Rent control: it just doesn’t work

In a growing city where tech and pharmaceutical jobs are helping fuel rising rents – and where activists are pushing for a $15 minimum wage – it’s no surprise that some are turning their attention back to the antiquated notion of rent control. Make no mistake, this is a bad idea.

Rent control is the artificial lowering by the government of rent costs for some units. The vast majority of economists of all political persuasions agree that rent control does not work. If the need for euphemisms is an indicator that an idea can’t stand on its own merits, then the advent of “rent stabilization” in place of “rent control” is a red flag for this failed policy.

New York and San Francisco, our country’s two most famous rent control cities, show that rent control, no matter the location, creates perverse incentives that ultimately harm a city.

Good news, bad news
The good news: state law in Washington prohibits local governments from enacting rent control. If activists and some Seattle city councilmembers want to enact rent control, they’ll face the high hurdle of changing state law to do it.

The bad news? As Richard Davis put it in a recent op-ed, “But remember, it wasn’t that long ago that a $15 minimum wage seemed like a fringe fantasy.”

There are numerous reasons rent control is a bad idea:

Price controls simply don’t work. High rents are the result of a scarcity of available apartment units in the area. Strong job growth in Seattle is attracting new residents, and apartment developers are struggling to keep up. It doesn’t help that City of Seattle policies discourage new development and infill. Rent control would mean less, not more, incentive to build new units, making the problem worse.

That’s why most rent control schemes exempt newly-constructed units. If rent control were in place on new buildings, developers would have little incentive to build. Developers won’t build apartment units on which they’ll immediately start losing money

Rent control favors the few over the many. The lucky few tenants who are in rent-controlled units benefit enormously. Other tenants, property owners, and the city suffer for it.

Rent control doesn’t only help low-income residents. In high-price cities like New York, even famous celebrities and millionaires have been loathe to move from rent-controlled units. Even the well-off like a screaming bargain. As Davis pointed out in the Times, “in 2000 one-fourth of households in rent-controlled apartments in San Francisco earned more than $100,000.” In today’s dollars, that statistic would look even more eye-popping.

Rent control saps incentive to maintain and improve buildings. In rent-controlled buildings, property owners are less able to afford building improvements. As we’ve seen in New York and San Francisco, owners who want to get rent-controlled tenants out of buildings will do just enough to keep a building up to code while generally letting it age and deteriorate.

This does not help keep neighborhoods healthy and livable. Despite this, because they’re in a perverse market, tenants still have reason to stay in place and continue paying such low rent.

Rent control is ripe for a challenge. The U.S. Supreme Court has declined to take up rent control cases recently, but if rent control spread to more cities, that could change. It sometimes takes many decades for constitutional cases to seem “ripe” to the court – the 2nd Amendment Heller case is a good example of this. If a new rent control scheme were enacted in Seattle, owners of existing buildings who were unfairly burdened over the owners of new buildings could build a strong case that they were being subjected to an unconstitutional taking.

There is a solution to high rents that doesn’t wrongly distort the market. It’s called supply, and it works every time. Seattle leaders would be wise to leave this failed experiment to other cities, where it will keep right on failing, and turn their attention to reducing the city-erected barriers and costs for new development and infill.
-Rob McKenna

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Rob McKenna
Rob served two terms as Washington’s Attorney General, from 2005 to 2013. He successfully argued three cases before the U.S. Supreme Court and negotiated three of the largest consumer financial protection settlements in national history, all involving mortgage lending and servicing. He is a recognized leader in the development of consumer protections on the internet, in data protection and privacy regulation.