SF case study: Rent control cancels out zoning reform's benefits

Christian Britschgi takes to Reason to refute the idea that rent control, if combined with long-term solutions like zoning reform, is a helpful temporary fix for our housing market. Analyzing SF, Britschgi points out that rent control actively discourages investment and construction; so even where there's relaxed zoning codes, housing supply won't—and can't—improve.

The rent stabilization ordinance that's been in place in San Francisco since 1979, and which the Stanford study examined, has all the features [policy analyst Jerusalem] Demsas would want in a well-designed rent control policy: post-1979 construction is exempt from price controls, landlords can raise rents by the lesser of 60 percent of yearly inflation or 7 percent, and there's vacancy decontrol.

Some 40 percent of San Francisco's housing stock is covered by these rules. Another 9 percent is deed-restricted affordable housing, meaning that rents can't generally consume more than 30 percent of tenants' pretax earnings.

That leaves only 16 percent of housing stock in the city where rents follow the ebb and flow of market forces. (That was at least the case prior to January 2020, when California's statewide rent control law went into effect.)

The result is, again, San Francisco; a synonym for housing dysfunction and unaffordability. That obviously makes it a place that's antagonistically expensive to newcomers. Copious amounts of rent control also haven't stopped it from ranking first among American cities in some measurements for gentrification and displacement, either.

To be sure, Demsas is a zoning reform supply-sider who argues that the reason cities like San Francisco are unaffordable is that they have yet to seriously reform their zoning codes or labyrinthine process for approving new housing.

That's true, but it's also somewhat conceptually confused. Rent control is always going to disincentivize housing construction, regardless of how tight or loose the zoning code is. Repealing zoning restrictions will allow for more housing. It will also make the supply-killing effects of rent control all the more apparent and relevant.

Imagine a marathon runner who is at the starting line of the race with a sprained ankle that also happens to be chained to a heavy boulder. It wouldn't be incorrect to say that the boulder is preventing her from running the race. But with that boulder removed, her sprained ankle is still going to prove a real handicap.

Similarly, it's true that single-family-only zoning flatly prohibits a developer from turning a large existing home into a small four-unit apartment building. Legalizing four-unit homes on that plot, but subjecting the new units to rent control, could still end up seeing nothing getting built. All that zoning reform was for naught.

This article originally appeared in Reason. Read the whole thing here.

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