Fixing the Root Cause Instead of Resorting to Rent Controls

When a family’s household budget is inadequate to pay prevailing prices for rental housing, they are desperate. Blinded by anxiety, these families and their advocates may see rent control as a viable solution. Rent control is an overly simplistic answer that shortchanges families, communities, building owners and municipalities. The State of Oregon is the most recent jurisdiction to fall for the easy-fix hoax presented by fellow travelers.

Rent control or its euphemism, “rent stabilization,” are over simplifications that fail to deliver a genuine answer to the problem of inadequate family income. There are sensible solutions to the problem of low income that do not corrupt market mechanisms that set housing rental prices at rational levels. For example, “Poor families could be helped by expanding existing programs such as housing vouchers or the Earned Income Tax Credit (EITC) to cover more poor households.” It would also help to increase the stock of affordable housing if housing ordinances allowed small-unit and low-cost housing developments, or in-law units or carriage houses (usually garage make-overs). Genuine solutions will require a lot of re-education aimed at ingrained cases of NIMBY. That, in turn, will call for political courage to raise the funding that elevates income for needy working families.

Perhaps most notorious are the rent-controlled apartments in New York City. They are featured with hideous griminess in many TV shows involving police (e.g. Blue Bloods and NYPD Blue). In fairness, rent controlled apartments now represent only 2% of the apartments in New York City, but some of the units are garish eyesores. NYC’s rent stabilized units are buildings built before 1974 with 6 or more apartments and with rents below $2,700/month. They are only slightly less nasty.

In California, Los Angeles, San Francisco, Santa Monica, Beverly Hills, and West Hollywood have rent control, but many well-known areas in California do not because rent control is a local jurisdiction’s decision. San Francisco’s rent control has different strata: buildings built pre-1979 can increase rents annually up to a government-prescribed percentage, but all rentals face stringent conditions for initiating evictions. Southern California jurisdictions have different rent control rules, such as 3% rent increases for existing tenants, but no limit for units being rented to new tenants.

Minneapolis raises the rent control issue almost regularly, but it has not yet succeeded in recruiting enough support to impose the problem on the jurisdiction.

Massachusetts once had rent control, but the voters demanded its repeal. There is still a coterie of supporters in Cambridge and Brookline MA, where the stock of rental units dropped by 8% and 12% respectively when rent controls were in effect.

Rent controls infect the market place with problems that harm both the owners and the renters. By limiting rent, usually to below-market levels, rent controls reduce the incentive to build rental dwellings. With fewer newly constructed buildings, prices for those that are available rise, and the average age of rentals increases, growing the need for rehabilitation and maintenance.

Rent controlled housing usually does not stay with the intended beneficiaries. It is very often passed to relatives who may not meet the income requirements – thereby denying a unit to those who would qualify. When rent controlled units are clustered, the incentive to build adjacent commercial outlets or non-rent control apartments is reduced, because the area concentrates low income families and what stores are there cater to the tight budgets of the majority.

Over time, these problems, especially deferred maintenance, take root, and they become difficult to correct without herculean effort by the tenants, owners, and municipality. If they are not handled expeditiously, sections of the municipality can begin to look like bombed out ruins.

There are other subtle problems that emerge from the presence of rent controlled buildings. “Rent control policies generally lead to higher rents in the uncontrolled markets.” The discounted rent can push renters into ill-fitting units that are too small, too large or that are in a disadvantageous location for employment. In a free market, renters could address these problems by adjusting their housing location.

Economists from both left and right sides of the political spectrum agree that rent controls are terrible public policy. The American Economic Association found that 93 percent of U.S. economists agreed that rent control reduces the quality and quantity of available housing. Somehow that wisdom escapes the clutches of many politicians.