Should liberals get behind rent control?
Rent controls are making a comeback.
Long dismissed by the economics mainstream as a premier example of inefficient and self-defeating policy, rent control languished for decades in a few cities. But earlier this year, Oregon became the first state government to enact rent controls, followed by a successful push that rocked New York state politics in June. Yet another bill is now working its way through California's state legislature.
All of which raises the question, is it time for a rethink on the issue? For progressives in particular, is rent control something they should put their full weight behind? Unfortunately, based on the evidence, there's no easy answer.
The first rent controls were passed in the 1920s, and then expanded in the economic mobilization of World War II. These "first generation" rent controls were the kind of hard price ceilings that fit comfortably into the economic mainstream's argument against the policy: The idea being that rent controls discourage developers from building more housing supply or updating the existing supply, creating shortages and deteriorations that hurt the very people rent controls are supposed to help. Meanwhile, the market pressure gets released in the form of even sharper price hikes on the housing stock that isn't regulated. The Swedish economist Assar Lindbeck more or less summed up the mainstream wisdom when he called rent control "the most efficient technique presently known to destroy a city — except for bombing."
A lot of those laws were scuttled during the 1950s. But then a "second generation" of rent controls arose in the 1970s. These new laws never became that widespread; they're currently imposed by around 180 local and municipal governments, all in New York, California, New Jersey, Maryland, and Washington D.C. (Plenty of states actually forbid their local governments from indulging in rent controls.) But they are also more flexible than the "first generation" laws that inspired the Markets 101 anti-rent control story.
Second generation rent controls allow regular rental hikes within certain limits (say 7 percent a year), they often only apply to certain portions of the housing stock, or to those built before a certain time, and they may or may not carry over between tenants. Second generation controls can also get into the minutiae of tenants' rights and landlords' maintenance obligations.
As early as 1995, urban studies professor Richard Arnott was asking whether the economics of rent control were due for a rethink, largely based on the need to differentiate the first and second generations. The difficulty is that, while second generation rent controls are certainly more flexible and more complicated, exactly how much those differences matter is hard to pin down. Second generation rent controls tend to vary a lot from city to city, both in terms of how they work and what specific limits they impose. On top of that, local housing supplies in individual cities are subject to all sorts of forces that shift and remake local prices all the time, which makes cause and effect very difficult to tease out. Nor are cities and local governments particularly good at collecting the data researchers would need to really test the costs and benefits.
The result is something of a huge muddle. Plenty of studies, of all levels of quality, can be cited to support claims that even second generation rent controls do all the damage that the mainstream economic narratives allege, as well as to support claims that they cause little or none of that damage. "The debate over controls will continue to be based primarily on ideology and a priori reasoning," Arnott told The Week in an interview. "Both sides of the debate will play the numbers game and come up with 'objective' analyses, but few if any of these studies and reports bear scientific scrutiny."
Ultimately, the question facing local policymakers might be less whether rent controls are obviously good or bad, but what imperfect compromises can they live with: What values do they want to prioritize, and what values are they willing to sacrifice?
One recent and high-quality study of rent controls in San Francisco, by three Stanford economists, provides an example. The study exploited a natural experiment, in which a successful ballot initiative in 1994 retroactively applied some second generation rent controls, originally passed in 1979, to a large chunk of the city's rental housing stock that had been exempt. The researchers found the change allowed some tenants, especially elderly ones and families who had already lived in a spot a long time, to stay in their apartments 10-to-20 percent longer. But the researchers also found the rental housing stock fell by 15 percent, and the percentage of people living in rent controlled apartments fell 25 percent, presumably because landlords converted the rental units to owned condos, or avoided the laws by other tactics. (Arnott pointed out that this assumption is based on a statistical correlation — we can't actually prove landlord behavior changes driven by the rent controls caused the supply drop.) That second effect arguably increased gentrification, inequality, and rents elsewhere in the city.
More to the point, when the Stanford economists tried to impute a dollar value to the benefits tenants received from being able to stay put, and to the damage done by the supply reduction, they came up with roughly $2.9 billion in both cases. To the extent "hard" economic numbers can weigh the human benefits versus costs of rent control, it was essentially a wash.
A wider survey of rent control studies by the Urban Institute hit on a thematically similar conclusion. While second generation rent controls often do provide real help for people in the rent controlled units, such laws can also reduce supply, causing harm elsewhere — though they definitely don't always do the latter. Rent controls can give tenants more legal leverage to fight landlords over unjust evictions and poor maintenance, while they may or may not discourage maintenance and upkeep by making those efforts less profitable. Finally, because rent controls tend to be imposed on specific housing stocks at specific times, and populations shift in and out of that housing over time, the economic relief of rent control is not always well-targeted at lower-income residents, or at nonwhite populations suffering gentrification — the groups you'd assume need the help the most.
More than anything, the Urban Institute decided that more research was needed. The situation is a stark contrast to, for example, the minimum wage, which was also dismissed as a self-defeating policy by mainstream economic theory for years, until a series of studies blew apart that assumption. Nothing so decisive has come close to happening in the field of rent control studies.
At the same time, rent controls are something. "Almost all economists of all political hues are adamantly opposed to rent controls in any form. The opposition of most is based on sound economic logic," Arnott said. "I just think that they don't understand the value that many poor households attach to neighborhood and community and how disruptive economic eviction is for most poor households."
One alternative solution the Stanford team and others have suggested is some form of subsidy to support renters, financed by taxes on land owners. Rather than mess with prices themselves, take money away from the people who collect the higher rents and redistribute it to tenants to offset the hit.
In practice, such a system might be a bit much for a local city government's administrative abilities. Rents in a city also tend to move as a conglomerate mass, rather than going up and down neighborhood to neighborhood. That problem should be surmountable if the money financing the renter support comes from the surplus cash land owners pull in from the price hikes. But then you're talking about a possibly quite brutal tax on some very powerful constituencies in the city. A federal version of such a system — or at least a city-administered version backed by federal spending — might be the most likely to work.
Arguably, rent control has become a live political issue again, not because the economic wisdom changed, but because the nation's affordable housing crisis has become so severe. Access to good jobs has increasingly concentrated in major cities, where housing and rental costs are spiking the highest — putting people up and down the income distribution between the hammer and the anvil. The forces driving that crisis are many and varied, and many of the deepest solutions will likely have nothing to do with housing policy at all.
We can discuss the sometimes counterintuitive-yet-unavoidable realities of market forces all day. But voters will understandably continue to view housing prices not simply as a technocratic market exchange, but as a network of moral obligations human beings owe to one another. The distance by which the benefits of rent control outpace the costs — or vice versa — may mostly come in inches. But under the stresses of the current crisis, those inches come with very real moral and political stakes.