RENT CONTROL is back. Economists have long criticized government price controls on apartments, a concept that had its first moment in the 1920s and that some cities reintroduced in a modified form in the 1970s. Now, decades later, California and Oregon are moving forward with statewide rent-control laws. Meanwhile, presidential candidate Sen. Bernie Sanders (I-Vt.) has made a national rent-control standard the centerpiece of his sprawling new housing plan.
The economists are right, and the populists are wrong. Rent-control laws can be good for some privileged beneficiaries, who are often not the people who really need help. But they are bad for many others.
The California law would cap the rise in rents statewide to inflation plus 5 percent annually. Oregon would set the cap at inflation plus 7 percent. Mr. Sanders would restrict rent increases nationally to 3 percent or 1.5 times inflation, whichever is greater. To many struggling to afford housing in super-expensive parts of New York, San Francisco or the District, these plans no doubt sound great. Yet these cities already have rent-stabilization policies, and they have not worked.
For example, a March study from a group of Stanford University researchers shows that San Francisco’s rent-stabilization efforts failed. It’s true that the policy kept some residents’ rents lower. But landlords responded by converting their buildings into condos they could sell or business properties they could lease without rent-control restrictions — or by demolishing their old buildings and replacing them with new ones that did not qualify for rent stabilization. Effects such as these drove down the supply of rental housing and, therefore, drove up rents across the city — by 5.1 percent.
These costs fell on those seeking to move into San Francisco or between apartments within the city. The city’s housing tended to cater more to high-income condo-buyers or renters willing to pay top dollar for apartments in brand-new buildings. “It appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal,” the researchers concluded.
Research also indicates that landlords have less incentive to maintain their properties in a rent-controlled environment. Governments can impose maintenance requirements on landlords — but they are tough to enforce. Depending on how the policy is designed, stiff rent-control policies with few exceptions could also discourage investors from building new homes, which would also constrain rental unit supply. And since rent-stabilization policies often tend to discourage people from moving, they harm worker mobility and the economic dynamism associated with it.
In the long run, the key to making housing more affordable is to build more homes. In desirable urban environments, that means more construction and more density than municipal policy — not to mention benighted NIMBY activism — often allows, which would also require better walking, biking and public transportation options in dense city centers. (To his credit, Mr. Sanders also embraces this policy.) This approach is not as bumper-sticker-ready as rent control. But it would be far more effective.
