Erdmann Housing Tracker · Housing & Cities
TIER 4 Mon, 17 Nov 2025 22:30:54 +0000
John Cochrane has a generally great post up about rent control. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ | | ---|---|--- | | | Forwarded this email? Subscribe here for more --- --- # John Cochrane | | Kevin Erdmann --- | Nov 17 --- | --- --- | | | --- | | --- | | --- | | --- | | READ IN APP --- John Cochrane has a generally great post up about rent control. This is similar to the post from Jeremy Horpedahl last week about rising incomes. Both were shared by Alex Tabarrok at Marginal Revolution with favorable comments. Upgrade to paid In both cases, the basic points being made are important, and pro-market economists need to update their priors on what has happened in the mortgage market in order to retain credibility on the points where they deserve credibility. Cochrane's post is an even more stark example of the problem than Horpedahl's was. Cochrane is a bit fed up, for good reason, and he makes a compelling case about how much damage rent control and various other frictions in the housing market have done. A couple of points of note: > When Javier Milei ended rent control in Buenos Aires, rent went down. Instantly. Nothing had to get built. It can happen in Manhattan. > With a fixed supply, the number of people who have houses is fixed. The only effect of rent controls or demand subsidies is to change who gets the houses. Cochrane makes a lot of good points, and I want to emphasize that, as with Horpedahl's reminder that households are generally becoming better off over time, Cochrane's full throated resistance to naive support for price controls is apparently a point that many people need to hear. But, again, I must interject. Cochrane seems to be entirely unaware of the deep shock to mortgage access that happened in 2008 and the effects it had on the housing market. And, again, I have to warn pro-market economists that if you want to retain your credibility on matters where you deserve it, you need to notice earth-shattering trends in our economy that are creating meaningful conflict in American's lives. Cochrane makes some great points about how, even beyond rent control, there are other tax and lending policies and norms that prevent families from sorting more efficiently among the existing stock of homes. So there is a lot of inefficiently used space within the homes we have. But, since he's ignorant about the most important economic development of the current century, his point goes off the rails a bit. Here's another quote: > The biggest losers of rent control are the young, the mobile, the ambitious, immigrants, and people without a lot of cash. If you want to move from Fresno to take a job in San Francisco and move up, and you don't have millions lying around to buy, you need rentals. Rent control means they are not available. Income inequality, opportunity, equity, all get worse. This is all great. What about someone who wants to move from Omaha to Phoenix? That is declined significantly, too. Not because of rent control. Those movers also need rentals because the federal government won't let banks originate a mortgage for them. In other writing, Cochrane appears to recognize on some level that the federal government has made it harder for private lenders to originate mortgages, but he seems mostly to be upset that it has directed lending to the federal agencies rather than to be upset that millions of families can't get mortgages any more. Here's another quote: > The problem with "regulatory barriers" is not that on removal it takes years to build housing, it's that it takes decades to remove regulatory barriers. Remove the barriers tomorrow -- zoning, planning, density and height restrictions, dozens of separate permits, labor restrictions (unions, high minimum wages), and so on -- and you could get actual new housing before the next presidential election. Again, all great points. But, one issue is responsible for the loss of about 15 million units over the past 17 years, and that issue is not on his list. _He doesn 't know_! > There is plenty of housing supply in the US, it's just not in places where people want to move. Oof. There's that thing. This is a popular statement among housing commentators who still think it's 1998. This is such an interesting comment. Of course, supply is needed in places with pent up demand and isn't needed in places where there isn't demand. This is a truism. It shouldn't need to be said. Nobody says it in other contexts. During the pandemic when there was a shortage of baby formula, no economist stepped in front of a microphone, cleared their throat, and smugly announced, "Let me be clear. There isn't a shortage of baby formula in the US. There is just a shortage of baby formula in households that have babies." So why do people say this? Because they are uninformed, they think the rest of you need a remedial clarification, but all they are clarifying is that they are uninformed. The statement is always true. Even if we put a moratorium on new home construction and the average family starts spending 70% of their income on rent, it will be true that there will be plenty of homes in Altus, Oklahoma. If that happens, what point will it serve to make Cochrane's clarification? Would it mean that the moratorium is unimportant? The problem is that Cochrane isn't necessarily arguing against building new supply. In a way, it's worse. He doesn't realize that in 70% of the country, none of those factors he lists were the policy errors that triggered the loss of 15 million homes. He doesn't know. > Others moving out is "supply," and greatly impeded. Older people stay in too-big houses and apartments, in locations close to work and school opportunities that young families desire, but the older people no longer need. Why? If they sell, they are taxed on capital gains, even just due to inflation. They lose property tax exemptions, and, of course, rent control protection. Each older person who cashes in, downsizes, or moves to a more neighborhood more suited to them, supplies a house or apartment. Under current conditions, making it easier for families to move will not significantly improve matters. He's describing 1998. In 1998, it was true. The more families we could move out of Los Angeles, the more rents would decline in Los Angeles. And when the family moved to Phoenix or Dallas or Nashville, a new home was constructed for them there. So, rents, on average, were elevated, but there wasn't a national shortage of homes. Moving families out of Los Angeles could normalize the rent inflation. But the mortgage crackdown ended that. After 2008, a family moving from Los Angeles lowers rents in Los Angeles and raises rents in Phoenix or Dallas or Nashville. Moving only creates supply when only a few of the places people want to live are blocking new supply. When supply is blocked in every place people want to live, moving doesn't create supply. And supply is blocked in every place because of zoning rules that Cochrane is familiar with and a deep federal shock to mortgage access which he appears to not be familiar with. Figure 1 compares rental vacancy rates in California and Massachusetts (places where more families would move away if things like rent control weren't in place) to the national vacancy rate. The mortgage crackdown has moved the national vacancy rate down to the range that they were at in California and Massachusetts before the mortgage crackdown. There aren't places swimming in vacant units. | | ---|---|--- Figure 1 By the way, while we're looking at Figure 1, notice how the national vacancy rate increased from the late 1990s to 2004, and that coincided with an increase in the vacancy rate in California and Massachusetts that went from ridiculous to merely tight. In general, the vacancy rate in 2005 was about neutral in terms of maintaining stable rent inflation under the regional shortage conditions where getting people to move out of supply constrained cities, as noted by Cochrane, is part of the process. That shouldn't be how the housing market works, but if it has to be, then the market was briefly in the range of functional in 2005. The building boom was facilitating that movement. More units in other regions were drawing families out of the Closed Access cities, and that was associated with a moderate increase in vacancies within the Closed Access cities. But, rent inflation was still high in the Closed Access cities. Vacancies could never rise enough there to lower rents, because of the reasons Cochrane understands. Note also that the rental vacancy rate declined in 2005 and 2006. New home sales began to collapse sharply by the end of 2005. Vacancies were declining and the migration out of the Closed Access cities were declining well before the developments related to the financial crisis played out. The regional supply shortage had become somewhat national well before we communally agreed to invoke a financial crisis and blame it, a priori, on a lending boom and a housing glut. My impression is that Cochrane has the standard position of right-leaning, pro-market economists on the 2008 crisis, and that he believes that a lending boom created a glut of homes before 2008. In trying to confirm that, I came across this interesting conversation from 2018 where Cochrane and a room full of other economists are struggling to clarify their explanations about what happened before 2008. It's paragraph after paragraph of "So, something related to interest rates or loose lending or housing subsidies happened, and that caused prices to rise?" "Well, surprising, the data doesn't support that." And, at each point, the answer was "Where supply is so short that families must become poorer to remain in place, rents increase until families move away, and prices increase at more than a 1:1 ratio to rents. This happens everywhere that supply is so low." The economists around that table are all economists for whom supply-centered explanations are very important. But, that statement was outside the Overton window. So, the conversation goes around and around until enough complications can be added to their mental model of how interest rates, lending, and federal subsidies created unsustainable home prices to make the model seem to fit the facts. Given the limits of their Overton window, the mortgage crackdown is just invisible. It's kind of crazy. In the rent control post, Cochrane clearly understands the constraints that led to the 2005 market. There are too many frictions that allow families to remain in supply constrained markets, so market rents have to rise exceedingly in order to induce the amount of outmigration necessary in the Closed Access cities in 2005. Today, he seems to understand that, but he mistakenly thinks that describes today's market rather than the 2005 market. When it actually happened in 2005, he and the rest of the supply-side economists construct a Rube Goldberg explanation for why that process was unsustainable because of demand-side issues rather than simply noting that this is what a housing market looks like when there are deep regional supply constraints. Oh, and by the way, as demand-side factors ebb and flow around a cycle, the inflation created by the supply problem also ebbs and flows. Why are they doing somersaults to avoid seeing that their supply-side explanation for high housing costs is and was definitive?! Cochrane closes the rent control post with: > A last thought. Mamdani, if he does follow through on his policies, will indeed make Manhattan much more "affordable." Chase away all the wealthy people, all the businesses and business owners, and apartments will be cheap. Detroit is affordable too. Be careful what you wish for, you just might get it. Ah, yes. Detroit. What can we say about Detroit? Well, according to Figure 2, we can say that before the mortgage crackdown, Detroit (solid black) tended to permit more homes per capita than New York City (solid red) and real cumulative rent inflation was declining in Detroit (dashed black) while it was rising in New York (dashed red). | | ---|---|--- Figure 2 Since the mortgage crackdown, Detroit permits fewer new homes than New York City (because mortgage access is more important in Detroit) and so rent inflation has been _higher_ in Detroit than it has been in New York City. It turns out that the difference between them has always been more about supply than about demand. People want to live in _a lot of places_. And, maddeningly, a leading voice of supply-side economics, even in the midst of polemics about the importance of supply, _cannot see the most extreme supply-side catastrophe_ of a generation which directly affects the topic he is ranting about. And that is because the entire school of similarly minded supply-side economists are similarly blind to it. Upgrade to paid Supply-siders: We need you _to see_. You're currently a free subscriber to Erdmann Housing Tracker. For the full experience, upgrade your subscription. Upgrade to paid --- | | | Like --- | | Comment --- | | Restack --- (C) 2025 Kevin Erdmann 548 Market Street PMB 72296, San Francisco, CA 94104 Unsubscribe