[Half of Americans, namely homeowners, already have rent control.
It’s time to expand it to everyone.]
[[link removed]]

ECONOMISTS HATE RENT CONTROL. HERE’S WHY THEY’RE WRONG.  
[[link removed]]


 

Mark Paul
May 16, 2023
The American Prospect
[[link removed]]


*
[[link removed].]
*
[[link removed]]
*
*
[[link removed]]

_ Half of Americans, namely homeowners, already have rent control.
It’s time to expand it to everyone. _

Some 67 percent of Americans live in owner-occupied homes—meaning
they enjoy de facto rent control in the form of the 30-year mortgage.,
J. Scott Applewhite/AP Photo

 

As any Econ 101 student can tell you, rent control is bad. This is
because rent control is a price control
[[link removed]],
and price controls
[[link removed]]
artificially distort well-functioning markets, resulting in a mismatch
between supply and demand and the creation of the dreaded deadweight
loss triangle all budding economist learn about. Although the goal of
rent control is to create a more affordable housing sector, it in fact
causes widespread shortages, leaving would-be renters high and dry
while screwing landlords (the road to hell, so says the orthodox
economist, is paved with good intentions). The real way to achieve a
robust housing sector, with rentals available across the price
spectrum, is the freely functioning competitive market, which will
ensure sufficient supply of low-cost rentals are available to all
seeking them. After all, supply always equals demand.

Given that this is the argument that appears in almost every
introductory economics text (with the notable exception of the CORE
Econ [[link removed]] open-access book, which I use), it
should come as no surprise that the vast majority of professional
economists credit it. According to a poll
[[link removed]] of economists at
prominent universities conducted by the University of Chicago Booth
School, a whopping 81 percent of respondents opposed rent control
(while only 2 percent supported it). As the Tufts University economist
Gilbert Metcalf said recently, “opposition to rent control is
something like an oath of office for the profession.”

It is also a neoliberal shibboleth. Milton Friedman’s first
influential public essay, published in 1946 and co-authored with
fellow future Nobel Prize winner George Stigler, was on rent control.
Titled “Roofs or Ceilings? The Current Housing Problem
[[link removed]],”
the essay finds Friedman and Stigler arguing that rent control leads
to the worst of all possible worlds. It brings new housing
construction to a standstill, fuels housing inequality, and curtails
families’ mobility—thus preventing them from moving to more
opportunity—all while restricting the very freedom of landlords to
profit off their property. Echoing the neoclassical model adduced
above, the authors write that the repeal of rent control and the
support of a “free market” in housing would ensure that units
would be “immediately available for rent—at all rent levels.”
Failure to repeal rent controls would “cause haphazard and arbitrary
allocation of space, inefficient use of space, [and] retardation of
new construction.” Greg Mankiw, a Harvard economist and chair of the
Council of Economic Advisers under President George H.W. Bush, agreed,
going so far as to write in his top-selling undergraduate economics
textbook that economists think rent control is “the best way to
destroy a city, other than bombing.” These are the same arguments
landlords, real estate developers, and the folks at the Manhattan
Institute
[[link removed]]
make to this day.

There’s just one problem: This neoliberal conventional wisdom is
wrong. As recent empirical work has shown, the neoclassical
account’s core assumptions—one, that rent control restricts the
supply of new housing; and two, that it misallocates existing housing,
thereby causing an irrecoverable collective loss—fail to hold when
it comes to the real world.

The right to stay in one’s home is just as important as the right to
move.

For example, there is abundant evidence
[[link removed]] that rent control does
_not_ constrain housing supply. One study
[[link removed]]
of rent control in New Jersey—a state with a rich history of
embracing rent control—found that, over three decades, rent control
_increased_ housing supply (though this was largely attributed to
landlords slicing up larger units into smaller ones). Other studies
[[link removed]]
have repeatedly confirmed that rent control doesn’t affect the
overall supply of housing, though landlords may take advantage of
poorly written rent control laws that allow them to convert existing
rentals into condos [[link removed]] to
better capture price increases and skirt the intentions of rent
control laws—loopholes that could easily be shut.

Researchers
[[link removed]] have also
studied what happens when rent control laws are repealed. If
neoclassical theory is correct, lifting regulations on rent should
result in a boom in housing supply. However, researchers find that
when rent control measures are undone, there has been no subsequent
expansion of new housing
[[link removed]].

As with constrained supply, so with the “misallocation” of housing
stock. Although it is true that rent control creates “winners”
(current tenants) and “losers” (landlords seeking to raise rents),
this is no “deadweight loss”; rather, benefits that would have
previously been fully captured by landlords—rents in the economic
sense—are shared with existing tenants. For example, as a
non-rent-controlled area grows in popularity, often due to that
area’s current inhabitants, landlords are able to hike rents. This
is a pure rent in the economic sense: The landlord didn’t invest in
the building to realize a return; rather, the landlord simply
benefited from owning a particular property at a particular time. Rent
control changes the calculus by limiting the economic rents landlords
can extract from tenants, thus more equitably sharing the benefits of
local economic growth between landlords and tenants.

There are further benefits that the conventional wisdom misses. One,
rent control _works_; as s
[[link removed]]tudy
[[link removed]]
after study
[[link removed]] has
shown, rent regulation keeps housing more affordable. In
Massachusetts, researchers have found that tenants in controlled units
pay just half as much in rent as those in non-controlled units of
similar size and quality. On the opposite coast, L.A. renters in
regulated units pay one-quarter to one-third less in rent than those
in nonregulated units—meaning hundreds of dollars a month in savings
for households often living paycheck to paycheck.

Two, rent control helps realize social interests beyond the purely
economic. When an area becomes more desirable, whether through rising
productivity or improved amenities, rent control can stem the tide of
gentrification and keep the area’s longtime inhabitants—often
low-income people of color—in their homes. The right to stay in
one’s home is just as important as the right to move. It helps turn
housing from a nexus of profit to one of community, family, and social
space. Instead of gentrification, we get less money going to landlords
and hence more economic development.

Lately, policymakers have begun to recognize the benefits of rent
control. During the last presidential campaign, Sen. Bernie Sanders
introduced a Housing for All plan
[[link removed]] that included
nationwide rent control, while Rep. Alexandria Ocasio-Cortez
introduced her Place to Prosper Act
[[link removed]],
which aims to put universal rent control at the heart of progressive
housing policy. At the local level, mayoral candidates, like
Boston’s Michelle Wu, are running
[[link removed]],
and winning, as ardent supporters of rent control.

In some places, these ideas are being turned into reality. In 2019,
New York state passed a law
[[link removed]]
allowing New York City, along with other cities across the state, to
strengthen rent control for the first time since the 1940s. Oregon and
California recently passed
[[link removed]]
the nation’s first statewide rent control laws, with other states,
including Connecticut
[[link removed]],
pushing hard to join them. And while momentum is strong, some state
and local governments won’t be able to embrace the benefits of rent
control: Thanks to the work of the conservative group ALEC, which
produces sample right-wing legislation for state governments, more
than half of states, ranging from Alabama and Georgia to Washington
and Michigan, have preemption laws
[[link removed]]
against rent control on the books.)

At the time of this writing, progressives
[[link removed]] in Oregon are mobilizing to
strengthen the state’s new rent control law by lowering the rate at
which landlords can hike prices every year, a fight that is playing
out in the statehouse. With rents having been a key driver of
inflation over the past few years—and thus of concern for
macroeconomic stability—as well as of household immiseration,
policymakers at the federal level are beginning to talk about rent
control, too.

These policymakers are simply responding to their constituents.
Polling [[link removed]]
conducted in 2019 by Data for Progress found that a majority of likely
voters, including a majority of independents, support rent control,
with just 1 in 5 opposing such a measure. More recent polling
[[link removed]]
in Massachusetts found that 68 percent of likely voters want rent
control, showing that people are fed up with the exorbitant and
unjustified rent hikes that are making the working class collectively
poorer.

For those still opposed to rent control, let’s look at the problem
through the other end of the telescope, as it were. Some 67 percent of
Americans live in owner-occupied homes—meaning they enjoy de facto
rent control in the form of the 30-year mortgage. That style of
mortgage was a creation
[[link removed]]
of the federal government during the New Deal. Homeowners, who skew
white and rich, benefit tremendously from the government’s rules,
regulations, and subsidies that allow them to pay a fixed monthly sum
for housing over 30 years. It’s high time for the government to
extend these benefits—and the economic security that comes with
them—by adopting rent control to cover all people in the United
States.

But like most complex policy challenges the nation faces, we should be
honest that rent control is not a silver bullet that will magically
fix the housing sector and finally deliver true affordability across
the board. Strong rent control laws, limiting rent increases to local
measures of inflation using the Consumer Price Index (CPI), or perhaps
CPI plus 1 or 2 percent, with a hard cap at, say, 4 or 5 percent,
would drastically improve affordability.

But these measures alone won’t be enough. The neoliberals may be
wrong about rent control, but they are right that America needs a lot
more housing—after all, controls are no help to people who can’t
find a place to live in the first place. To truly transform the
housing sector, the United States will need to embrace complementary
policies to increase the number of affordable and market-rate housing
units, encourage more construction and density through changes to
zoning laws, and build millions of units of social housing
[[link removed]]—high-quality
public housing for people across the income spectrum. It’s a tall
order. But embracing rent control is a commonsense place to start.

===

* Housing; Rent Control; Right to Stay in One's Home;
[[link removed]]

*
[[link removed].]
*
[[link removed]]
*
*
[[link removed]]

 

 

 

INTERPRET THE WORLD AND CHANGE IT

 

 

Submit via web
[[link removed]]

Submit via email
Frequently asked questions
[[link removed]]

Manage subscription
[[link removed]]

Visit xxxxxx.org
[[link removed]]

Twitter [[link removed]]

Facebook [[link removed]]

 




[link removed]

To unsubscribe, click the following link:
[link removed]