Can't Afford Your Apartment? Rent Control Won't Help. Here's Why.

By Jake Vigdor. He is Professor of Public Policy and Governance, University of Washington Administrator, Public Access Peer Reviews for the Social Sciences.

"In San Francisco and its immediate suburbs, the typical two-bedroom apartment rents for over $3,000 per month.  Working a full-time job at the city's $15/hour minimum wage, if we set aside both paycheck deductions and potential income supports like the Earned Income Tax Credit, yields $2,600/month in income. That's enough to afford the typical efficiency apartment in San Francisco, which rents for about $2,000/month, leaving only $600/month to cover food, transportation, and all other costs of living in an expensive city.  That's a budget of about $20/day for three meals, transit fares, and all the other incidental costs of life.

San Francisco has had a rent control law in effect for the past forty years. During that time, rents have more than sextupled. Without rent control (except for a brief period around World War II), the Bay Area saw rents increase by a factor of 4.5 over 65 years. With rent control, the same increase took only 34 years.



This tells you pretty much all you need to know about the effectiveness of modern rent control laws.
San Francisco's case is not really unusual either.  Among the nation's most expensive cities you'll find quite a few that have operated rent stabilization laws for decades. New York City, Los Angeles, Oakland, San Jose, DC.  Why hasn't rent control managed to stave off the worsening affordability crisis we see in the nation's successful cities?  If you've been trained in economics, your knee-jerk reaction might be the econ 101 lesson: a price ceiling reduces supply, exacerbating housing shortages and driving up prices for any units exempt from control.

There's something to the knee-jerk reaction; recent studies have documented a tendency for landlords facing rent control to convert their buildings to owner-occupied condominium complexes. Although that does happen, modern rent control laws, better described as rent stabilization laws, incorporate several features designed to prevent the supply-reduction effect from kicking in. (Economist Richard Arnott pointed this out 24 years ago.) The only problem is that these provisions also tend to make rent control more toothless.

• Rent stabilization laws in San Francisco, New York, and elsewhere exempt newly constructed apartments from regulation. This preserves the incentive to build, but at the cost of reducing the law's effectiveness. In San Francisco, buildings constructed after 1979 are exempt from the law.
• Rent stabilization laws in most cases allow landlords to raise rents significantly when a tenant moves out. This is the main reason why we don't see rents frozen at 1970s levels, very few tenants have stayed put in the same apartment that long.

Adopting modern rent control helps a certain set of people: those currently renting apartments they can afford -- provided the apartments aren't covered under one of the exemptions typically written into law.  The regulations ensure that the rent will increase no more than a certain amount -- pegged to the rate of inflation in many cases, though some laws like Oregon's new statewide regulation allow higher increases (inflation plus 7% in Oregon's case).  Rent control doesn't force rents to go down, it just keeps them from going up too fast.

The real reason rent control has been utterly ineffective at keeping cities like San Francisco affordable: it was never designed to do that in the first place.  In the era when most modern rent control policies were adopted, cities didn't face housing shortages or affordability crises. In the period between 1950 and 1980, most American cities were witnessing population declines, as families fled to the suburbs leaving surplus housing behind.  Immigration, traditionally a significant source of population growth in cities, was at historic lows.

Rent control was a response to a very different national crisis: inflation. In recent years, despite the housing affordability crisis in some cities, the overall inflation rate in the economy has been low.  From 1993 to the present -- a period of more than a quarter century -- the consumer price index has exceeded 3% in only two years: 2000 and 2008.  Between 1968 and 1985, the period when all the modern rent control laws were passed, inflation exceeded 3% every single year, hitting double digits in four of those 18 years.



Rent control was designed, then, to provide some protection to a dwindling number of voters -- that word chosen very intentionally -- fearing cost-of-living increases they could not afford.  So long as they stayed put, they would remain protected. And yes, research has shown that rent control leads tenants to stay put longer. But were those tenants to leave, joining their former neighbors in the suburbs or the sun belt, the protections disappear. They aren't designed to be passed on to the next tenants.

If rent control doesn't fix affordability crises, what will? Dismal scientists will point to two basic solutions: building more housing or convincing people to move away from cities with housing shortages.  One can also resolve affordability problems for a select few by operating housing subsidy programs -- which require taxpayer funding. While these programs exist in the US, they are significantly underfunded. In the Seattle area, another region undergoing an affordability crisis, you can't even get on the waitlist for government-funded rent subsidies. One local housing authority held a lottery for places on the waitlist in 2017, in which some 85% of those interested in a waitlist spot -- not a subsidized apartment, but a spot on a years-long waitlist -- walked away empty handed.

It's not a problem with an easy solution."