Orlando’s rent control initiative would only harm consumers

Orlando County, FL recently received approval to place a rent control initiative on the November ballot that would impose a one-year cap on rent increases equal to annual inflation. The ruling by the Florida Circuit Court should come as a welcome surprise to county leaders who had made passing new price controls a top agenda item. Renters, however, will pay the price for this misguided policy.

The Orange County Board of Commissioners voted 4-3 in early August to introduce the rent stabilization ordinance to voters in an effort to rein in ballooning rental prices, which have climbed 27% in the county over the past year according to an analysis by The Business Journals. 

Soon after, the Florida Apartment Association and Florida Association of Realtors filed a lawsuit against the county, arguing that the proposed rent control ordinance was unconstitutional and violated a 1977 state statute that limits local governments’ ability to interfere in the rental market. Specifically, the property associations pointed to language in the statute which states that prior to introducing rent control, local governments must establish that such restrictions are “necessary and proper to eliminate an existing housing emergency so grave as to constitute a serious menace to the general public.” They argued that high rental prices, while troublesome, did not rise to the level of a true housing emergency. 

The circuit court found these arguments unconvincing and agreed to allow the ordinance to appear on the ballot. Strangely, in delivering the court’s decision, Judge Jeff Ashton wrote that the ordinance was most likely “contrary to established law.”

Regardless, the rent control initiative will now appear before voters on Nov. 8. If it’s approved, a 9.8% price cap will be placed on rent increases and violators could face fines up to $1,000 per day.

While the exact details of the law will undoubtedly differ from other rent control measures in states like California and Oregon, the law would share the same primary feature: trying to control market prices. Unfortunately, these attempts at market manipulation never work as intended. In fact, they tend to make things infinitely worse.

History tells us that keeping rent prices below market level, while sometimes providing momentary relief to tenants, can have a destabilizing effect on the housing market by distorting market signals. Over time, this effect can result in a decrease in housing availability, as developers exit the market and landlords no longer generate enough revenue to profit. In effect, these policies remove the financial incentive for developers to construct new housing, significantly undercutting supply. In addition, the quality of those rental properties remaining on the market frequently suffers as landlords look for new ways to save money and cut costs. 

In November of 2021, the city of St. Paul, MN passed an ambitious rent control measure that established a 3% annual cap on rent increases in the city. The measure provided no exemption for new housing construction, a feature many experts argue is needed to protect investment (the city has since made changes to this secondary feature). The effects were immediate. 

Multifamily building permits in the city declined by 82% between January 2021 and January 2022. More recent data shows a decline of 61%. Neighboring Minneapolis, which has no rent control ordinance, experienced a 65% increase in housing permits.

Evidence from overseas is no different. A recent study by economist Jim Powers that examined rent control in Ireland found that the island nation’s 2016 rent pressure zones (RPZs) produced “rent rigidities” that prompted small landlords to exit the market and those remaining to discontinue regular property maintenance due to fiscal constraints. Much larger institutional landlords moved in to fill the void, often charging more for rent than the original landlords. 

Unsurprisingly, Ireland’s experiment with rent control appears to have created an artificial housing shortage with property website Daft.ie estimating that there were just 851 properties across the country available for rent by May 1. This shortage was entirely avoidable and now renters will pay the price for this political misadventure.

Orlando County does not have to follow in the footsteps of St. Paul and Ireland. The county, like many other municipalities also considering rent control measures, can learn from their mistakes and resist the temptation to establish top-down price controls that have proven time and again to have unintended consequences. Instead, the county should have an honest conversation about what practical actions they can take to encourage developers to meet consumer demand for new and affordable housing while being careful to avoid the common pitfalls of the past. 

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