Not the Bargain it’s Claimed to be: The Long-term Consequences of Rent Control
In 2021, St. Paul, Minnesota approved one of the most stringent rent control laws in the United States. The new policy bars, irrespective of inflation, landlords from increasing housing costs “by more than 3 percent each year” on over sixty-five thousand existing buildings as well
as new properties (Polumbo). What seemed like a good idea backfired within twenty-four hours. News of this measure stirred potent and adverse consequences, in which several developers halted construction trying to assess the drawbacks and benefits of continuing their business in the city. However, St. Paul is able to rectify its precarious situation by May 1, 2022. Future housing projects are in jeopardy and the city’s investment portfolio will most likely plummet if this rent control policy is enacted. Housing advocates who favor rent control view St. Paul’s measure as a solution to the economic crisis of housing affordability. It is without question that housing is a basic necessity in a person’s life, so laws that allow more people to have easier access to it are quite popular among rent-control proponents. While these laws are undoubtedly favored and effective, the long-term effects say otherwise. On paper, rent control, which caps the rent price to make housing affordable for middle to lower-income tenants, ideally works, but many external factors prevent rent control from functioning in the real world. Although rent control maintains affordable housing for low-income tenants and prevents eviction, this outlook is somewhat short-sighted. These restrictive rent control laws that benefit the tenants provoke a fervent response from the landlords, causing rent control to be ineffective in the long run. Despite their
opposing, and often clashing, viewpoints on rent control laws, rent control proponents and opponents both agree on the importance of affordable housing. While everyone should have the right to affordable housing, as stated in the 1948 Universal Declaration of Human Rights, rent control is not the viable solution to permanently transform and better the housing crisis that afflicts so many U.S. communities.
In the short term, rent control provides many benefits to lower-income individuals. The tenants do not have to worry about the financial burdens of housing and unexpected rent hikes, which may displace them. Also, predictable rents allow the tenants to budget successfully without jeopardizing their income. This allows the tenants to stay in their community and be around the people they love and are familiar with. Personally, I am all for keeping the people who create a sense of community in the neighborhood. However, rent control poses a slurry of serious, long-term consequences. One of which is unaffordability. Research studies point to discrepancies between tenants and rental properties, in which tenants, despite experiencing changes in their households, refuse to relinquish their rent-controlled units (Diamond). This translates to “empty-nest households living in family-sized apartments” while “young families [are] crammed into small studios” (Diamond). Another unfavorable outcome is the downgrading of appeal and magnetism to a district. “Rent controlled properties create substantial negative externalities on the nearby housing market, lowering the amenity value of these neighborhoods and making them less desirable places to live” (Diamond). Moreover, rent control stokes the
frenetic rate of gentrification and further intensifies housing inequality. San Francisco exemplifies the backfire of these measures, in which “rent control operated as a transfer between the future renters of San Francisco (who would pay these higher rents due to lower supply) to the renters living in San Francisco in 1994 (who benefited directly from lower rents) (Diamond).
What was supposed to secure affordable housing for low-income and minority communities, in actuality, led to the very thing housing advocates feared: displacement. Although the renters are given multiple benefits, rent control forgets to consider the people that own these properties. Neglecting the interests of the landlords will cause them to retaliate, creating more problems in the future.
There is a misconception that landlords are rich. This misinterpretation might be from the media only portraying relatively wealthy landlords. Some people believe that landlords pocket all of the rent payments, but in reality, most landlords are lucky to profit from their investment property. Landlords have tons of risks and expenses when purchasing a building. Landlords have to pay the mortgage, property tax every year, recurring fees, and unexpected repairs. Sometimes, the landlords have undesirable tenants, and with the eviction process being lengthy, any missed payments or unexpected damages will affect their ability to pay the mortgage and other expenses. We have to understand that landlords already have plenty of overhead, and they will look out for their interests like every other person would.
Landlords would love to maintain their property for their tenants properly, but rent control does not give any incentives to renovate the properties. Since there is no incentive, this leads to a decline in housing conditions. Usually, landlords would renovate their properties to attract new tenants, and in return, the rent would increase due to the higher quality of living conditions. Since rent-controlled properties are capped at a certain amount, the landlord does not want to spend money out of pocket on renovations that will not increase the rent amount past the limit. Take a look at San Francisco. “The average tenant treated by rent control lives in a census tract with worse observable amenities, as measured by the census tract’s median household income, share of the population with a college degree, median house value, and share
unemployed” (Diamond, McQuade, and Qian 3). While rent-controlled properties stave off the dislocation of low-income individuals, it does not address the issue of property deterioration and development stagnation. Some people might counterargue that if landlords do not maintain the property now, the expenses will be more in the future. That is true, but most landlords will do just enough to keep the property in shape, and most of these investments are kept for around ten years, so unless their property is old or was abandoned, they do not have to worry about much upkeep. Rent control does create affordable housing for renters in the short term, but only for a “deteriorating building and neighborhood” (Colonomos). To address the matter of affordable housing, rent control is seen as a provisional solution that mitigates the larger issue at hand.
Nevertheless, the circumvention of existing housing regulations allows landlords to strikingly outmaneuver the very rules that conjunctively limit their economic potential and protect tenants’ welfare. To respond to rent control, landlords adopt long-term and find loopholes. By converting their properties to other types of real estate, landlords are exempt from rent control. Most buildings exempt from rent control are owner-occupied homes or newly developed rental properties. So over time, landlords’ alternative to rent-controlled units will lower the housing supply for renting and move the supply towards less affordable housing. Overall, this brings more high-income individuals into the neighborhood, rents increase, and housing affordability is unavailable to future renters, which goes against everything rent control is (Diamond, McQuade, and Qian 2).
Those who live in rent control units are given a great deal and seem to be “better off, indicated by their preference to remain in their rent-controlled apartment” (Diamond, McQuade, and Qian 28). Although more affordable rent prices are great for the tenants, this comes at the expense of future renters. We learned there is a reduction in rental supply and an increase in
high-end real estate in cities with rent control in the long term. This leaves the future renters competing against each other for limited market-rate units creating a more significant gap in income inequality between the “incumbent and future renters” (Diamond, McQuade, and Qian 28). Ultimately, rent control hurts the same people it strives to help.
Despite the economic research on the ineffective and disadvantageous nature of rent control, there are many housing advocates who support and champion rent control policies. In order to understand the other perspective, the article called Dear Business School Professors: You’re Wrong, Rent Control Works explains why rent controls would work. Preston’s main point is that rent control would be successful if not unreasonably constrained and undermined by industry-written state laws that create loopholes for speculators around rent control that allow evictions and create profit incentives” (Preston and Singh). For example, Preston refers to the fact that landlords could evict tenants quickly to convert their buildings into one that is exempt from rent control or increase rents back to the market price:
- Landlords could move into the unit, known as a move-in eviction.
- If the landlord intends to move the rental from the market, they can evict.
- The landlord is allowed to offer their tenants monetary compensation for leaving.
Honestly, I do understand Preston’s point of view because there are apparent loopholes that landlords could abuse. But eliminating loopholes and making the already strict laws in real estate inflexible is ignorant. The landlords investing in real estate are there to make a profit, so I do not blame them for finding profit incentives in a game with strict rules. Evictions are already a long and tedious process, and prohibiting more laws will only result in the crafty landlords finding more loopholes. Too many limitations on landlords’ ability to improve properties will hurt the
housing market by decreasing construction and renovation, impeding the neighborhood’s future economic growth.
Rent control is a one-sided relationship; it will never work. Rent control favors the tenants, but it does not work in the long run due to it burdening the landlords with regulations and tasks. From understanding both perspectives, I realized that those for and against rent control both agree that rent control does not work whether or not it is for different reasons. Instead of fixing the rent control laws, which landlords dislike and hurt future renters, we should abolish them. There are plenty of other solutions for the affordable housing crisis. One idea is to focus on density. There is limited land on Earth and a shortage of rental supply. Giving incentives to create more multi-family homes over single-family homes will be needed. Another idea would be to provide incentives, such as lower setback distances, higher building coverage, and maximum building height increase, to developers or landlords who include a percentage of affordable housing in the building. Finally, the government could offer more rental subsidies, ensuring low-income residents will have a good quality of life. Besides rent control, there are many other options that will appease both sides’ affordable housing goals.
Works Cited
Colonomos, Ben. “How Rent Control Hurts The Very People It Seeks To Help (And What We Can Do Instead).” Forbes,
https://www.forbes.com/sites/forbesrealestatecouncil/2020/03/10/how-rent-control-hurts-t
he-very-people-it-seeks-to-help-and-what-we-can-do-instead/?sh=26b361f02300. Diamond, Rebecca. “What does economic evidence tell us about the effects of rent control?.”
Brookings, https://www.brookings.edu/research/what-does-economic-evidence-tell-us-about-the-effe cts-of-rent-control/.
Diamond, Rebecca. McQuade, Tim. Qian, Franklin. “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” American Economic Review, https://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.20181289.
Polumbo, Brad. “St. Paul Just Implemented the Nation’s Strictest Rent Control Law. It’s Already Backfiring Tremendously: Brad Polumbo.” FEE Freeman Article, Foundation for
Economic Education, 16 Nov. 2021, https://fee.org/articles/st-paul-just-implemented-the-nation-s-strictest-rent-control-law-it- s-already-backfiring-tremendously/.
Preston, Dean. Singh, Shanti. “Dear Business School Professors: You’re Wrong, Rent Control Works.” Shelter Force, https://shelterforce.org/2018/03/28/rent-control-works/.
Tars, Eric. “Housing as a Human Right.” NLCHP, https://nlihc.org/sites/default/files/AG-2021/01-06_Housing-Human-Right.pdf.
