S. Grant won the presidency, Republicans lost two seats in the House, the Democrats picked up 20, mostly from reseating of the South.  In the Senate, Democrats gained no seats while the Republicans picked up 20.
In July 1974 the House Judiciary Committee voted on three Articles of Impeachment against Nixon, for obstruction of justice, abuse of power, and contempt of Congress.  These articles arose from Nixon=s  ordering of the Watergate break-in and seeking to hide the crime and hinder congressional  investigations.  The Committee  recommended the three articles  to the full House, mostly along party lines. Before a full impeachment vote, Nixon resigned.  However come November Democrats retained a large majority in the House even as they lost 13 seats, while in the Senate they increased  their control by five seats.
Finally, in 1998 House Republicans led by Speaker Newt Gingrich impeached Bill Clinton  on Articles of Impeachment arising out of his perjury before a grand jury and obstruction of justice.  The charges were the result of investigations undertaken by special prosecutor Kenneth Starr and whether Clinton had lied under oath about a sexual relationship with Monica Lewinsky.  Impeachment proceedings began before the 1998 election although the actual vote to impeach occurred in December.  The vote followed mostly party lines.  The Senate trial began in January 1999, concluding in February with an acquittal again mostly along party lines.

What is significant about the Clinton impeachment is that Newt Gingrich reportedly said that Republicans would pick up 30 seats by doing it.  They lost five and eventually Gingrich had to resign, some claim, because of this.   In the Senate, Republicans lost no seats. Clinton went on to serve out his term and left office in 2001 with one of the highest presidential approval ratings in years.
The conventional wisdom from 1998 was that the Republican impeachment was viewed as purely partisan, mobilizing Democratic voters to Clinton=s and their party=s defense.  This is the lesson or specter that supposedly haunts Democrats nowBimpeach Trump and fail and he survives stronger, wins re-election, and Democrats pay in the 2020 elections.
Yet this morale is too simplistic.  As much as 1998 was so different from 1868 and 1974, so it 2019 or 2020.  Yes, all three previous impeachments have been brought by the opposition party and many of the votes fell along partisan lines.  Perhaps this means that opposition parties are doing what they are supposed to doBhelp check the other party.  All three took place in highly partisan times, and all three centered on congressional-presidential struggles for power.  But there the parallels end, especially with 1998 and the present.
Trump is less popular now than Clinton was at impeachment time.  Lying about a sexual relationship (at least then) was seen as less serious than potential Articles of Impeachment against Trump involving abuse of power connected to his conversation with the Ukrainian president.  America now is a different kind of partisan country than 1998.  It could also be the case this impeachment mobilizes Democrats, especially after a probable Republican acquittal in the Senate.  Also, other variables, such as a slowing economy, concern over foreign affairs, and a host of other issues might mean that 2020 is far different than 1998.
 But also, given that the 1998 impeachment occurred after the elections that year, it might be better to look at what happened in the 2000 elections where Republicans lost two seats in the House, five in the Senate, but won the presidency in a contested George Bush/Al Gore election that came down to Florida.  In reality from 1998 to 2000 Republicans only lost seven House and five Senate seats and took by the presidency.    Yes sets were lost, but it is hard to attribute solely to Clinton=s impeachment.  The real issue may have been Gingrich=s over-promise and creating unreasonable expectations.
The point is that there is no one clear message about partisan backlash that can be told from the three prior impeachments.  This too includes 1998.  The conventional wisdom that a potential coming impeachment of Trump will necessarily benefit him and Republicans and hurt Democrats is either groundless or speculative at best, with at least a potential scenario it helps Democrats in 2020.