Insight: Rent control would twist the knife in SJ's housing stock problem
Image by Nikolay Osmachko
Vox's Jerusalem Demsas is an ardent believer in rent control ordinances—but not as a sole strategy. Below, Demsas breaks down why underlying housing supply shortages aren't ever improved (and, in fact, get exacerbated) by mandated rent ceilings.
But all of these [rent control] policies share a problem if enacted as the exclusive solution to rising rents. As economists often stress, rent control fails to address the core issue of why housing is so expensive to begin with: lack of supply. In particular, states and cities have a bevy of rules and regulations regarding what kind and size of new homes can be built that overwhelmingly make it illegal or unprofitable to build small single-family homes, multi-family homes, and dense neighborhoods....
Rent control should be understood as a remedy for displacement, rather than a solution to the spiraling cost of housing. It’s best as a measure that can help keep current tenants from being displaced from their neighborhoods, and as part of the long-term project of solving America’s housing shortage....
The logic is simple: If you set a price ceiling below what the market price would be, you will reduce the incentive for people to supply that good. If you’re a hatmaker and the government says you’re not allowed to charge more than $5 for hats you’ve been able to sell for $10, you’ll probably stop making as many.
Of course, here we’re not talking about hats, we’re talking about housing. If fewer hats are produced, that’s not great, but if fewer homes are produced, that’s catastrophic. We’re facing a national housing shortage of 3.8 million homes, and it’s the leading contributor to the spiraling cost of housing and modern homelessness. It also could induce landlords to reduce their investment or upkeep of properties if they see their profits being slashed.
Scarcity empowers the people in control of the scarce resource, and rent control does nothing to make housing less scarce. Landlords can still find ways to extract income more in line with the true price of the apartment in a housing-scarce city. In Berlin, despite the city’s rent control laws, renters are being asked to pay thousands of euros for furniture or appliances in order to get a lease. Bloomberg’s Alice Kantor reports that “one ad recently asked 25,000 euros ($28,300) up front for kitchen equipment, a TV and furniture.” The ad was for a one-bedroom apartment renting at 930 euros a month.
This article originally appeared in Vox. Read the whole thing here.
Read more about rent control here.
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