Nolan Gray is a research fellow with the Mercatus Center at George Mason University and a professional city planner.
Yesterday voters in California rejected Proposition 10, which would have repealed current restrictions on how much city governments can control or cap rents.
It was a bill that activists succeeded in getting on the ballot and it's no surprise California was a battleground: According to recent HUD data, 54 percent of all California renters are “rent-burdened”—meaning they spend more than a third of their income on rent—and 29 percent are “severely” rent-burdened, meaning they spend more than half of their income on rent. Existing affordable housing programs are simply not producing enough affordable units.
But rent control would do very little to help those burdened with high rents, and with rent-control activists in states like Illinois, Colorado, and Oregon all pushing similar restrictions, this issue is likely to rear its head again and again in cities and states across the country.
There’s a reason why, after a brief period of experimentation with rent control in the aftermath of World War II, a cross-ideological consensus emerged opposing the policy. It was Assar Lindbeck, a noted socialist economist, who famously said “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” What did Lindbeck understand that current advocates don’t?
The primary problem with rent control is that it leads to fewer housing units. The first thing to happen under rent control is that many apartments are simply taken off the rental market. Researchers note this effect in a 2007 paper that studies rent control in Boston. Higher-quality units are converted into condominiums or co-ops, for which prices are not regulated, while mostly lower-quality units remain on the controlled rental market.
Rent control also reduces the number of housing units by discouraging future construction. If developers are worried that rent control will be applied retroactively to their new units, they will be hesitant to build new rental housing. With a shortage of units at the heart of California’s housing crisis, allowing cities to extend rent control to newer units or apply it to existing units would make the affordability crisis worse in both the near and long-term. This is partly why California originally joined a majority of U.S. states in placing tight rules on cities’ ability to adopt rent control.
But rent control means more than lost units. Even if we restrict ourselves to looking at rent-controlled units, the policy doesn’t always help low-income families. For example, many of the people who are able to secure a scarce rent-controlled unit aren’t actually low-income. In a 1989 study of rent control in New York City, researchers found that the city’s rent controls were inefficiently targeted, thus benefiting upper and middle-income renters as much as low-income renters.
Beyond merely not helping low-income tenants, there’s good evidence that rent control might actually hurt them in the long run. The same study found that tenants in rent controlled units were less mobile than similarly situated tenants renting market-priced units. Since rent control works like a lottery, tenants in controlled units often end up staying in one place to capture the benefits of artificially-low rent, even if they would otherwise have moved.
A later study of Danish rent control zeroed in on the effects of this incentive to stay put, finding that tenants in rent-controlled units often remain unemployed or accept lower-paying local work rather than move to high-opportunity areas. Where a typical tenant can move with relative ease, tenants in rent-controlled areas face large hurdles. Not only do they risk losing their current unit by leaving, but they also have to start at the bottom of a waiting list for a unit in a new neighborhood. In this way, rent control can actually hurt working families by disincentivizing moves to prosperous areas.
Without a doubt, California needs a robust policy response to the state’s housing affordability crisis. Policies that involve streamlining the construction of new housing at all income levels and expanding and reforming existing housing voucher programs like Section 8 could help.
But as attractive as rent control may appear, it’s simply not a viable solution and will only hurt the very families that rent-control advocates aim to help.