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obligations of lessor and lessee.” The idea of a lease is that when it is over or violated, the contract is over. Rent control upends the ability of a lease to reflect a set of terms that if broken mean an end to tenancy. One party, the private owner of a rental unit, can no longer set the terms of the use of his property in a lease.
Throughout its long history, like all price controls, rent control has created controversy and mixed results. At times of great upheaval, when people have little or no money, housing has been destroyed, or suddenly demand has surged and supply of housing has not been able to keep up, prices rise and calls for rent control rise with them. The arguments and evidence against rent control and the frustration with housing inflation that spur the calls for it, have not changed over the intervening decade since Willis wrote his history.
WHY RENT CONTROL IS NOT A GOOD HOUSING POLICY
First, if rent control was simply a dispute among economists there would be no question that rent control is a bad idea. One survey of the economic studies found that, “on the whole [it] may be fairly said to show that rent control is bad.” But rent control is not about economics, but about politics.
One doesn’t have to embrace the price system as described, for example, by Friedrich Hayek in “The Use of Knowledge in Society”, to agree with the idea that whilesellerssetanaskingprice,thefinaldetermination of price is established by interactions between buyers and sellers in a market. However, the democratization of prices is an irresistible siren call for politicians and activists; who wouldn’t support the notion that what we pay for essentials shouldn’t be determined by the vagaries of a “free market,” but by a simple and direct vote, a consensus enforced by government. “How much is that gallon of milk?” someone asks. “It’s $1.89,” someone answers. “Why?” And the answer is, “Because we say so!”
Advocates of rent control attribute the asymmetrical power relationship between landlord and tenant favoring the landlord not the fact that housing supply is low, and the tenant has no other choice but to pay higher rent, but to the landlord’s greed. Landlords set prices based on how much they want to earn.
Worse, rent control advocates would say, landlords use price to decide what kind of person they want to live in their property; price can be used to discriminate against people because of their race or other
characteristics. Taking away the ability of landlords and tenants to negotiate price puts the control of price to broader community consensus, protecting the consumer and ensuring fairness of the distribution of housing to those who need it at a price they can afford, regardless of class, race, or characteristics.
So, the following discussion, a digest of what makes rent control a bad policy will not persuade activists whose battle is in the streets and in the footnotes of empirical studies on housing economics, where they always dispute the data. However, it is important to establish that rent control does not accomplish the goals it sets out to achieve — better outcomes for people with less money — but it also creates more problems for people with less money who need housing. For this review, I am drawing on a survey of studies completed by Lisa Sturtevant of the National Multifamily Housing Council’s Research Foundation. Sturtevant gathered and reviewed empirical studies conducted since 1972 conducted on rent control in the United States.
I have reviewed the primary sources and will cite some of them in the discussion below.
RENT CONTROL REDUCES SUPPLY OF EXISTING RENTAL HOUSING
Once a rent control ordinance is implemented the ability of a property owner to set prices to cover costs of operation, to maintain cash flow, and to pay taxes is impacted. This creates an incentive to shift residential rental property to other uses that aren’t regulated. In San Francisco, “landlords treated by rent control reduced rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings.” And since “rent control incentivized landlords to substitute away from an older rental housing stock towards new construction rentals and owner-occupied condos,” the new units were much more expensive than older ones, eliminating housing options for people with less money.
INCREASED PRICES FOR HOUSING AFTER RENT CONTROL
Once rent control is applied, “excess demand caused by the controls spills over into the uncontrolled sector and increases rents,” in New York that meant rents went up as much as 25%. Once a unit is rent controlled, it is no longer on the market and thus people who would have been able to rent that unit before for more money must find other options. That demand then flows toward new construction or other units without rent control. Additionally, worry about expansion of
APARTMENT MANAGEMENT MAGAZINE - APRIL 2022 CS-17