Rental prices have hit historic highs, straining household finances, especially among low-income people. Tenant activists and some local policymakers have proposed reviving the failed retro idea of rent control as a solution despite many states outlawing it. Can you identify which of the following is NOT true about rent control?

A. Rent control reduces the quality of rent-controlled units.
B. Rent control lessens inequities by protecting poor and disadvantaged individuals from exploitation.
C. Rent control shrinks the supply of rental housing. 

Let’s take these statements one at a time: 

A. TRUTH! Faced with the financial strain from reduced revenue, owners may be unable to maintain and repair existing rental units. For example, rent-controlled buildings in Cambridge, Massachusetts were deteriorated and “in worse condition” than non-controlled buildings. Most of the benefits to consumers from rent control in Los Angeles were offset by a loss of available housing due to the deterioration of properties.

B. LIE! Finding a rent-controlled or stabilized unit is a coveted benefit enjoyed by a lucky renter (and potentially his or her offspring). The below-market rents encourage residents living in covered units to remain there even as their income grows and their ability to pay more increases. As a result, this worsens inequalities and serves as a poor tool to target affordable housing units to those in need. In New York City, affluent, older (and white) renters disproportionately benefited from rent control. In Cambridge, tenants in rent-controlled units on average had higher incomes and professions with higher status than other residents, including homeowners. Evidence and stories abound of wealthy residents reaping the benefits of rent control such as an Afghan princess and heiress paying just $390 for a two-bedroom apartment in the Upper East Side of New York City.

C. TRUTH! Rent regulation has led to decreases in the overall rental housing stock and new construction. In 2019, researchers Rebecca Diamond, Tim McQuade, and Franklin Qian studied the impact of a 1994 law implementing rent control in San Francisco and found that it led to a 15% reduction in rental housing and a 25% reduction in the number of renters living in rent-controlled units. New York City has lost 130,000 rent-controlled units to condo and co-op conversions since 1993. In Cambridge and Brookline, Massachusetts, rental units fell by 8% and 12% in the 1980s. Between 1978 and 1990, rental units in Berkeley, California fell by 14% and in Santa Monica by 8%. In all of the cities, rental supply rose in most nearby cities that did not have rent control. Rent control in Massachusetts before 1995 reduced rents but also led owners to shift away.

Bottom line: 

A heavy-handed government approach to addressing housing affordability will not solve this problem.  The best solution to housing unaffordability is to expand the number of available dwellings. That can be done in many ways without being disruptive to tenants, property owners, and communities. By reforming or eliminating land-use regulations and other zoning restrictions, municipalities can encourage new construction or expand rental units in current living spaces.  Local jurisdictions could also allow for the construction of multiple-unit dwellings to be built or expanded on single-family lots. Unwinding the government’s distortionary impact on the housing market can encourage the investment and construction needed to expand the supply of housing for Americans of all incomes and lower housing costs.

To learn more about rent control, read the policy focus here.