How To Lower Your Rent

1990s sitcom writers needed low rent to locate their characters in New York’s West Village.

Friends’  Rachel and Monica, and Sex and the City’s Carrie Bradshaw, were in low income occupations. Probably earning relatively little, Rachel was a chef and Monica, a waitress. However, making it much cheaper, their apartment had a rent cap. Similarly, as a freelance journalist, it is unlikely that Carrie Bradshaw could have afforded all of her shoes and the $1,000 to $2,200-a-month market rate for her apartment.

Rachel, Monica, and Carrie had what could have been $200 a month apartments because of rent caps.

Cheaper Housing

Comparing Austin, Texas and New York City, we can decide how we feel about the housing regulations that benefited Rachel, Monica, and Carrie.

Rents have gone down in Austin, Texas but not in New York City:

In Austin, Texas, rents had been climbing by 23% a year. This year though, they are 11% more than 2020 while in New York City, they are 20% higher. The difference is supply. Comparing 2020 to 2024, we would see housing units up by 17% in Austin and 3% in New York.

After Austin Texas had a surge in housing demand, the supply side responded.  As I’ve drawn below, first the quantity supplied increased. But soon, it led to an increase in supply that nudged price down to E2:

WSJ suggests that less of a regulatory environment in Austin correlates to its supply side pop. Although they expect Austin’s permitting more houses on one lot, reduced minimum lot size, and diminished parking space requirements to have a future impact, they say that more recent demand-side higher mortgage rates, less migration, and a glut on the supply side have already had an impact.

Very different, New York’s housing market is highly regulated. In the city, builders cope with regulations that range from stationary crane mandates to rent stabilization and control. As a result, there are no rising rents to incentivize a surge in construction. Instead of depending on the market, NYC government offers subsidies and tax perks.

The following table was for 2023. You can see that New York City had the most expensive one bedroom rents:

Our Bottom Line: Price Ceilings

Whenever rent caps hit the headlines, economists always cite ceilings. A ceiling is a mandated maximum rent from government that is below the market’s equilibrium price.

Politicians create ceilings because they believe that the market misplaced its equilibrium price. To correct the market’s decision, government can implement a price ceiling. Illustrated as a horizontal line below equilibrium, the ceiling changes the market’s decision. It is called a ceiling because price wants to move higher toward equilibrium but the horizontal line–the ceiling–prevents it.

Below, supply and demand met at a higher rent than the violet line drawn by government. The one glitch is where the line crosses supply and demand. As you can see, the line designates a quantity supplied that is less than the quantity demanded. As a result, price ceilings typically create shortages. Also called rent control, they diminish landlords’ incentives to build new housing:

It all leaves us with a question. Do we use a self-calibrating market or government to let Rachel, Monica, and Carrie afford their apartments?

My sources and more: Thanks to Cary for suggesting I look at this WSJ Greg Ip article. Then, happily, rent regulation returned me to a Hustle newsletter on sitcom rents and this NY Times. article.

Also, please note that sections of “Our Bottom Line” were in a past econlife post.