Latest Evidence Shows Rent Control Increases Costs, Reduces Housing Supply

Latest Evidence Shows Rent Control Increases Costs, Reduces Housing Supply

As we have noted so many times before, rent control laws are one of the many flawed public policies that are driving California’s steep housing costs. Look here, here and here.

Of course, we’re not alone in making this assertion. There is an extensive library of scholarly literature that has reached the same conclusion — rent control not only increases demand to the point it can’t keep up with supply, it also creates a disincentive to build.

Now another important volume has been added to that extensive canon. A group of Stanford researchers has determined that while current San Francisco renters benefit enormously from laws that keep their housing costs artificially low, they also found “losses to all renters of $2.9 billion due to rent control’s effect on decreasing the rental housing and raising market rents.”

“Landlords treated by rent control reduced rental housing supply by 15 percent, causing a 5.1 percent city-wide rent increase,” Rebecca Diamond, Timothy McQuade, and Franklin Qian write in the abstract of their National Bureau of Economic Research working paper “The Effects Of Rent Control Expansion On Tenants, Landlords, And Inequality: Evidence From San Francisco.”

Here’s more:

“A substantial body of economic research has warned about potential negative efficiency consequences to limiting rent increases below market rates, including over-consumption of housing by tenants of rent controlled apartments.”

Those consequences include “negative spillovers onto neighboring housing” and “neglect of required maintenance,” which is a not insignificant byproduct of rent control laws.

Furthermore, the researchers learned “that rental supply in San Francisco decreased by 6 percent as a result of the rent control expansion,” and landlords reduced housing supply in response to the introduction of rent control law.

The paper’s flaw is its recommendation that a “subsidy in the form of a government subsidy or tax credit” be granted to renters “if society desires to provide social insurance against rent increases.” That’s nothing more than a redistribution of wealth and solves nothing. The only way to stop rent control laws from inflicting further damage is to repeal the laws on the books and prevent new ones from being added. It’s something Sacramento could and should do.

Some lawmakers are listening, recently voting to kill Assemblyman Richard Bloom’s proposal to repeal the Costa-Hawkins law limiting rent control in California. But this isn’t the last we’ll hear of the issue. Future fights over legislation – and likely a ballot measure – loom.

Unfortunately, the politics that put rent control laws in place are often the politics that stand in the way of repealing them.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.