Achieving housing stability starts with improving the housing supply

Few things in life are as important as shelter. So, it is understandable that a lot of effort has been dedicated to ensuring access to affordable housing.

But there seems to be a misconception, especially among rent control advocates, that housing stability is something entirely separate from housing supply — something that policymakers can create out of thin air through the magic of rent control.

The fact of the matter is that you cannot have stability without an adequate housing supply. The availability of affordable housing is what leads to stability. And affordability itself hinges on two commonly used words in economics — demand and supply. As long as there is an ample supply of housing prices, demand will be met, and prices will most likely be low. In that type of market, housing stability will be easy to achieve.

The opposite is also true; when supply is too low to meet demand, prices will be high. And in that case, it will be harder for households to achieve stability.

Rent control provides temporary relief

True, rent control does shield some renters from the high cost of housing, ensuring that they stay longer in a unit they would otherwise not be able to afford. In that case, rent control does provide stability. But there is a downside to this.

Let’s take the case of San Francisco, for example. In 2019, researchers affiliated with Stanford University published a study showing that, indeed, individuals in rent-controlled apartments chose to stay in San Francisco and at their unit longer than those in non-rent-controlled units. So, the policy prevented some level of displacement.  

However, in response to rent control, landlords converted their units to owner-occupied condos or redeveloped their housing into new units — which were exempt from rent control. This reduced the availability of rental housing in the city, raising prices. And who paid for these higher prices? Future renters.

Specifically, while individuals in rent-controlled units paid $2.9 billion less in rent, future renters paid more in rent by the same amount. So, the policy did not lower the cost of housing or push them on to landlords. It merely transferred those costs onto future renters. In providing stability only to a few current renters, it ensured a worse fate for future low-income renters.

And this is not a phenomenon exclusive to San Francisco. Other cities have also faced higher rental prices — among other negative externalities — after enacting rent control.

It may be argued that exempting new units is a “loophole” that made it easier for landlords to raise rents. But various studies have found that rent control ordinances with no such provisions have a worse effect on housing supply. These provisions in some way mitigate the impact of rent control, so the fact that St. Paul has no such “loopholes” should be even more concerning.

No free lunch, just tradeoffs

Advocates of rent control would like to think that high rents are because of exploitation and that rent control would stop that exploitation. But rent control does not magically create stability. Any benefit experienced by renters due to rent control comes at the expense of other parties, like future renters who are often harmed by the lack of affordable housing. This is a tradeoff that cannot be escaped.

Housing in the Twin Cities has lagged in household growth in recent years. And recent data for the Twin Cities has shown that multi-family unit housing permits in St. Paul are significantly down since the passage of rent control.

So, unless St. Paul’s three percent rent cap comes with extra housing units, it benefits no one to talk about stability while doing nothing to improve supply. Rent control will benefit a few current renters, yes. But it will also inflict more harm in the long term.