Controlling the Rent Control Debate

Erica C. Barnett interviewed City Council candidate Jon Grant last week and really grilled him, prodding him with pointed questions on affordable housing and his support for rent control. Barnett had already been a vocal critic of Grant’s, so Grant likely knew he was about to have his feet put to the fire.  Read for yourself, but what struck me is how weak Barnett’s logic is on rent control despite her vehement opposition to it.

Barnett asked: “The major cities that have rent control, including New York, LA, and San Francisco, are also the most expensive cities in the US. That says to me that rent control doesn’t work, and it’s not just me—virtually all economists agree with that assessment. Why do you support rent control?” Grant’s answer focused on affordability in times of rapid rent hikes and ignored the suspect premise of her question.

NYC: Correlation Does Not Equal Causation

The first commenter, one “Trevor,” pounced on the logical weakness though: “If you want to use NY as an example, one could use the same shoddy logic to argue that ‘density doesn’t work’ to provide affordable housing. See the fallacy.” Trevor cited a Pacific Standard article by Jake Blumgart titled In Defense of Rent Control, which expanded the argument:

“But a comprehensive review of literature by New York housing lawyer Timothy Collins found that the received wisdom regarding rent regulations is overly simplistic—partially because hard ceilings on rents are often imagined, while the reality is more often (as in New York’s case) a more measured approach meant to discourage landlords from dramatically raising rents and displacing tenants” [Blumgart].

In fact, New York City has just 27,000 rent-controlled units remaining from a high of 2 million in the 1950’s, and a steadily shrinking number of rent stabilized units—still 47% of rentals. Rent control opponents love to label rent stabilization “just a rebranding” of rent control, but in New York City they are distinct programs with separate rules. Generally speaking, rent stabilization allows for gradual increases based on inflation rates, but often new buildings are exempt from the program. In New York, the median rates of rent-controlled units are actually increasing faster than rent-stabilized units due to the rules governing each. In both cases, though, rents remain well below market-rate units.

New York City is an expensive place to rent. But it would be even more expensive without rent stabilization. Rent stabilization allows some economic diversity: “New York’s moderate rent regulations have had few, if any, of the negative side effects so confidently predicted by industry advocates… More important, rent regulations have been the single greatest source of affordable housing for middle‐ and low‐income households.” [Collins cited in Blumgart]

Free Market Alternative in Massachusetts

So what happens in cities that had rent control until they come to Jesus and let the purifying light of the free market shine on the rental market—hallelujah? Well turns out rents go up a lot in formerly controlled units. Boston and Cambridge are cities that had rent control before then lost it, and new affordable units didn’t materialize out of thin air riding on the angelic wings of the free market:

“In 1994, real estate interests in Massachusetts organized a statewide referendum to end rent control—which only existed in Boston, Cambridge, and Brookline—and just barely won. But Census data shows that Boston’s vacancy rate was four percent before the regulations were phased out and 2.9 percent four years after they were done away with—scrapping rent control had, at the very least, not generated a measurable effect on apartment availability. The median price for a two-bedroom apartment doubled in the meantime” [Blumgart].

In Cambridge too the low-income segment dropped out of the market as rents shot up: “From a modest survey of 1,000 households, city officials concluded that decontrolled rents overall jumped by more than 50% between 1994 and 1997 (from an average of $504 a month to $775), outpacing market rates. Over the same period, complaints of eviction also rose by 33%” [The Economist, 4/30/1998] Apparently, there was an uptick in new units, but not at affordable rates. Today, the median rental price in Cambridge is listed at $2,800 and $2500 in Boston, according to Zillow. Thus even with decades of the free market working its “magic,” rents still skyrocketed. A freer market didn’t solve the affordability problem.

Fear and Loathing in Seattle

One alternative to rent control is microunits like these Apodments out my window. But then Seattle didn't like those too much either.

One alternative to rent control is microunits like these Apodments out my window. But then Seattle didn’t like those too much either.

In 1981 riding a vaporous Reagan high, Washington state banned rent control via voter referendum. Rent control has been a legal impossibility in the Evergreen State ever since but that doesn’t lessen the loathing market types still feel for it. It does feel like howling in the wind to say a word in rent control’s defense, especially in a city with a secret libertarian tinge like Seattle. A few weeks back, The Seattle Times piled on with a story on how absurd and impractical rent control is. The author relied heavily on statistics from Zillow backed up with a blanket statement that ‘rent control is widely dismissed by economists’ to back up the realtor line they were shamelessly shilling. Like Barnett pointed out, it’s true most economists say rent control doesn’t work. However, economists’ response is so knee-jerk to seem autonomic, ill considered even.

Economists’ litany of complaints against rent control includes causing shortages in the housing supply, poor upkeep, long waiting lines for rent controlled units, and “pulling up the drawbridge” on potential new tenants moving to a city. As we’ve seen though it’s hard to isolate rent control as the cause of any of these maladies in the real world how ever often they pop up in the theoretical models of economists.

Accepting for a second, the rent control is ineffective, where would one expect to find affordable housing in America? Not in car-dependent suburbs, I would contend. Americans often idiotically overlook transportation costs when determining acceptable housing costs, yet AAA estimates owning and operating a sedan cost about $9,000 per year, on average, and closer to $11,000 for an SUV. How is a moderate-income person supposed to afford their rent let alone a car? Yet the vast majority of suburbs are designed so that car ownership is a prerequisite. Thus, any affordable housing in the suburbs, should it even exist, comes with the asterisk of car costs.

So what option are we left? Since the suburbs are a rather bleak place for the poor due to their car-dependent design, cities cannot simply displace their poor and pass them off on their suburbs and expect a good result—at least not until the suburbs are retrofitted for a multimodal lifestyle. In the meantime, cities must take on more responsibility for providing affordable housing. Seattle is paying lip service to this conundrum. Will the modest linkage fee in HALA get implemented and will it provide enough affordable housing to replace units? Can we wait half a decade for the new government units to come into the market? Or will a generation of moderate income families be priced out of Seattle before that happens.

The free market argument hints this end of affordable housing will never come because the market sort of steps in and perhaps the price of some units drop to thanks to the relieved housing price pressure of the new market rate units. In fact, we aren’t even supposed to worry if all the new units are expensive luxury units because that will mean those wealthy tenants won’t be competing with middle income people for older stock. In theory, that works. But supply has to catch up with demand. I don’t think that will happen anytime soon in Seattle. Seattle is a small enough city that the current pace of rapid growth could see affordable parts of the city remade as upper middle class haunts and the poor shown the door to the suburbs.

The free market argument also goes that resistance is futile since the wealthy will outbid the poor anyway and displace them to suburbia. Even if true, I’d argue the free market folks would still have to show that a market rate building spree would in itself avert this fate or just make it more spectacular for skyline porn fans.

One thing is for certain. Rent control is illegal in Washington state and some housing advocates and urbanists like Erica Barnett do not want us even considering repealing that ban. They consider it a waste of time and politically dead in the water. For a politician to talk about rent control is demagoguery to these free market cheerleaders. There’s no denying it’s a tough sell, especially among Republicans (and conservative Democrats for that matter).  Republicans control the senate, creating an apparent impasse. However, that a thing is tough political sell isn’t an argument against its merit per se. And all the knockdown arguments against rent control that economists apparently hang their hats on seem to be built on circumstantial evidence. A sensible rent stabilization program could be part of an ever elusive affordable housing solution in Seattle. To preserve affordable housing, the government is going to have to intervene much more than I think either it or the Seattle media seems comfortable with at this point. So why not repeal the ban to at least allow for the possibility?

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