Suppose we aim that moderately poor people (let's say 1.5× minimum wage) can afford the rent for an apartment meeting minimum quality standards and located within city limits. This may be a political aim.

What economic policies are effective to achieve this?

  • Rent control. Popular, but economics appears to tell us it creates more problems than it solves. See also the questions Why did Berlin freeze the rent prices as opposed to letting the market set the price? and What is the likely result of rent control in Berlin?.

  • Increase supply? In cities, it appears supply may create demand (the more people in a city, the more services, the more people want to live there) so this may not always work either, or only under limited circumstances (perhaps unless building huge amounts, but developers hate vacancies, so I doubt that limit would be surpassed in a free market).

  • Social housing, owned by the government? I don't know what economic theory says about this.

  • Reduce demand? Not sure how that would work without harming the city.

  • Impossible? Should we give up on the idea that poor people can live in alpha world cities such as London, New York, Tokyo, Paris, Singapore, Amsterdam, Seoul, Berlin, Hong Kong, or Sydney?

  • Something else?

I'm aware that most economists say that rent control "doesn't work" — what are the alternatives that economists may prefer?

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    $\begingroup$ Idea spitball: land-value tax, progressive consumption tax (on housing purchases), no longer politically pushing for and subsidizing home ownership, getting rid of various land use and zoning restrictions (FAR limits, height limits, single-use zoning), and improving transit. $\endgroup$ – Kent Shikama Mar 1 '20 at 0:16
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    $\begingroup$ "In cities, it appears supply creates demand". No. All we have is that one politician somewhere in the world once made this claim. Economists don't actually believe that increased supply is always offset one-for-one by increased demand, so that there is never any point increasing supply whether in housing or any good (as that politician seems to believe). $\endgroup$ – user18 Mar 1 '20 at 2:39
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    $\begingroup$ The Economist had a recent (Jan 2020) special report on housing you may be interested in. (Note: may be paywalled) $\endgroup$ – user18 Mar 1 '20 at 3:28
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    $\begingroup$ Frame challenge. Most economists use antiquated pseudoscientiic models; only a handful of heterodox economists predicted the 2007 financial crisis, and few today understand the global macroeconomy. Rent caps obviously work and how you assess the social impact against the benefits depends on if you look at it through a private microeconomic lense or a political one, or a sociological one. If, as you state, your provided aims are political, flimsy economic theories hold little relevance. $\endgroup$ – Frank Mar 1 '20 at 22:32
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    $\begingroup$ @FreeMarketUnicorn Because in that naive model the assumption is that 'individuals' constitute an important part of the economy when in actual fact rent control is often in reaction to corporate buying, and we live in a world where a tiny number of corporations produce 90% or more of what the whole world consumes. Leaving things to 'individuals' is just propaganda aimed at giving corporations the keys to the governmental castle. $\endgroup$ – Frank Mar 2 '20 at 6:09

Disclaimer: this answer was significantly rewritten to spell out explicitly how it answers OPs question and to add some sources (thanks to @Fizz). The gist remains the same.

The only case I know where housing policy seems to work the way you envision is Vienna (the Austrien capital). They use a combination of several of the policies on OPs list, they have been doing this for a long time and they seem to be very good at implementing them in productive ways.

First, the city owns a significant proportian of all apartments, enough to have pricing power in the market (about 60% according to source). Additionally there are rent control laws on the privately owned housing (see for example here for some housing policies). Nevertheless private housing is more expensive than public housing (source).

Second, the city is engaged in long term planning for housing and they do that wholesale. So they are not just building houses on existing ground attached to existing infrastructure but they are creating entire new suburbs including attachment to public transportation, schools and all the other infrastructure needed for a successful city. The sources above also talk about that in more detail.

This is hard to pull of because it takes much longer to bear fruit that a typical election cycle. Doing things that cost money now and are very useful in 20 years is difficult for elected politicians. So even if politicians or people in general in other cities like to copy the Vienna model, it is not just a few simple policy changes.

  • $\begingroup$ Very interesting. It costs money now, but it's an investment that may well pay off and be profitable in the long run. $\endgroup$ – gerrit Mar 2 '20 at 14:56
  • $\begingroup$ That's socialism (in housing anyway)! The local gov't indeed seems to control 62% of the local market huffpost.com/entry/… $\endgroup$ – Fizz Mar 2 '20 at 18:46
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    $\begingroup$ @Fizz If the government owns enough housing to rent out at below-market-rent to those who need it, then the aim to improve affordability is still met, so I don't find it particularly misleading. $\endgroup$ – gerrit Mar 2 '20 at 19:22
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    $\begingroup$ Just to be clear that this is not an "alternative that economists may prefer" (as may be suggested by OP's question "what are the alternatives that economists may prefer?" and OP's decision to select this as an answer). $\endgroup$ – user18 Mar 3 '20 at 4:24
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    $\begingroup$ @KennyLJ That is true. My answer essentially says, rent control does work for the goal to achieve affordable housing but only if accompanied by suitable other measures and only in rare circumstances. $\endgroup$ – quarague Mar 3 '20 at 7:48

The only way to stabilize or reduce prices is for supply to increase faster than demand.

Many cities that consider price controls also happen to have high barriers to supply. In other words often those cities have intentionally zoned their city in such a way as to intentionally create obstacles to new housing being built. This is the result of politicians with a bias toward central planning but lack understanding of economic principles enough to predict the unintended consequences on prices resulting from their zoning restrictions. So one way to ease upward pressure on housing prices is to encourage more supply by easing zoning and other regulations that present obstacles to developers.

Also, look at removing similar barriers to the supply of financing.

  • $\begingroup$ Comments are not for extended discussion; this conversation has been moved to chat. $\endgroup$ – EconJohn Mar 11 '20 at 3:15

In many cases, it's impossible.

This may be a political aim.

Your problem is the political objective is a form of "central planning." Central planning objectives are rarely achievable without sacrificing individual liberties. Why not simply leave people alone to live out their lives without being controlled by the government? Why does the government need to plan and control where people live?

The answer is: it doesn't.

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    $\begingroup$ I deliberated whether to ask this on Politics or here, and settled for here. Although your question might have been on-topic on the former, I don't think it's an answer on site about economics. It also lacks sources and is, frankly, obviously incorrect — for example, virtually all road infrastructure is centrally planned, and although there are some cases of spoil, it would be extreme to say you're controlled by the government every time you drive on a public road. Urban planning is another example where the right planning can prevent inefficient urban sprawl. $\endgroup$ – gerrit Mar 2 '20 at 8:45
  • $\begingroup$ @gerrit: The field of politics often intersects with economics as it often does with other fields such as the field of law, for example. Consequently, it's possible to be simultaneously on-topic in more than one field at a time. For example, you specifically mentioned politics in the body of your question when you wrote, "This may be a political aim." My answer makes reference to that part of your question. Also, you specifically asked if the political objective might be "impossible." My question directly addresses those two parts of your question. $\endgroup$ – FreeMarketUnicorn Mar 2 '20 at 8:51
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    $\begingroup$ From an economics point of view, the political aim is a boundary condition. We want to achieve X, what does economics tell us about what measures Y can achieve X. Yes, your line "it's impossible" does answer the question, but is not useful without sources. It is possible to introduce rent control, it is possible to build 1 million new homes in high density, to reduce/abolish mortgage deductions, to make rent tax-deductible, to subsidise rents, to build social housing, all have economic side-effects but your answer merely states "it's impossible" before continuing with political commentary. $\endgroup$ – gerrit Mar 2 '20 at 9:23
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    $\begingroup$ As comments on my question indicate, the list of options I have listed in the question is not exhaustive. I disagree that it's ill-advised for protect people's right to live in their home city. $\endgroup$ – gerrit Mar 2 '20 at 9:57
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    $\begingroup$ @gerrit: But we don't have a right to live in our home city. We don't have a right to live in any particular place that we do not own or have a contract to rent. You must examine the premise of your questions. $\endgroup$ – FreeMarketUnicorn Mar 2 '20 at 10:05

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