Too Demanded High
Abstract
On August 10th officials in Orange County, Florida, which includes the city
of Orlando, voted to put a rent-control measure on the ballot in November
limiting rent increases to the change in the consumer-price index.
Advocates argue that, by keeping rents below market rates, rent controls
allow low-income tenants to stay in their homes, even in rapidly
gentrifying areas. "Local governments don't really have control over
housing subsidies, they don't build new public housing, they don't
administer vouchers," says Ms House of the Furman Centre.
Housing policy
More cities are passing rent-control laws. Is that wise?
When asked about rising rents in St Petersburg, Florida, Karla Correa, a
local activist, is resigned. "The crisis keeps getting worse." Ms Correa
speaks from experience. In October the 22-year-old was told that the rent
for her two-bedroom apartment in the city's Historic Old Northeast
neighbourhood would be going up by $250, or 23%. Such double-digit
increases have become common in St Petersburg and across the Sunshine
State, Ms Correa says.
Now some local residents are fighting back with an idea that was banned
by the state in 1977: rent control. "We started pushing it here and then
other cities in Florida started pushing it too," Ms Correa says. On August
10th officials in Orange County, Florida, which includes the city of Orlando,
voted to put a rent-control measure on the ballot in November limiting
rent increases to the change in the consumer-price index.
As rents soar across the country (see chart), more local governments are
turning to rent-control measures to help contain housing costs and keep
low-income renters in their homes. In June lawmakers in South Portland,
Maine, a city of about 26,000, voted to limit annual rent increases to 10%.
In July Kingston, some 100 miles (160km) north of Manhattan, became the
first city in upstate New York to adopt rent controls. On August 1st
lawmakers in Pomona, California, 30 miles east of Los Angeles, voted to
cap rent increases at 4%. Several Californian cities, including Pasadena,
Richmond and Santa Monica, have put measures on their November
ballots tightening existing rent-control laws.
Enthusiasm for such policies is less partisan today than it was in the past.
For years rent-control regulations existed in just five Democratic
strongholds: California, Maryland, New Jersey, New York and Washington,
dc. In the 1980s and 90s more than 30 states passed laws to prevent local
governments from adopting their own rent-control rules.
However, since 2019 rent-control laws have been enacted in three
additional states-Maine, Minnesota and Oregon- and they are being
considered in half a dozen more, according to the National Multifamily
Housing Council (nmhc), a trade group for landlords and developers.
"We're seeing it pop up in some places where you wouldn't normally see
it," says Jim Lapides, a vice-president at the nmhc. "There's a lot more
conversation about it than we've ever seen before."
It is easy to see the appeal. Advocates argue that, by keeping rents below
market rates, rent controls allow low-income tenants to stay in their
homes, even in rapidly gentrifying areas. "One of the main purposes of
rent regulation is to promote housing stability," says Sophie House of the
Furman Centre, a housing-research group at New York University. "Rent
regulation does have those stabilising effects." A paper published in 2019
by economists at Stanford University found that, between 1995 and 2012,
tenants of rent-controlled flats in San Francisco were 10-20% more likely
than others to remain at their addresses in the medium to long term.
But economists say such regulations have too many unintended
consequences to make them worthwhile. When rents are set artificially
low, builders and owners have less incentive to invest in new properties,
and greater incentive to convert existing ones to pricey condominiums.
This reduces the supply of rental housing and pushes up rents for
properties that are not subject to controls. Rent control also tends to
benefit rich tenants more than poor ones. "The targeting of the benefits of
rent control is completely backwards," says Rebecca Diamond, one of the
authors of the Stanford study. She notes that rent-controlled tenants in
San Francisco have higher incomes, on average, than those living in
unregulated properties.
For richer, not for poorer
A working paper by Kenneth Ahern and Marco Giacoletti of the University
of Southern California finds that a new rentcontrol measure in St Paul,
Minnesota, has had similarly undesirable results. Using a sample of
150,000 transactions made between January 2018 and January 2022,
Messrs Ahern and Giacoletti estimate that the ordinance, which was
passed by St Paul voters in November, caused property values in the city
to fall by 6-7%. What is more, though the law was intended to help
lowerincome renters, the benefits went mainly to the rich.
Why are local lawmakers so keen on rent control? Despite its flaws,
experts say, cities have few other tools at their disposal. "Local
governments don't really have control over housing subsidies, they don't
build new public housing, they don't administer vouchers," says Ms House
of the Furman Centre. Meanwhile the policy tools that they do have, such
as zoning laws, are politically unpopular. It is little wonder, then, that rent
control is so appealing. "They see something like rent control that doesn't
cost the city anything, and they can say that they've done something and
helped address the problem, and then that helps them get re-elected,"
says Mr Lapides of the nmhc.
Ms Correa says voters in St Petersburg should have a chance to pass their
own law. "You can talk to anyone, any worker, any tenant, and they will
support rent control," she says. "Everyone supports rent control except
landlords and developers." For now, local lawmakers remain unconvinced.
Earlier this month the St Petersburg city council agreed to draft a
resolution declaring a "housing emergency", the first step towards putting
rent control to voters in November. But on August 11th, following a "sleep
in" protest on the steps of City Hall, the resolution was withdrawn. A
motion to draft an ordinance to put to voters in 2023 failed by three votes
to five.
