Debunking Traditional Economics Arguments Against Rent Control

Looking at historical data

The housing prices are higher than ever. Anytime a candidate talks about rent control, newspapers respond with the same few recycled arguments that originated from Milton Friedman type of economics. Luckily, we have historical data to debunk those extremely bad arguments.

Myth of the Housing Shortage

It is peddled all too often. The Hill wrote last year:

The progressive politician and his like-minded colleagues have yet to realize: Investors have choices. You cannot demand that landlords build rental units. If you take away the incentive for doing so, they will build even fewer apartment buildings, and rents will go even higher.

While the Post claimed:

In the long run, the key to making housing more affordable is to build more homes. 

While Vox claimed:

Rent control constricts the supply of rental housing through a number of different dimensions: By reducing the potential financial upside of building new rental housing, it generally discourages capital investment in the sector.

If we look at data for San Francisco, the most expensive city for renters (median $3690 for a one-bedroom apartment) we can clearly see that there is no housing shortage. A recent study showed that there are nearly 100,000 vacant homes in San Francisco, while there are only 10,000 homeless people in the city of San Francisco. In San Francisco, despite the increase in the total number of vacant units, rental prices have steadily climbed.  In other words, there is more housing available for rent, yet the rental prices are higher. 

Other high-rent cities also have a surplus of housing. New York City has a surplus of 274,000 units.  Some neighborhoods in Chicago have a 30% non-seasonal vacancy. That means that 30% of the available housing is not occupied.  Clearly, the problem of affordable housing is does not stem from any housing shortage.  In fact, we have a surplus of available housing. It is just not affordable. 

Citing Past Failures of Rent Stabilization

One of the favorite studies to cite amongst the anti-rent control chattering class is a March study from a group of Stanford University professors. Let’s look at the data and see what it actually says.

On page 23, the study said, 

“In the short run, rent control prevents displacement of the initial 1994 tenants from San Francisco, especially among racial minorities…. However, this short-term effect decays over time. Eight years after the law change, 4.5 percent of the tenants treated by rent control were able to remain in San Francisco because of rent control.However, five years later, this effect had decayed to 3.7 percent, and will likely continue to decline in the future.”

In other words, the study claims rent control does provide some level of protection to existing tenants, but it may not protect the tenants in the same way in the future.

Furthermore, the study did not claim that rent-control itself did not work.  Rather, it claimed that units protected under the rent-control had positive effects on the residents.  However, not all buildings were protected by the rent control. Instead, the rent increased in the uncontrolled buildings in the city.  The authors are clear to mention that this is a trade-off between benefits accruing to current residents and the potential harm to future residents. Therefore, one could equally draw the conclusion that incomplete rent control is a problem.

Vox said:

Landlords treated by rent control reduce rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings.

But, if they had managed to read further into the study, they would have realized that this study is limited to the 1994 rental protection law. The study clearly states 

“We therefore use as our treatment group those renters who, as of December 31, 1993, lived in multi-family buildings of less than or equal to 4 units, built between years 1900 and 1979. We use as our control group those renters who, as of December 31, 1993, lived in multi-family buildings of less than or equal to 4 units, built between the years of 1980 and 1990. We exclude those renters who lived in small multi-family buildings constructed post 1990 since individuals who choose to live in new construction may constitute a selected sample and exhibit differential trends. We also exclude tenants who moved into their property prior to 1980, as none of the control group buildings would have been constructed at the time.”

Before 1994, San Francisco had an exemption for smaller landlords who owned less than 4 units.  The 1994 ballot initiative extended the law to all landlords.  So this study isn’t comparing the effect of rent control vs. the effect of no rent control.  Instead, it is comparing the effect of rent control on smaller landlords who own between 2-4 units vs the effect or no rent control on landlords who own 2-4 units. However, a majority of rental units in San Francisco are owned by landlords that own more than 4 units. Therefore, the applicability of this limited study on larger companies that own more rental units is uncertain.

Worker Mobility

The Washington Post has claimed:

And since rent-stabilization policies often tend to discourage people from moving, they harm worker mobility and the economic dynamism associated with it

Worker mobility isn’t the main problem. Rather, workers are forced to move far away from their jobs because they cannot afford the rising cost of rent, creating “an island of exclusion.”  Therefore, the point of rent control is to reduce rental rates such that people whose income is lower do not have to move or be displaced from their neighborhood. Therefore, by allowing people to stay put, rent-control policies allow people to be in areas of high-economic activity.  

The Cult of Incentives

Anti-rent control pundits always make the following argument:if you have rent control, investors/landlords/developers have no incentive to build more housing.

With all this concern trolling on the rent control, they forget to inform you of the state government and the federal government’s power when it comes to housing policy.  that The fifth amendment clearly states, “nor shall private property be taken for public use, without just compensation.”  This means that there is nothing stopping the federal government from confiscating empty units (as long as they provide the owners with just compensation) and renting it out to people with lower incomes.  

Furthermore, the federal government has the ability to build more housing units that are exclusively reserved for people who make under a certain income. For example, in 1934, the Roosevelt administration built public housing themselves.

As it has become painfully obvious that 50 years of neoliberal policy will not solve the crisis of affordable housing.  Maybe, it is finally time for the federal government to get aggressive in regards to providing basic housing for all.