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rent control incentivizes managers of rental property to price their product more aggressively. Rents usually are jagged in their rise and fall, and property managers worry about not being able to keep up with expenses and not being competitive, so pricing often reflects costs and demands. Worry about future limits encourages making increases sooner. Something like this is occurring now in Oregon, where after statewide rent control passed, rents “skyrocketed.”
BENEFITS OF RENT CONTROL ACCRUE TO THE WEALTHY
Because rent control ordinances do not means-test residents, the benefits of lower rents often accrue to people that either earn more money or who earn more money over time. Additionally, the benefit of having rent lower than market rent may or may not help people that supporters intended to help. In a study of New York rent control in the 1960s, found that the “benefits were higher for older tenants, richer tenants, and white tenants than for their counterparts,” and “the cost to landlords exceeded the benefits to tenants by about 75%.”
Even when apartments are price controlled, if they aren’t abundant, and one can’t pay more for them, then people must wait in line for them. Bread lines in the Soviet Union were symbolic of the fact that bread was cheap, but there wasn’t any bread to be had. Because of this, people with plenty of money to spend end up in rent-controlled apartments they won’t leave. One study of New York’s rent control scheme found that, “20% of the apartments are in the wrong hands.” People with less money to spend can’t leave their location, and people with more money subsidize their lives with lower housing costs. In both cases, important utility is given up hanging onto a unit because all other housing costs are rising.
REDUCTION OF MOBILITY DUE TO HOARDING
This brings us to the next related problem, that of hoarding of the benefit once it is gotten. While landlords are incentivized by rent control to take their property off the market, tenants are similarly incentivized to keep their apartment to themselves by not moving. One interesting study was able to quantify this by looking at commute times: “The most restrictive [rent control] ordinances have the strongest effect on commute times.”
This isn’t surprising, but confirms other studies that found households, once paying below market rent, wouldn’t change their address even when other things in their life changed. The Stanford study, which looked at a period beginning in 1993, found that “tenants who
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receive rent control protections are persistently more likely to remain at their 1993 address relative to the control group.”
RENT CONTROL LEADS TO DEFERRED MAINTENANCE AND QUALITY DECLINE
The problem with rents that don’t reflect anything other than an arbitrary determination by a government board extends to cost management. In New York, landlords are suing the Rent Governance Board (RBG) in part because rent control does not allow properties to keep up with costs. This imbalance between costs and the ability to cover them with rent revenue should be obvious. But does it lead to the overall decline in building quality. According to Sturtevant’s review, “there is no clear association documented in the empirical research between rent control and building quality.”
Why is this evidence lacking? One reason mentioned in the literature is the presence of other rules and codes that mandate upkeep. One other possibility not cited in the literature is that, as discussed above, many rent controlled units end up being taken off the market, so the issue never arises. Still, across the country, the ability of rental properties to stay rental properties depends on the ability of managers to cover costs, and the only way to do that is with rent revenue, and if it is locked, the business loses money, incentivizing conversion. Because a disproportionate number of poor people are people of color, the negative impacts of rent control are carried by people of color.
COERCIVE AND INEFFICIENT SUBSIDIZATION
For the last 100 years, since the Block case, courts have more or less maintained the precedent that rent control does not constitute a taking by the government of private property without due process. However, the legal case mentioned above is going to test that precedent. The case argues that rent control is: “Arbitrary and irrational in violation of the Fourteenth Amendment’s Due Process Clause; they effect a physical taking of property in violation of the Constitution’s Takings Clause; and they constitute a regulatory taking of property in violation of the Takings Clause. The Rent Stabilization Laws are therefore facially unconstitutional.”
The study by Ault et al cited earlier, based its assumptions on the difference between controlled units and uncontrolled units and quantified that at 25%. In other words, if owners of rent-controlled properties could measure how much they are losing per month, it could be as much as 25%, or more.
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