Kind: captions
Language: en
The average rent for a one-bedroom
apartment in Manhattan now exceeds
$4,200
per month. That's more than twice the
average monthly income for a recent
college graduate. In San Francisco, a
person earning the median salary would
need to work 161 hours a week. That's
nearly 23 hours a day to comfortably
afford a typical one-bedroom apartment.
Imagine this. You go to college, as all
good girls and boys are told they should
do. You take on a mountain of debt and
at graduation you move to a big city
looking for the opportunity to make good
on that education. Your stress levels
though are through the roof because
between your student loans and the fact
that rent consumes nearly your entire
paycheck, you're forced to work two
jobs. And just as you're about to drown,
politicians promise salvation in the
form of rent control. They guarantee
cheap, stable housing. It feels like a
lifeline. Millennials and Gen Z are
drowning in a collective debt burden of
$1.7 trillion. And the national rental
burden is completely out of pocket. 54%
of renters aged 25 to 34 spend more than
30% of their income on rent, officially
classifying them as housing burdened and
making saving for actual home ownership
essentially impossible. So, you will
forgive them if they reach for that
lifeline of rental control. All of that
explains why from 2020 to 2023,
homelessness among young adults aged 18
to 25 increased by 25% nationwide. A
statistic directly linked to soaring
rental prices and major urban centers.
Is it really surprising that young
people in that situation are desperate
to elect politicians that promise a
socialized command economy if it claims
it can lower rent prices? It shouldn't
be. Millennials in Gen Z are now paying
40% more in rent adjusted for inflation
than baby boomers did at the same age
despite the fact that they earn less in
real terms. So, as a percentage of
income, housing has become completely
untenable. That's why the home ownership
rate for Americans aged 25 to 34 dropped
from approximately 45% in 2005 to just
39% in 2023, the lowest rate in modern
American history. High student loan
payments and stagnant wages are primary
drivers of this problem. The
difficulties that young people face
today, coupled with the exploitative
nature and economic illiteracy of
politicians, leaves millennials and Gen
Z susceptible to socialist rhetoric that
promises rent control as a direct
response to their economic anxiety. But
the question isn't can we understand why
they want lower rents. The question is,
does rent control actually lower rents?
The answer is going to shock you. It is
not what most people think. Despite the
economic freak show that young people
are forced to deal with, rent control is
not salvation. It is a trap. A trap
we're going to untangle today in five
crispy parts. And do not skip part
three. It is going to make you want to
bite somebody's eyes out. But if you
don't understand it, you are going to
remain trapped forever. All right, let's
get going. Welcome to part one, the dark
reality of rent control. In New York
City, 60% of rent controlled apartments
are in buildings over 75 years old. Many
of them are falling apart because rent
controls make it impossible for
landlords to maintain the building. At
the peak of New York City's rent control
crisis in the 1970s, the South Bronx was
losing nearly 30,000
housing units per year to abandonment
and arson. That's equal to losing an
entire apartment building every single
day. and politicians are once again
running on platforms of rent control.
History really does repeat. The South
Bronx and part of Harlem have already
experienced severe disinvestment and
abandonment due to rent controls. In the
70s and 80s, rent controls and related
regulations made property maintenance
financially impossible for landlords.
And as a result, entire neighborhoods
were left desolate and crimeridden. By
1980, the Bronx had lost over 300,000
residents, leaving behind empty
buildings, burned out properties, and
economic stagnation. 300,000 people
left. The story is both insane and
highly instructive in terms of how to
deal with the current economic and
populist crisis. Starting in 1943, New
York City had implemented emergency rent
controls. This is during World War II
and was intended to be a temporary
measure to prevent wartime profiteering.
The regulations capped rents at
artificially low levels, significantly
below market value, and this absolutely
battered the financial viability of
owning and maintaining a building. Now,
maybe it wouldn't have been a big deal
had the regulations been dropped, but
there's nothing quite as permanent as a
temporary measure. And so, despite the
post-war economic boom of the 50s and
60s creating a massive increase in
demand for housing, the regulations held
with rents artificially capped.
Landlords had little to no financial
incentive to invest in building new
rental housing, so they didn't. And
consequently, supply remained stagnant
despite massively rising demand. Now,
even if you grant that the politicians
had good intentions, which may not be
wise, but even if you do, these controls
didn't keep rents low. Instead, they
created a housing shortage and a dual
housing market. It went something like
this. Pre-war, rent controlled units
became increasingly rare and severely
underpriced relative to market
conditions. So, a parallel housing
market emerged. Since the small number
of new units that actually managed to
get built and enter the market weren't
subject to the rent control regulations,
they reflected the actual free market
value and commanded extremely high
rents. Government interventions were
artificially keeping supply low,
creating a massive imbalance in supply
and demand. The severe supply shortage
caused rents to skyrocket in these new
units. Did people realize at this point
what was going on? Namely, that housing
was so limited and undermaintained due
to rent control that people were willing
to pay an everinccreasing fortune for a
well-maintained building. Nope. The
skyrocketing prices just made the public
even more angry. And once again, not
recognizing the actual cause of the
price increases, people voted for more
governmental intervention. the very
thing that was causing the problem. And
thus, it made the problem even worse.
And so, the spiral continued. And under
massive public pressure, in 1969, the
city introduced the rent stabilization
law. This policy sought to also control
the newer apartments that were
previously avoiding the rent
limitations. It was designed to be a
separate, less severe form of rent
control known as rent stabilization. It
allowed for minor increases, but still
held rents well below market rates and
forced landlords to seek approval for
any major rent increases, which once
again stifled the income streams that
are necessary for property maintenance
and upgrades. And is so often the case
with emotionally driven government
intervention. The new rent stabilization
law failed to actually address the root
cause, namely the lack of financial
incentive needed to propel investors to
take a risk on building new housing
and/or invest in maintenance. The
additional layer of complexity brought
on by two types now of rent control also
serve to confuse the market even
further, discouraging new development
and perpetuating the chronic housing
shortages and deterioration. So say it
with me now. The death spiral continued
at an accelerating pace. In 1971, under
Mayor John Lindseay's administration,
New York City extended stringent rent
control rules, significantly limiting
landlords ability to increase rents,
even when properties required major
repairs or capital investments. And
guess what happens when you do that?
Landlords who found their maintenance
costs regularly exceeding the allowable
rent income decided not to make even
basic repairs because if they did, they
were going to go bankrupt. This only
worsened the housing crisis. In
response, in 1974, New York established
the Division of Housing and Community
Renewal, introducing even tougher
enforcement mechanisms for regulated
rents because, well, the beatings will
continue until morale improves.
Unfortunately, that kind of strict
enforcement and those penalties only
further discouraged landlords from
investing in regulated properties as
profitability was now extremely limited.
This caused property values to decline
yet again and the abandonment rate on
buildings began to rise even faster. So
by the mid1 1970s, despite capped rents,
property taxes and utility costs soared.
This placed enormous additional
financial pressure on the landlords who
were already in dire straits. And to
make the situation even more impossible,
high taxation rates were combined with
high inflation at the time, dramatically
increasing maintenance and operating
costs, driving even more landlords to
abandon their buildings. That's the
unfortunate cause and effect of policies
like rent control. When landlords become
unable to cover the escalating cost of
their buildings due to frozen or
minimally increasable rents, more and
more of them will be forced to abandon
their properties or reduce maintenance
significantly until everyone is living
in slumlike conditions. By the late '7s,
many landlords faced with ridiculous
regulations and financial hardship
resorted to not just intentionally
neglecting the properties or outright
abandoning them. In some cases,
properties were deliberately burned for
insurance compensation. Since insurance
payouts became more financially viable
than trying to work with regulated
rental income, arson rates surged
dramatically with up to 40% of the fires
in the Bronx being attributed to arson.
40%. Entire neighborhoods became
characterized by burned out buildings,
abandonment, and severe urban decay. But
if you've been iced out of the housing
market and can tell the game is rigged
against you, you're understandably going
to sour on capitalism. Because people
don't map the physics of money, the
nature of supply and demand, and the
complexity of the economy at large, they
are inevitably going to fall back on
what they do understand, politicians. So
in 1977, yet another attempt at federal
intervention was made called the
Community Reinvestment Act. This is
getting crazy. The CRA was designed to
encourage banks to provide loans to
maintain properties despite the rent
controls. Unfortunately, due to local
regulatory hurdles, limited market
incentives, and financial constraints
that come with rent stabilization, the
CRA's impact was initially limited and
of course failed to reverse the decay.
With decades of failed interventionist
policies, New York fell into a financial
crisis and the city was forced to make
substantial cuts in municipal services
like the fire department, the police
department, and sanitation. The South
Bronx and Harlem were particularly hard
hit with a massive acceleration of
property abandonment. The effects of
these policies were devastating.
Neighborhoods were left economically
desolate and crimeridden, creating
conditions often described as economic
ghost towns. By 1980, nearly half of the
housing units in the South Bronx had
been abandoned or destroyed, largely as
a direct consequence of regulatory
decisions. Economic stagnation became
entrenched with unemployment in the
Bronx exceeding 25%.
And this kind of self-inflicted wound
isn't unique to New York. It's seen all
over the world. Stockholm had a housing
crisis. Their rent control policies
created an 11-year waiting list for a
basic apartment by 2022. Severe
shortages led many young people and
families to live in overcrowded housing
or remain with parents into their late
20s and 30s. Additionally, property
owners stop investing in the housing
stock, leading to visible deterioration.
San Francisco also had their own major
problems. Their long-term rent control
policies led directly to a 15% spike in
housing shortages between 2015 and 2023,
dramatically reducing availability and
driving up market rents for newer
tenants. Stanford researchers found that
San Francisco's rent control caused
landlords to withdraw from the market or
convert units into condos or short-term
rentals. In 2020, Berlin ran into
similar problems when they imposed
stringent rent controls, freezing rents
at June 2019 levels. And within a year,
new rental housing permits declined by
nearly 40%, exacerbating shortages and
making housing even less accessible for
new renters. The exact opposite of the
desired outcome. Santa Monica also
implemented strict rent controls in the
late 1970s. And guess what? By the early
90s, research showed that these controls
significantly reduced the housing supply
and increased rental costs for
non-controlled units, pricing out young
professionals, and contributing to the
economic stagnation in the area. Post
World War II rent control policies also
battered the UK, resulting in severe
underinvestment in housing maintenance.
By the late 1970s, significant portions
of the UK's rental stock were classified
as unfit for human habitation. If this
pattern of governmental intervention
creating the very problem it's trying to
solve is happening all over the world,
what is going on? That which is
predictable should be avoidable. So,
welcome to part two. How did we get
here? Over the past century, more than
50 countries have attempted a top-down
command economy with central planning.
And exactly 100% of them have failed to
deliver long-term prosperity. and over
70% have delivered total collapse. From
the Soviet Union in Ma China to Cuba,
Venezuela, Cambodia, North Korea, and
more. It's all bad all the time. But
humans have a nature that makes history
repeat itself. Due to evolution and our
biology, we act and react in fairly
predictable ways. from overfocusing on
short-term rewards and a desire to
punish our perceived enemies to an
intense feeling we alone know what's
best and the desire to elect an
invincible bully to protect us no matter
what the cost is to other people. Human
behavioral economists like Daniel
Conorman and Richard Thaylor have
repeatedly demonstrated in peer-reviewed
research that humans consistently make
horrible economic decisions when acting
emotionally, are under pressure, or
driven by immediate short-term
incentives. Exactly the kind of
circumstances people are under when rent
control and similar policies gain
popularity. Despite the eternal failings
of command economies, humans simply
cannot decide if they want freedom and
its consequences or a babysitter and the
resulting tyranny. Economic historian
Robert Higgs extensively documents the
predictable outcomes of these failed
top-down economic experiments, noting
that centralized economic control has
consistently produced shortages,
corruption, and economic stagnation
rather than long-term stability or
prosperity. The Heritage Foundation's
Index of Economic Freedom and the
Frasier Institute's economic freedom of
the world report have consistently
documented the strong correlation
between economic freedom, market-based
economies, and higher GDP growth,
prosperity, and quality of life while
demonstrating over and over again how
command economies consistently rank
among the poorest, most oppressive, and
most unstable nations. Topdown planning
breaks economies and ironically makes
stability at any level other than
grinding poverty impossible. Leading to
the famous quote, "The inherent vice of
capitalism is the unequal sharing of
blessings. The inherent virtue of
socialism is the equal sharing of
miseries." It's from Churchill. It's not
that capitalism doesn't have problems.
It most certainly does. As Thomas Soul
has so eloquently pointed out, there are
no solutions, only trade-offs. In a free
market, you get innovation and
efficiency because each entrepreneur
competes with the other to win the
customer's business. This leads to
innovation and rapid economic growth.
But personal freedom and responsibility
come at a cost. When you fail, it's on
you. You can rise up. You can also fall
down. That's the trade-off. And it's a
trade-off that many find intolerable in
times of plenty. When things are going
well and the economy is booming, people
just lose sight of how hard
entrepreneurship actually is. They begin
to believe that economies are the result
of a well ststructured government
instead of realizing that governments
function best when they guarantee law
and order, stop monopolies from forming,
and then get out of the way. That's why
capitalism has been the single most
effective tool for lifting people out of
poverty that humanity has ever seen.
Capitalism. Even China, the previous
undisputed heavyweight champion of
command economies and all of its death
and destruction, realized that to get
rich is glorious. That's a quote from
Deng Xiaoing. Before the post 1978
economic reforms that opened China up to
the free market, Mao's command economy
starved north of 45 million people to
death. Under Deng Xiaoing, collectivist
farming was terminated and farmers were
finally allowed to sell surplus crops on
the free market. Private ownership was
introduced. International investments
were encouraged and China began
competing in the open market and
ultimately became an economic
powerhouse. Privatization, deregulation,
and relaxation of old restrictions
incentivized entrepreneurs to innovate
and make investments. This in turn
sparked massive productivity increases
and the outcomes were nothing short of
miraculous. Poverty in China fell
dramatically from 88% of the population
living below the international poverty
line in 1981 under a command economy
down to less than 1% by 2021
under a free market economy lifting
roughly 800 million people out of
poverty. The largest poverty reduction
in human history. China's GDP growth
averaged approximately 9.5%
annually from 1978 to 2018, creating the
world's second largest economy and
making China the primary driver of
global poverty reduction for decades.
Per capita income in China increased
over 25fold from approximately $229
in 1990 to over 12,000 by 2022. India
has followed a similar course post their
1991 reforms. They were facing a severe
economic crisis as well. But instead of
trying to control everything, they too
went the opposite way, relaxed
regulations, and implemented major
economic liberalization policies under
their new finance minister. By doing so,
poverty rates declined massively from
roughly 47% in 1990 to just 10% by 2019,
lifting hundreds of millions out of
severe poverty. India's GDP growth rate
averaged 6% annually between 1991 and
2022 transforming India into the world's
fifth largest economy by GDP. The middle
class in India expanded dramatically
increasing from approximately 50 million
people in '91 to over 350 million by
2020 and GDP per capita increased over
sevenfold from around $375 in 1990 to
approximately 2600 by 2022. While
freedom can be scary, as Milton Friedman
said, a society that puts equality
before freedom will get neither. A
society that puts freedom before
equality will get a high degree of both.
As I've said though, freedom does come
with trade-offs. With open markets, in
addition to all good things, among other
things, you also get inequality. There
will be winners and losers. You will
also get the risk of instability.
Markets can fluctuate, and when they do,
voters and politicians will be tempted
to call for a bailout. That is only
going to make things worse. The question
isn't, are there going to be trade-offs?
Of course, there are. The question is,
which system has the better balance
between what you get and what it costs
you. In a command economy, you get a lot
of promises and not a lot of results.
You're promised stability and security,
but what you get in reality is more like
predictable shortages. You're promised
social equality, but what you get in
reality is a corrupt group of elites
that run the country through force and
intimidation and everyone else who's
equalized but at zero. And despite the
big promises, the reality of a command
economy is simple. Economic inefficiency
and waste, corruption and cronyism,
innovation stagnation, reduced personal
freedom, and economic distortions caused
by central planners who inevitably
misjudge supply and demand causing
shortages or surpluses, distorted
incentives, and ultimately systemic
failures. The historical outcomes of
command economies are so consistent.
Total collapse or severe
underperformance over the long run. see
the Soviet Union, Cuba's ongoing
stagnation, Venezuela's economic
collapse, Zimbabwe, and or Argentina for
the 100 years leading up to Malay's
incredible turnaround. History is
absolutely dripping with examples like
these. It's actually kind of startling
that we have to keep trying these ideas
out despite how relentlessly they fail.
But that's what happens when populism
kicks in. People get economically
disenfranchised, inequality grows out of
control, resentment takes hold, and
people start voting emotionally for
whatever politician promises to get them
more free stuff. So, of course,
politicians promise things like free
transportation, free daycare, cityrun
grocery stores, and rent control, but
you are going to pay one way or the
other. So, I hope you're asking
yourself, what would the alternative
look like? Well, welcome to part three.
Why on God's green earth does the
government limit the number of homes in
San Francisco? For every eight jobs
created in the last decade, only one new
home was built, forcing thousands of
workers into brutal commutes or
homelessness. Yet, local laws still make
it illegal to build apartments on over
75% of the city's residential land. From
2010 to 2020, London's population grew
by almost 1 million people. But the city
only built enough housing for less than
half of that number, resulting in
skyrocketing rents and prices. When you
start looking at the numbers, this stuff
is absurd. Due to ridiculous zoning
regulations in Toronto, over 70% of the
residential land is zoned exclusively
for single family detached homes,
severely limiting housing supply.
Despite recent population surges, not to
be outdone, New York City would have had
to build 560,000
new housing units by 2030 just to meet
existing demand. There's no signs of
them doing anything like that. Zoning
restrictions currently make building
even modest multi-unit houses illegal in
most residential areas. All while people
are screaming for rent control. You
wouldn't have to control the rent if you
would just let the free market do what
it does. Find the right price by
allowing people to play the game of risk
and reward. Let entrepreneurs build to
fill demand. It really is that obvious.
But if it really is that obvious, why
doesn't it happen? The answer is going
to surprise you. It's because of the
American dream. It might be dead, but
it's still people up. Housing is
the one asset that people understand
intuitively.
You can't live inside of a Bitcoin. You
can't create memories with your kids
inside of a share of Tesla stock. You
can't grow old together with your wife
in a 401k. But you can do all of that
and more in a house. For that reason,
most homeowners consider their house to
be their biggest asset. and they don't
want any of you plebs lowering their
property values with your hideous
apartments. Now, in fairness, it's that
and a lot more. So, here are the top six
reasons why expanding the housing supply
to meet demand is so difficult. Even
though the outcomes are horrific, number
one, fewer houses means higher property
values. Current homeowners want to make
sure that their property values go up.
Local homeowners will often aggressively
lobby local officials to limit
development, preventing any decrease in
their own property values. This is
exactly what's going on in San
Francisco, where homeowners have
actively opposed new apartment
buildings, citing concerns over property
value preservation, effectively keeping
housing supply restricted. Two, nimism
stands for not in my backyard. Local
residents, especially in affluent
neighborhoods, resist new developments,
often multif family housing, or
affordable housing because they fear
increased congestion, strain on
infrastructure, changes to neighborhood
character, or socioeconomic diversity.
Wealthy neighborhoods are often
politically influential, allowing
residents to successfully block new
housing projects through zoning boards,
community boards, and political
donations. In Manhattan's Upper West
Side, residents repeatedly block zoning
changes that would have allowed
increased density despite the acute
housing crisis in New York City. Three,
regulatory capture and political
influence, favoring established
developers. Large real estate developers
and property owners can use absurdly
difficult zoning regulations
strategically to reduce competition.
With restrictive zoning, it makes it
much harder to build. And so the
builders who learn to navigate these
difficult regulations can use them as a
moat to keep other developers out. This
allows them to control the supply and
benefit from rising rents and values.
Los Angeles has seen major developers
consistently lobby against zoning
changes that would otherwise create
competition resulting in sustained
housing shortages. Four, local
governments want high taxes per unit.
Local governments are incentivized to
get the most tax revenue per unit. This
means they want expensive units, luxury
and commercial properties, and not lower
income housing, which generates less
property tax per unit. More people
equals more problems. You see this a lot
in places like Silicon Valley. Cities
like PaloAlto and Certino favor office
and commercial development while
severely restricting residential
housing, intensifying local housing
crisis. Five, infrastructure and public
services concerns. Cities and local
governments often cite concerns about
strain on infrastructure, schools,
roads, public transit, stuff like that.
And how more units means increased
spending. And if you're going to have
increased spending, you need high
property values to bring in those
delicious tax dollars. If you restrict
the supply and keep it to single family
dwellings, you limit the number of
people and maximize the tax revenue per
unit. Six, environmental concerns. Both
real and manufactured, established
residents often claim environmental
protections as reasons for restrictive
zoning. While sometimes legitimate,
these arguments are frequently used to
mask the fact that fewer houses means
higher property values. You see this in
Marin County, California, where they've
been using environmental zoning
regulations to severely limit
development and control population
density, creating some of the highest
property values in the country. So,
everyone's in on it, huh? Everywhere you
look, everybody is trying to keep per
unit costs high, supply tight, and the
problem pervasive. The government wants
a high tax to person ratio. No one wants
a bunch of poor people in their
neighborhood. Homeowners want property
values to go up and to the right, and
politicians want those lobbying dollars
to keep coming in. Well, what is a girl
to do? Is there really nowhere that has
solved this problem? There is, actually.
Enter our boys in Texas. Since 2010,
Houston has built more new housing units
than San Francisco, Los Angeles, Boston,
and Washington DC combined. And as you
would expect, that has kept Houston's
average house price low, less than half
of the other cities. In 2023, the median
home price in Houston was approximately
$270,000,
compared to $1.3 million in San
Francisco and $950,000 in Los Angeles.
This discrepancy is not an accident. It
can be directly attributed to Houston's
uniquely minimal zoning and high levels
of housing supply. This is great news
for people trying to get on the property
ladder and terrible news for people who
already own homes and want to see their
biggest asset skyrocket in value. And
that's the conundrum. How do you balance
the two? Actually, it's called the free
market. Here's how it goes. CO hit
Austin housing prices harder than an
obese grandmother. Pre-COVID, the city
was already growing fast. But CO sent
prices to the moon. The shift to remote
work caused a huge surge of migration,
particularly from high-cost areas like
California, San Francisco, Los Angeles,
Silicon Valley. And as people fled
draconian lockdowns and absurd tax rates
for a more businessfriendly environment,
they found one. Overnight, Austin became
one of the top relocation cities for
remote workers, significantly increasing
housing demand. The sudden spike in
demand rapidly outpaced available
housing inventory. Homes were receiving
multiple offers above asking price,
often within days of listing. From early
2020 to mid 2022, Austin's median home
price surged nearly 50%,
peaking at around $670,000
in May of 2022, nearly doubling in just
3 years. Rents were also off the charts,
increasing by over 30% in just 2 years,
driven by increased demand and limited
housing stock. But it didn't stay that
way because the free market will do its
thing if left alone. The market
correction was swift. Builders and
developers responded aggressively to the
surge in demand by rapidly expanding
housing construction. Between 2021 and
2023, Austin ranked as one of the top US
metros for issuing residential building
permits, dramatically increasing new
home construction, and normalizing the
supply. Didn't need to be controlled
from the top down via command economy.
Let entrepreneurs do what they do best,
risk their own money to compete with
each other in the marketplace in an
attempt to win your business. As this
played out in Austin, the housing market
stabilized and corrected down from its
peak. Median home prices declined,
stabilizing at approximately 550,000 by
late 2023. Rents also stabilized as
supply caught up with demand, slowing
the dramatic price appreciation and
returning to something more sustainable.
The temptation to try and control all of
this is understandable. Nobody likes
these peaks and valleys. But in wildly
complex systems, the best answer is
almost always to stay out of the way and
let the system heal itself. They have
corrective mechanisms. Now, humans are
incredible, but we are also notorious
for doing too much. Case in point,
welcome to part 4, the disaster of
China's command economy housing
policies. China built somewhere between
65 and 80 million apartments that now
sit completely empty. That is insane.
That's enough empty units to comfortably
house every single person in the entire
country of France. China has had so many
winds opening up to the free market
forces. But this is an unforced error of
biblical proportions brought on by
humans who trust their ability to get
things just right way too much. The
Chinese Communist Party killed millions
of people through malevolence and a
neverending cavalcade of stupid top-
down policies like forcing farmers
across the entire country to plant the
same crops regardless of local climate.
Insert mass starvation here. The answer,
Deng Xiaoping, as mentioned earlier,
embraced the free market. The irony that
even communist countries can only escape
poverty by embracing the free market is
not lost on me. But it does seem lost on
China. Because did they look around and
say, "Hey, all of the things that are
going well in our country are from the
parts we've allowed to run free." No,
they did not. They looked around, saw
successful entrepreneurs getting uppy,
kidnapped them. I'm not kidding.
Re-educated them, and then gave them
quotas to hit. That was the housing
model. The CCP gave regional governments
strict annual targets for GDP growth and
urban construction. This created
powerful incentives to build even though
there was no actual market demand. The
national new type urbanization plan from
2014 to 2020 mandated construction of
new urban areas, infrastructure, and
millions of residential units. And this
caused go cities to spring up. entire
cities built complete with apartment
buildings, malls, roads, public
transport, you name it. Despite the fact
there was no demand. This is what
happens when your foundational belief is
that economies can be controlled.
Economies can be influenced if you focus
on creating the right environment. But
the second you try to impose a specific
outcome, you create a cascade of
horrific problems. Take the city of
Ordos in Inner Mongolia. It was built
for 1 million residents, but only
reached approximately 10% occupancy,
leaving huge residential complexes in
commercial areas empty. Or Tiandu
Changeng, the Paris of the East, a
literal replica of Paris, built near
Hango, intended for tens of thousands of
residents. After nearly a decade of
sitting almost entirely empty, it's only
now beginning to show signs of life. The
consequences of this kind of massive
overconstruction can't be overstated.
Ordinary Chinese citizens invested
heavily in real estate as their primary
savings vehicle. Everyone believed
largely because the government
encouraged them to that prices would
rise forever. This created a speculative
mania that inflated housing prices.
Everrand, one of China's largest real
estate developers, aggressively pursued
expansion through the accumulation of
massive debt. By 2021, Everrand held
over $300
billion in liabilities, which is more
debt by a private company than is held
by many nations around the world. Now,
as I hope will surprise exactly no one,
given the massive debt combined with a
lack of real demand starting in 2021,
Everrand began defaulting on bond
payments, triggering a massive financial
panic with cascading defaults across
China's entire property sector. The
collapse in turn sparked investor panic
globally affecting markets all over the
world. And given that property and
related sectors now account for
approximately 25 to 30% of China's GDP,
many believe that we've only just begun
to see the real impact of China's
housing crisis brought on by a command
economy. In the aftermath of Everrand's
default, China's real estate sector saw
numerous other developers facing severe
financial stress and potential default.
The hard truth is that while top-down
control makes humans feel good, command
economies are bound to fail for several
reasons. One, centralized government
planning is terrible at judging actual
consumer demand, leading to chronic over
or under supply, severe resource
misallocation, and catastrophic
financial consequences. Two, it creates
a lack of accountability and fosters
corruption. When governments use
taxpayer dollars to paper over bad
decision-making, no one is ever held
accountable for their poor
decision-making. In the free market,
people go out of business when they make
bad decisions. But when the government
is in control, taxpayers are made to
foot the bill. Three, there is no
incentive for innovation. Whether we
like it or not, people are motivated by
incentives. When hard work leads to
getting ahead, people will work hard and
try to out innovate the competition. And
when that happens, we all win. On the
other hand, when governments try to
control everything from the top down,
they inevitably strip the incentives out
of the system by making it impossible to
respond intelligently and with ingenuity
to the signals from the buying public.
Four, poisonous resentment lurks in the
desire for control. Many of the policies
in a command economy aren't driven by
the love of the poor. They're driven by
a hatred of the wealthy. Look at the
senseless murders of the successful
Russian farmers that led to the
Ukrainian famine. Or the exact same
thing in Zimbabwe. Be very, very
suspicious of anyone who wants to
overregulate the economy. The odds that
they're the bad guy border on 100%. And
if they're not evil, they're essentially
guaranteeing bad results anyway.
Top-down economic control consistently
creates inefficiencies, corruption,
systemic financial risk, and eventual
economic collapse or severe stagnation.
Now, returning to China for a second,
the IMF and other major global banks
like Goldman Sachs and JP Morgan Chase
have warned that China's property market
instability poses a significant global
economic risk. All because people think
they know better than the free market or
because they hate the uneven results
that the free market delivers. But the
reality is that nothing, and I mean
nothing, has pulled more people out of
poverty than the free market. So given
all of that, what do we do now in an era
where socialists who actually want
command economies again are gaining
traction inside of major political
parties the world over. So what's the
play? Welcome to part five, the only
real path forward. In 2024, Buenes are
ended rent control and within a year,
available housing tripled. Tripled.
Rents plummeted by 50% and the city
experienced its largest construction
boom in decades. If we've learned one
thing from history, it's that no
government can effectively control the
complexity of the economy. Even attempts
at things as simple as rent control have
created shortages, skyrocketing rents,
and exacerbated poverty and economic
stagnation. We need to stop all of the
interventionist policies. Economies have
physics. They are complex ecosystems
where a change in one variable has
knock-on consequences. There's no way to
stop the laws that govern economies from
playing out, even when we're offended by
the results. The only way to equalize
everyone is to equalize them at zero.
And the only way to do that is to bring
the hammer of the state down on them and
break their will. If you want to
understand the horrors that that
approach brings, read Mau the Unknown
Story, The Goolog Archipelago,
Tombstone, and The Red Famine. All books
that catalog the unimaginable
cataclysmic S tier misery that results
from handing unchecked control to the
state and asking them to make everything
fair. It is absolutely soul-wrenching
and insane. So instead of going down
that well tread path of suffering, let's
turn our sights back to housing and look
at the examples that history has to
offer of times where the free market was
eventually allowed to correct traumas of
a command economy. Consider Argentina,
which I did a full deep dive on that you
can see here. After 100 years of lunacy
that saw Argentina go from one of the
most prosperous nations on earth to an
economic backwater, Argentina finally
removed rent control laws in 2024 under
President Javier Malay. The
transformation occurred almost
immediately. Housing availability
exploded by 300%, rents dropped in half,
and new construction soared to historic
levels. Or take Japan. They introduced
nationwide zoning deregulation. And
despite Tokyo's massive population
growth and density, housing prices have
remained notably stable, making it one
of the most affordable major cities in
the world. Or how about Auckland, New
Zealand? They addressed their severe
housing shortage by implementing
sweeping zoning reform in 2016, allowing
multi-unit dwellings throughout
residential areas. The result, new
housing supply skyrocketed,
significantly moderating previously out
of control rent increases, creating
genuinely affordable housing options.
How about in the US? We've already
talked about Houston and Austin, but
what about Raleigh, North Carolina? They
also implemented major zoning reforms,
substantially reducing restrictions on
housing density and construction in
2013. The result was increased
affordable housing, rapid economic
growth, and significant population
expansion. Vienna, Austria, they
embraced market incentives with robust
public private partnerships rather than
rent control. and their reward has been
the creation of one of the most stable
affordable housing markets in all of
Europe. By relying on free market
principles and deregulation, Montreal
has bucked the Canadian trend of
absurdly high home prices. Their
strategy has maintained housing
affordability compared to other major
Canadian cities like Toronto and
Vancouver, which have some of the most
out of reach housing markets on planet
Earth. Since 2018, Soul Korea has also
significantly relaxed zoning density
policies, sparking a rapid surge in new
housing construction. The result, it's
been a supply finally able to meet
demand and the resulting stabilization
of housing prices despite strong
population and economic growth. Berlin,
Germany, they provide a particularly
striking example. After strict rent
controls were ruled unconstitutional in
2021, Berlin returned to marketdriven
development. The results were immediate.
Increased housing availability,
stabilized rent, and renewed confidence
in the housing market. I could go on and
on, but the bottom line is clear. There
are proven, verifiable examples around
the world of how deregulation and the
opening up of housing markets directly
leads to increased availability,
affordability, and robust economic
growth. Don't get me wrong, free markets
are not perfect. No system is. But some
systems are clearly much better than
others when the goal is a robust middle
class, social mobility, and access to
home ownership. The choice we face isn't
between a socialist utopia where
everything is curated and perfect and
the evils of capitalism. It's a choice
between a messy system that actually
works in reality and a system that
sounds good but reliably leads to
disaster. Free market is flawed but
effective at pulling people out of
poverty and making home ownership
affordable. Rent control and other top-
down planning strategies, on the other
hand, interrupt the delicate and complex
economic ecosystem and replace it with
shocking levels of corruption, supply
shortages, and economic stagnation. We
see it time and again all around the
world. Policies like rent control appeal
to the deep populist resentments that
occur when people are disenfranchised
from a positive economic future by debt
and a housing market that makes home
ownership impossible. Politicians
promise a quick fix, but instead destroy
communities, shrink the housing supply
even further, and turn once thriving
neighborhoods into economic ghost towns.
It's very understandable why people are
resentful right now, especially young
people. But when we're angry, our
thinking becomes punitive. In short
term, we don't parse the problem
effectively and we vote for things that
harm ourselves in the long run. Rent
control is a symptom of a deeper
problem. Namely, that as you hollow out
the middle class through terrible
economic policies, you accelerate
populism and usher in authoritarian
rule. And over and over again, history
proves that this is always going to
backfire. No matter how thirsty you are,
drinking sea water only accelerates your
dehydration. And that's exactly what
rent control policies are. They sound
like they're going to fix the problem.
But in reality, they make everything
worse. The choice is ultimately ours.
Demand ahistorical, illogical, temporary
relief that feels good but accelerates
our decline or address the underlying
cause of our problems. I wish there were
easier answers, but at least there
really is an answer. And it goes like
this. Get the country out of debt. Get
people out of debt. Stop issuing
governmentbacked debt for college. Let
people discharge their student debt in
bankruptcy court to force discipline on
the industry. Make housing affordable
through deregulation so it's once again
subject to market forces and incentives.
Focus obsessively on eliminating
policies that hollow out the middle
class. Increase the housing supply,
decrease costs, and never vote for
anyone that thinks a command economy
will solve our problems. The exact
opposite is true. Now, I don't know that
we can save everyone, but I know we can
save each other. Focus on yourself, your
friends, your family. Let change ripple
out from there. All right, guys. If you
want to see me explore ideas like this
live, be sure to join me on my YouTube
channel Wednesdays and Fridays at 6:00
a.m. Pacific time. Till then, my
friends, be legendary. Take care. Peace.
If you like this conversation, check out
this episode to learn more.
Less than 30 people own as much wealth
as the poorest 50% of humanity combined.
That's 3.8 billion people in the bottom
half and 30-ish at the top. Not 30
million.