OCTOBER 8, 2021 – Rent control has long been in vogue in “Big Blue” states like New York and California. Now it’s up for consideration in Minneapolis and St. Paul.
The shortage of affordable housing across urban America is a major problem, intersecting with companion issues, from racial inequality, income disparity, and access to transportation, quality education, medical care, and economic opportunity.
From a progressive perspective, “rent control” sounds like a good idea. Renters with limited income don’t have to worry about housing costs going through . . . the roof. The reality of rent control, however, is that it’s counterproductive. Rather than ameliorate a fundamental societal problem, rent control deepens it.
In many contexts—legal drafting, for example, or long-distance air-travel—I favor simplicity over complexity. I’m wary, however, of simplistic solutions prescribed for problems linked to complex causation. Also, I like to focus on empirical evidence—and its quality. Further, who has studied the problem? From what perspective, with what biases? What expertise does a researcher have or lack?
Curious about evidence regarding rent control, I found online a large body of academic research. Much was encapsulated in a report led by Rebecca Diamond, an associate professor of economics at Stanford and published by the Brookings Institute. Professor Diamond cited numerous studies reaching back to the 1940s, and in an ostensibly balanced, objective manner, the report summarizes well the unintended consequences of rent control.
She lists numerous peripheral repercussions that should cause even the most ardent proponent of rent control to reconsider.
One issue with the policy is the disincentive it creates among developers to invest in new housing stock, thus reducing overall housing inventory. First-in-line renters benefit, but many people in need are locked out by the growing shortage.
Another problem: property owners transform existing rental units to owner-occupied dwellings, particularly via conversion to condos in the case of multi-family developments. This reaction by landlords leads eventually to gentrification, making housing even less affordable.
A further consequence is the mismatch that develops between rental unit size and number of occupants. For example, a single parent or couple with three-kids that moves into a rent-controlled apartment is more likely to remain in the unit long after the kids have left, if moving to a smaller unit would trigger an increase in the renter’s cost.
Another unintended result is a reduction in property values and the corresponding effect on the real estate tax base.
One study of rent control in Cambridge, Massachusetts, revealed that rent-controlled property created significant downward pressure on the value of nearby (non-controlled) neighborhoods disproportionately.
The Brookings report summarized empirical studies supporting my long-standing instinctive opposition to rent control. Being a proponent of affordable housing, however, I’ve always been inclined to believe that the better way to address the underlying problem is to expand rent subsidies—federal, state, and local. The good Professor Diamond concluded her report with exactly that suggestion. Bingo for . . . her and the cause of affordable housing!
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© 2021 by Eric Nilsson
