Minnesota’s Economic News — W/E 12/8/23
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When both Minneapolis and St. Paul proposed rent control on their ballots in 2021, American Experiment recommended voting against those proposals, citing the harmful consequences of rent control. Specifically, our report concluded that in the places where it has been enacted, second-generation rent control — also commonly known as rent stabilization — has only managed to
A new report commissioned by the Minneapolis city council is, more or less, echoing these findings. The study, which was conducted by Minneapolis staff, concluded that
1. A rent stabilization policy would not effectively address the problem of renter cost-burden. It does not target relief to renters whose incomes are insufficient to afford rent in the housing market. A rent stabilization policy would also impede growth of the city’s housing stock, which is counter to numerous existing City policies designed to promote the production of new housing too ensure existing and new residents have access to a range of options to meet their needs.
If a rent stabilization policy was adopted in Minneapolis:
• Some existing renters could benefit from increased housing stability due to the certainty of the limit on future rent increases.
• Renters may in fact face greater housing instability due to higher rent increases than
they otherwise would have experienced, as property owners could begin raising rents to the maximum amount allowed.
• Renters may experience diminished housing quality, as a rent stabilization policy could disincentivize property maintenance and improvements.
• There could be a significant decline in the creation and preservation of rental housing
units in Minneapolis.
The study also estimates that it would cost over $1 million for the city to enforce rent control. Furthermore, the city will potentially lose hundreds of millions in property taxes due to reduced property values as well as permitting fees due to diminished construction activity.
According to the Star Tribune,
City Council Member Jamal Osman, an advocate for rent control, said he disagrees with the staff analysis and questioned whether research supporting rent control was sufficiently considered. He said most of his constituents have been asking for rent control, with the exception of some mom-and-pop landlords.
“What is disappointing is that [Mayor Jacob Frey], before any of these studies have been done … came out and said he does not support rent stabilization,” Osman said. “So what does that say to the staff that have been looking into it
It is certainly plausible to have some doubts about such a study given the Mayor’s position on rent control. But in economics, there is a wide consensus that rent control has a negative impact on the housing supply. Results in the Minneapolis study are merely a reflection of the existing body of research on rent control.
Studies that support rent control often point to the fact rent control reduces or prevents the displacement of renters. But rent control is not the only mechanism for preventing displacement. Increasing the housing supply through the market, for example, would make housing more affordable, which would reduce displacement. Unlike rent control, however, the market would achieve the same goal much more efficiently.
Artificially reducing the mobility of renters through rent control comes with other costs. For one, the housing market benefits from the constant churn of tenants. When people don’t move because of rent control, future renters — some of whom might even have lower incomes than current renters — have fewer housing options, which translates to high prices. Additionally, some renters may be reluctant to move to a place with better economic opportunities because they do not want to lose the savings that come with rent control, which leads to economic stagnation.
High housing prices, as economic theory asserts, are a signal that there isn’t enough supply to meet the existing demand. Rent control does nothing to improve the supply of housing, and only makes it worse. After the disastrous consequences in St. Paul, this should be common sense.
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