Editor’s note: This is the seventh installment in a series examining the roots of America’s housing crisis. To read the earlier pieces, visit the roots of today’s housing crisis.
In the 1960s, the free-market economist Assar Linbeck described rent control as “the most efficient technique so far known for destroying cities — except for bombing.” In 1989, Communist Vietnam’s foreign minister, Nguyen Co Thach, implied that rent control was worse than bombing when he said, “The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents.” In a 1990 survey of 464 economists spread across the political spectrum, 93 percent agreed that a “ceiling on rent reduces the quantity and quality of housing available.”
Despite universal agreement that rent control doesn’t work, more city governments are finding it politically expedient to impose or expand caps on rent, instead of creating conditions that would encourage more apartment buildings. For example, New York City in 2019 vastly expanded the number of units covered by rent control. Worse, the new law says that no matter how much a landlord spends to repair an apartment, the owner can recover only the first $15,000 in costs. But older apartments often need more costly repairs when tenants move out. Since landlords cannot operate at such a huge loss, some estimate that as many as 26,000 apartments have been taken off the market. The city’s housing agency has pegged the number at over 88,000 units that were taken off the market. Whatever the number, New York City’s draconian rent control scheme only makes the shortage of housing worse, which can only drive up the price of all other housing.
Some cities in California have passed rent control ordinances that seem designed to punish landlords for being landlords. Many cities have adopted rent control measures that do not allow rents to rise with inflation, confining increases to a small percentage or a fraction of the rate of inflation. In California, newer apartment buildings have been exempted from rent control to encourage new construction. But last fall, voters were asked to repeal these protections through Proposition 33, which would have allowed cities to impose far more drastic rent control across the state. Voters decisively rejected the measure, marking the third time in recent years that Californians have turned back attempts to expand rent control.
The first residential rent control laws in the United States were supposed to be temporary measures, enacted to deal with the influx of soldiers and workers during the First World War. As those measures faded away in New York City, there was a massive increase in new housing construction, once owners were free from the specter of rent control. But controls were renewed during World War II as an “emergency measure.” The “emergency” in New York City has now been going on for eight decades.
The problem is not only that rent control does not work, but that it makes a bad situation much worse. While rent control may help, at least in the short run, the people living in homes at below-market rents, it destroys the incentive for the development of new homes. If rents are high because there is a shortage of housing, rent control discourages new construction, making the shortage worse. Not only that, but rent control pushes up the prices for housing and rentals in nearby areas where there are no price controls. In the long run, where there is pervasive rent control, landowners have no ability to properly maintain their units because they cannot recoup the costs. Below-market rents will lead to below-standard conditions.
While rent control is often touted for its benefits to poor, minority and working-class renters, the people who benefit the most are often those with the greatest financial stability to stay in one place for an extended period of time: those who are richer, better educated, better employed and white.
As reported in the Wall Street Journal after the adoption of its severe rent control scheme in 2019, “The biggest beneficiaries of rent regulation in New York aren’t low-income tenants across New York City, but more affluent, white residents of Manhattan.”
Similarly, economists at Stanford University found that “rent control contributed to the gentrification of San Francisco, contrary to the stated policy goal. Rent control appears to have increased income inequality in the city by both limiting the displacement of minorities and attracting higher-income residents.
A recent Brookings Institution study concludes, “While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification and creates negative spillovers on the surrounding neighborhood.”
Rent control doesn’t work. If California wants affordable housing, rent control is the wrong tool. The only real solution is to build more homes.
James Burling is vice president of legal affairs at Pacific Legal Foundation, a nonprofit legal organization that defends Americans’ individual liberty and constitutional rights. He is the author of “Nowhere to Live: The Hidden Story of America’s Housing Crisis.”