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Seattle rejects rent control in win for sound economics – Pacific Research Institute

Seattle rejects rent control in win for sound economics

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Seattle has a housing and rental housing supply problem. City leaders should be focused on boosting supply. A reliable first step toward doing that is eliminating unnecessary obstacles to doing just that.

It’s always a breath of fresh air when elected officials have a grasp on basic economics.

On August 1, the Seattle City Council voted 6-to-2 to reject a rent control proposal from termed-out Socialist Alternative Councilmember Kshama Sawant.

Sawant proposed a rent control trigger law that would impose a strict, no-exemptions rent control policy on all rental housing in the city of Seattle as soon as state law allowed for it. For 42 years, the state of Washington has prohibited localities from imposing rent control. Sawant’s proposal would only be implemented in the event state law was changed to permit local governments to impose rent control.

“We are here because a strong majority of Seattle supports strong rent control – powerful, citywide rent control that’s free of corporate loopholes,” Sawant said in support of her proposal in the weeks ahead of the council vote.

Sawant and fellow Councilmember Tammy Morales hoped that passing the ordinance would build pressure on the state to lift the four decade-long ban. But fortunately for renters and property owners in Seattle, their colleagues on the council understood that rent control is precisely the wrong solution to Seattle’s high rents.

“I am concerned that this proposal will decrease existing housing supply because rental revenue won’t keep pace with rising maintenance costs and property taxes which will result in housing providers just selling their properties or converting to condominiums,” argued Councilmember Sara Nelson.

This is consistent with what’s happened in San Francisco. According to research published in American Economic Review in 2019, landlords there responded to that city’s 1994 rent control ordinance by reducing “rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings.” Thus, “the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.”

Nelson’s position was supported by fellow Councilmember Lisa Herbold, who pointed out the recent experience of St. Paul, Minn., with rent control.

In 2021, voters there approved the first rent-control ordinance in the Midwest, capping annual rent increases to 3%. The results were predictable. While rental construction permits surged 30% in the Twin Cities metro area which includes St. Paul, rental construction permits plunged 30% in St. Paul itself in 2022.

“Since this passed, it’s been really bad for my ward,” St. Paul Councilmember Jane Prince said at the time. “I immediately lost 100 affordable units when a developer pulled out.”

St. Paul city officials, in response to this, quickly amended the rent-control ordinance to exempt new construction and affordable housing units from the ordinance. City officials also approved hundreds of requests from landlords to raise rents above the 3% allowed by their ordinance.

St. Paul’s experience was particularly relevant given that Sawant’s proposal did not allow for such exemptions. Yet all of this was lost on Sawant.

“I think the comments made have more or less proven my point earlier that we don’t have a choice but to build our forces for the working class,” she complained at the meeting, criticizing her colleagues for offering “technocratic” criticisms of her rent-control proposal.

“Technocratic” or not, the criticisms of Sawant’s rent-control plan were sensible and necessary to steer the city’s focus away from a counterproductive approach to rising rents and hopefully toward more productive approaches.

The problem Sawant is attempting to solve is no doubt real. According to the Seattle Times, rents nearly doubled in the Seattle-Tacoma-Bellevue area from 2010 to 2019 and surged 15% between 2017 and 2021.

The reason for this is no mystery. Supply hasn’t kept pace with demand. Seattle has been one of the fastest-growing cities in the country but has long dragged its feet on much-needed zoning reforms and has saddled developers with inclusionary zoning mandates.

On the zoning front, the state has delivered some much needed relief. In May, Washington Gov. Jay Inslee signed legislation overriding local zoning ordinances and legalizing the construction of duplexes, tri-plexes and four-plexes throughout the state by right. Over time, the increased supply permitted by the new state law is certain to deliver better results than rent control.

Within the city’s control, the Seattle City Council should seriously reconsider its inclusionary zoning program.

The Mandatory Housing Affordability (MHA) program, first created in 2017 before being expanded in 2019, requires developers to either set aside a certain percentage of units of new housing at below-market rates or pay into a city fund which is then used toward affordable housing units.

A recent assessment of how that’s worked out from New York University’s Furman Center concluded that, “it appears MHA’s affordability requirements act as a tax on some additional development.”  They continue, “Developers appear to be strategically substituting away from plots and parcels subject to the MHA. We interpret this result as evidence of the MHA’s cost to developers outweighing its benefits, especially in MHA border neighborhoods.”

These findings are consistent with a December 2021 warning from a local homebuilders group that, “MHA fees are severely limiting new townhomes – a lower-cost, family-sized homeownership option. Post-MHA, townhome permit intake has dropped by nearly 70%.”

Perhaps Seattle council members can harness the same economic insights that made it possible for them to reject rent control and apply that to the similarly counterproductive inclusionary zoning program.

Seattle has a housing and rental housing supply problem. City leaders should be focused on boosting supply. A reliable first step toward doing that is eliminating unnecessary obstacles to doing just that.

Sal Rodriguez is opinion editor for the Southern California News Group and a senior fellow with the Pacific Research Institute. He is the author of “Dynamism or Decay? Getting City Hall Out of the Way,” published by the Pacific Research Institute.

 

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.

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