“Trump fans applauded when he said he’ll eliminate taxes on tips. Then Harris proposed that, too. Her audience applauded. Trump then proposed not taxing overtime. More applause.
But narrow tax exemptions are bad policy.
In my new video, economist Allison Schrager explains how they create nasty, unintended consequences.
“No one likes tipping,” says Schrager, “but all of a sudden, you’ll have to pay tips for everything.…More people will be paid in tips.””
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“Trump’s proposal to eliminate tax on overtime would reduce hiring.
“Employers may hire fewer people so they can give more overtime to employees they have already,” says Schrager.”
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“rent control is destructive. “Sounds really good,” says Schrager. “But all it means is that people are less inclined to rent to you.”
“Why would you enter a market where it seems like the government is actively trying to hurt you?” Adds Mercatus Center economist Salim Furth. “You’re providing an essential service, something human beings need to live, and the government views you as a hostile outsider. I wouldn’t want to bring any service into a market like that.”
Argentina’s new libertarian president just scrapped rent controls. The supply of rental apartments doubled, and prices declined by 40 percent! That’s good policy.
But Harris proposes the opposite!”
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“Trump’s (and Joe Biden’s) tariffs don’t just punish China, they reduce choice and raise prices in America.
“Free trade is good!” says Schrager. “It brings lower prices, making our own industries more dynamic, raising our income.”
“But trade does take away some Americans’ jobs,” I point out.
“But it creates a lot of other new jobs,” she replies.
It sure does. More and better jobs than those lost through trade.”
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“She proposes giving “first-time homebuyers” $25,000. Again, her fans applaud.
Schrager explains, “free” money from government doesn’t increase the supply of homes. When every buyer has $25,000 more, “they just bid up prices even higher!””
“In July, the Dutch government expanded nationwide rent controls—which had already covered about 80 percent of rental units—to almost all remaining rental properties. Fully 96 percent of Dutch rental housing is now subject to rent caps.
A report from Bloomberg published last week details the results: Owners of rental properties are selling their buildings and getting out of the rental housing market.
The tenants of those units are being forced to try and find one of the few remaining market-rate units or purchase a home in the Netherlands’ hot housing market. In either case, home hunters face spiking prices and limited availability.
These results are what one would expect from rent control. The economic literature is unambiguous that when rent control effectively holds rents below market levels, the result is a shortage of available rental housing.
More honest boosters of rent control will argue that while the policy limits housing supply, it increases stability for tenants. Protected from sudden, unaffordable rent increases, renters are able to stay in their homes for longer.
But in the Netherlands, at least, rent control is having a pro-displacement effect. Tenants who had an affordable rental unit are now being forced to move.
Proponents of rent control like to wave away the problems created by the policy as something that can be fixed with better and/or more sweeping controls of rental housing.
In fact, different rent control designs just produce different problems.
Apply rent control to new construction, and developers build less rental housing. Apply rent control to existing rental housing and landlords sell out to owner-occupiers. Prevent landlords from taking their units off the market, and housing quality deteriorates. (In the long run, this also reduces supply by preventing the redevelopment of existing rental housing.)”
“There’s a straightforward logic to both candidate’s claims. Increased demand for housing, whether from immigrants or corporate investors, would be expected to increase prices.
But increased demand should also be expected to increase supply, bringing prices back down.
Corporate investors and immigrants also play an important, direct role in increasing housing supply. Investors supply capital to build new homes. Immigrants supply labor for the same.
At least one study has found that the labor shortages caused by immigration restrictions do more to raise the cost of housing than they do to lower it through reduced demand.”
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“one study has found that restrictions on investor-owned rental housing raised rents and raised the incomes of residents in select neighborhoods by excluding lower-income renters. Studies on the effects of rent-recommendation software have found mixed effects on housing costs. In tight markets, such software raises rents. When supply is loose, it lowers them.
As always, the ability of builders to add new supply is what sets the price in the long term. Both candidates gestured at this in their own way, although Walz was more explicit about the relationship.”
“On the merits, there is little question that liberals should prioritize making housing cheaper. There is nothing progressive about putting property owners’ return-on-investment above less privileged Americans’ access to shelter. Further, promoting homeownership as a wealth building strategy also fails many homeowners. Concentrating one’s savings in a single asset is a perilous investment strategy, especially for America’s least privileged groups.”
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“although tanking home prices isn’t politically tenable, slowing their growth in the name of affordability probably is. And for people looking to buy or rent a home, it makes a big difference whether home values rise faster or slower than wages. If paychecks grow more rapidly than home values, then housing becomes more affordable for workers, even if the nominal price of a house goes up. In that scenario, fewer renters would struggle to keep roofs over their heads, while homeowner backlash to increasing affordability would be limited, since, on paper, houses would appear more valuable than when they were purchased.
Pursuing that outcome, however, means making housing a worse investment for new buyers, especially relative to putting their savings into diversified index funds. Democrats therefore should not go out of their way to encourage middle-class Americans to invest in housing. And they certainly should not adopt policies that privilege homeowners over renters.”
“Vance is an outspoken protectionist, nationalist, and anti-corporate hawk who’s bound to shift any future Trump administration in an anti-trade, anti-immigration, and anti-market direction. That can only mean bad things for the cost and availability of housing.”
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“The federal government hasn’t regulated rents at private buildings since World War II. There’s a good reason for that. A mountain of economic evidence suggests rent control is a terribly counterproductive policy.
The research couldn’t be clearer that where rent control policies suppress rents, they also suppress the supply of rental housing (by reducing construction or encouraging conversion of rental units to for-sale units) and reduce the quality of rental housing (by limiting investment).
The people who get a rent-controlled unit pay lower prices and stay in their units longer. The people who don’t get a rent-controlled unit end up paying higher prices. Cities as a whole suffer from declining investment and economic growth.
A rent control policy adopted in St. Paul, Minnesota, saw an exodus of developers from the city. New York City’s long-standing “rent stabilization” policy is producing vacant, dilapidated buildings that no one has the money to fix or redevelop.”
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“Vance is an arch-protectionist who’s endorsed Trump’s call for 10 percent tariffs across the board. Slapping taxes on imported materials needed for housing construction would make the costs of construction higher, lower housing production, and ultimately raise costs for consumers.
The Republican Party’s 2024 platform calls for deporting immigrants as a means of making housing more affordable.
Vance has been an outspoken proponent of this idea, saying on X last month that “not having 20 million illegal aliens who need to be housed (often at public expense) will absolutely make housing more affordable for American citizens.”
There’s a certain chilling logic to this idea: Lowering housing demand through mass deportations will lower housing prices as well.
New research however suggests the negative supply effects of kicking immigrants out of their homes outweigh any price declines caused by falling demand for housing. While immigrants consume housing, they also build housing. A recent study found that increased immigration enforcement creates a shortage of construction labor that lowers housing production and increases housing costs.”
“In Texas — a state that often sees some of the hottest temperatures in the country — extreme heat killed more than 330 people in 2023, setting a new record. More recently, millions of people in cities like Houston have had to deal with a massive heat wave while navigating power outages caused by Hurricane Beryl.
Despite the growing toll, there’s shockingly little regulation around protecting people from the effects of heat. It’s a stark contrast to how policies tend to treat the extreme cold. And while extreme cold continues to be deadlier than extreme heat, as heat waves become more dangerous, the gap between the two is likely to shrink.”
“They point out that restricting the price of housing discourages owners from maintaining and improving their property. It can also make it attractive for landlords to pull apartments from the rental market and put them up for sale as owner-occupied dwellings. Those enjoying deals on housing costs might also find themselves in the equivalent of golden handcuffs.
“Tenants in rent‐controlled units become less mobile to avoid losing access to below‐market rents,” add Miron and Aldighieri.
The authors point to studies finding that rent control has reduced the supply of rental housing in communities as far apart as Cambridge, Massachusetts, and San Francisco.”
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“the 2019 study cited last month by Miron and Aldighieri looked at a 1994 law change in San Francisco that suddenly extended rent control to housing constructed before 1980. Sure enough, tenants benefiting from controlled rents became less likely to move, while landlords subject to restrictions converted their properties to condos and co-ops or redeveloped them to escape regulation.
Rent controls “reduced the supply of available rental housing by 15 percent,” the study concluded. “This reduction in rental supply likely increased rents in the long run.” Contrary to housing activists’ intentions, “the conversion of existing rental properties to higher-end, owner-occupied condominium housing ultimately led to a housing stock increasingly directed toward higher income individuals.””