These States Are Turning To Rent Control: How It Affects Affordable Housing
With Meghna Chakrabarti
With about half of American renters spending more than 30% of their incomes on housing, advocates in cities and states across the country are building efforts to revive rent control policies.
In February, Oregon became the first state to impose a statewide rent control policy. And lawmakers in New York, Washington and California have proposed bills they say will protect tenants and allow low-income individuals to find reliable housing.
But why now? Is rent control is the best approach to lessen displacement and create affordable housing for all?
Christopher Palmer, professor of finance at the MIT Sloan School of Management ( @MITSloan). Author of the study “ Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts.”
The Cases For And Against Rent Control
“Economists are still united that rent control has a lot of side effects, and it clearly has benefits, as well, for the people that are protected by rent control laws,” Palmer said. “And I think that’s why it keeps coming back. We have an affordability crisis and there is a deserving set of people that are renters and they’re struggling.”
“There are these benefits from having affordable housing units for low-income tenants. My research shows that you can think of rent control and affordable housing policies more broadly as providing insurance … if the loss of a job, for example, leads one to also lose one’s house,” Van Nieuwerburgh said. “I think as long as needy households are the ones who are ultimately the beneficiaries of this insurance … there can be large benefits from provisions of this insurance [that are] large enough to outweigh these costs.”
Palmer: “Rent control does a good job at helping current residents stay in their home, but it arguably backfires at making affordable housing more accessible. That is the pernicious effect of the fact that if you’re going to cap rents, it’s going to reduce incentives for people to supply housing. That might not be new housing — modern laws try to keep full incentives for supplying new housing — but people are more likely to convert to condos or to occupy their own unit. So we have a lot of leakage from the system. Rents end up rising for everybody else. It becomes harder to find a rent controlled apartment — everyone is staying there for a long time — and it makes the problem worse.”
Does Rent Control Benefit Those Who Need It Most? Not Always.
Palmer: “Often, the landlords we’re talking to feel very squeezed. And I’ve talked to landlords that say, ‘The tenants that I’m renting to make much more than I do and I’m subsidizing them while I’m being squeezed with costs rising for me.’ ”
Van Nieuwerburgh: “[Rent control] creates, in my view, a lot of housing misallocation, where the wrong type of tenants ends up in a lot of these affordable housing units. Maybe they were low-income when they first qualified for these units, but then over time, because they’re aging, their incomes go up and they make actually quite a lot of money, yet they’re allowed to stay in these units. So I think this housing misallocation problem is also an important feature.”
How Do U.S. Cities And States Value Housing Stability, And What Are Its Benefits?
Van Nieuwerburgh: “This boils down to, as a society, where do we want to fit on that tradeoff between efficiency and redistribution equality? All of economics comes back to, where on the spectrum do you want your society to be? The fact that a lot of Democrats have returned to rent control, in a lot of different places, has kind of tilted that balance towards more redistribution, more equality, and I think this is a good thing.”
Palmer: “People will look at the data and say, ‘Where are the promised rent decreases now that we’ve had a little bit of an increase in supply?’ … I don’t think what we mean — and we need to do a better job communicating this — is that an increase in supply is going to lead to outright decreases in rent. The idea is that the problem will be even worse if we don’t continue to build. And so I think that’s one of the pressures that we see in areas where foreign money is coming in, or areas where there are other pressures on price, and homeownership becomes unattainable.”
Van Nieuwerburgh: “There’s something to be said for having socioeconomic diversity at the neighborhood level. I think part of what is driving this push for more affordable housing is this idea that cities like New York City are losing 50,000, 100,000 rent-stabilized housing units pretty much every year for four decades now, and it’s affecting the ability of having economic diversity in every part of the city.”
What’s Happened In Oregon?
“Here in Oregon, we saw tenants who had been longtime tenants suddenly displaced with just a 30-, or 60-, or a 90-day notice, even though they had been paying their rent on time for years, following the contract and being great neighbors,” Fagan said of life before the state’s new rent control laws. “After a first year of tenancy here in Oregon, we’ve now banned the practice of no-cause evictions. The landlord will actually have to have a legitimate cause in order to kick someone out of their home. And then, second, we have [added] a rent stability feature to our new law, which provides that during a tenancy, a landlord cannot raise the rent by more than 7% plus inflation. So roughly 10% per year.”
Unaffordable Rent As A Statewide Issue
“Oregon has the highest rate of homeless kids per capita of any state in the country. And Multnomah County, which is that big county that really encompasses Portland [the most populous city in Oregon], and the Portland metro area, is not even in the top 50% of Oregon counties facing homeless students,” Fagan said. “And we know that rent-driven homelessness is really the leading cause of homelessness here in Oregon. And so it really is a statewide problem, and it needed a statewide solution.”
Balancing Rent Control With An Increase In Affordable Housing Stock
“We want to make sure that we’re not disincentivizing development, because we are about 150,000 units short, statewide, right now in Oregon. And so we need to be building units, and we’re taking a ‘yes, and’ approach, not an ‘either, or’ approach,” Fagan said. “We have some other legislation that hopefully you’ll be hearing about soon, where we are considering statewide banning of single family zoning in Oregon, and making sure that we can allow duplexes, triplexes, quadplexes on any property that otherwise meets city sighting and design requirements.”
From The Reading List
Washington Post: “ Opinion: The one issue every economist can agree is bad: Rent control” — “There aren’t that many things you can get economists to agree on. Fiscal stimulus, minimum wages, monetary policy, health care, bank regulation — on almost all the major issues of the day, you can find a respected economist to argue for either side.
“But there are a few questions where there’s near unanimity, and rent control is one of them. Pretty much every economist agrees that rent controls are bad. And in the last decades of the 20th century, economists had some success persuading state and local governments to curb these policies.
“Now the policy appears to be making a comeback. Two rent-control bills have cleared the housing committee in California’s state legislature, and New York state looks like it’s about to stiffen New York City’s rent-stabilization regime and offer other cities the option to copy it. City governments may have to relearn why their predecessors pruned back rent-control policies.
“Rent control is supposed to protect poor, deserving tenants from the depredations of greedy landlords. And it does, up to a point. Research on rent control shows that many of the beneficiaries are low-income, and that controlling their rents makes it more likely that they’ll stay in their apartments for a good long time.
“The problem is that rent control doesn’t do anything about the reason that rents are rising, which is that there are more people who want to live in desirable areas than there are homes for them to live in. Housing follows the same basic laws of economics as other goods that consumers need: When the demand for a product consistently exceeds the supply, prices will rise until the quantity demanded is equal to the amount that suppliers have available.”
New York Times: “ Why Rent Control Is a Lightning Rod” — “A supply of housing sufficient to meet urban needs in California will not be built for decades, if ever, and right now building doesn’t seem to be helping much. Many of the newer rental buildings carry high-end prices, while stock of affordable housing is actually falling.
“Given that, rent control is an easy and off-the-shelf policy tool that many people are familiar with — one that does help some renters and doesn’t appear to cost taxpayers money. ‘It is the best anti-displacement tool around,’ said Stephen Barton, co-author of a recent report that called rent control a key measure toward stabilizing California’s housing market.
“And yet economists from both the right and the left are in almost universal agreement that rent control makes housing problems worse in the long run. Here’s what’s behind their thinking and the nuances of the debate.”
Bloomberg: “ New York Adopts Sweeping Tenant Protections on Rents, Evictions” — “New Yorkers won historic rental protections from the Democrat-controlled state legislature over the objections of landlords who warned the changes would make it impossible to maintain their properties.
“The massive rewrite of rent rules — covering about 2.4 million residents of the city’s 1 million regulated apartments — aims to preserve affordable housing by eliminating most of the tools that landlords used to remove units from regulation. The package also abolishes a ‘vacancy bonus’ that allowed property owners to raise rents 20% when a tenant departed.
“Senators passed the bill by a vote to 36 to 26, with the Assembly voting 95 to 41. The legislation is intended to be permanent.
“The vote came shortly before the current laws were set to expire. Governor Andrew Cuomo signed the legislation immediately after passage.
“‘At the beginning of this legislative session, I called for the most sweeping, aggressive tenant protections in state history,’ Cuomo said. ‘I’m confident the measure passed today is the strongest possible set of reforms that the Legislature was able to pass and are a major step forward for tenants across New York.’ ”
This article was originally published on WBUR.org.
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