New report shows Rent Control is harmful and ineffective
On Nov. 1, residents of St. Paul and Minneapolis will decide whether to give local bureaucrats the power to limit the rates by which landlords can raise their rents. Advocates claim this will help low-income renters, especially people of color, escape gentrification and hold on to their housing.
Surely, lack of affordable housing is an issue facing the Twin Cities, but years of research evidence, as well as experiences from other cities, show that rent control is a harmful and ineffective solution.
Certainly, there is a difference between the moderate rent control policies being discussed in the Twin Cities today –– also known as Rent Stabilization –– and the more widely known strict first-generation rent control policies that were popularized by cities like New York in the 1940s. But to say that such moderate policies will have little to no negative effects would be untrue.
Our new report is brimming with evidence showing that in places like San Francisco, Cambridge, Ontario, Berlin and numerous other cities, moderate rent control policies have reduced the supply of rental housing, raised housing costs, reduced property values and eroded the property tax base, led to housing misallocation, and discouraged housing maintenance.
And when it comes to who benefits from rent control, there is little evidence to suggest that poor and other disadvantaged renters are the most helped by such policies. In a lot of cities, middle- and high-income renters have benefited from subsidized housing almost exclusively. The Twin Cities are bound to face similar, if not more harmful results, especially considering that St. Paul’s ordinance would be one of the strictest in the nation.
To be clear, rent control is on its own a disastrous policy. But there is a good reason that cities include provisions that exempt new construction, allow vacancy decontrol –– whereby landlords can reset rents to market levels once a tenant moves out ––, and index rent hike caps to inflation. All these provisions help weaken the negative impacts of rent control on the housing supply. The St. Paul Proposal has none of these provisions.
Worse of all, given the structure of the Minneapolis market, which is representative of the St. Paul market, it is highly likely that these magnified effects of rent control will be concentrated on low-income housing. As the Center for Regional and Urban Affairs (CURA) notes, in recent years prices for units that serve low-income residents have grown at higher rates than prices for high-end units. This would make the proposed three percent cap more binding in the low-income rental market.
So if current trends persist, landlords will likely gravitate towards catering to the higher end of the rental market, where rents will not be as significantly impacted by rent control, and reduce their investments at the lower end of the market, hurting the same people whom the policy is intending to help.
Providing affordable housing is undoubtedly a noble goal, but rent control is the worst way to deal with the housing crisis. Housing supply in the Twin Cities has lagged behind population growth, meaning that high and rising housing prices are merely a symptom of demand outpacing supply.
To address the issues with affordable housing, lawmakers in the Twin Cities need to tackle excessive rules and fees that delay construction and add tens of thousands of dollars to the cost of housing development, as previous American Experiment research has shown. Rent control only treats the symptom and not the root cause of the issue.