Rent Control Makes Sense Only for Politicians
So I see that Seattle is considering rent control. For a columnist who covers economic issues, this is a little bit like hearing that residents are debating how big to make the reet pleats on their zoot suits. It's hard to get economists to agree on much of anything, but as Alex Tabarrok notes, this is an area of rare consensus among economists: Rent control creates more problems than it solves.
If you want a vivid example of what those problems look like, you can do no better than a letter written by a resident of Stockholm to the good citizens of Seattle, quoted by Tabarrok: "Seattle, you need to ask your citizens this: How would citizens like it if they walked into a rental agency and the agent told them to register and come back in 10 years? ... Stockholm City Council now has an official housing queue, where 1 day waiting = 1 point. To get an apartment you need both money for the rent and enough points to be the first in line. Recently an apartment in inner Stockholm became available. In just 5 days, 2000 people had applied for the apartment. The person who got the apartment had been waiting in the official housing queue since 1989!"
Now, Stockholm is extreme. But the general effect always goes in the same direction. Rent control creates two classes of tenants: people who have the right to rent at below-market rates, and renters who would like to get a long-term lease on an apartment, but cannot, or must pay through the nose for a limited number of uncontrolled properties. Meanwhile, landlords let the quality of the existing stock decline and become very reluctant to build new housing that they can't make a profit on.
This is not some sort of arcane secret that has not reached the policy analysts in our nation's fair metropolises. They're well aware of what rent control does. So why is it ever on the table?
Well, one way to think about what has happened to housing in coastal cities is that a host of regulations, many of them extremely well-intended and extremely beloved by the progressive citizenry that tends to inhabit such places, have made it extraordinarily difficult and expensive to build new housing. This may have originally been an accidental side effect, but homeowners in those places now have a vested interest in restricting the supply of housing.
That's not how they think of it, of course. They think of it as "preventing overcrowding in our local school," or "making sure the roads and parking spaces aren't overwhelmed by too many residents," or "preserving the character of the neighborhood," or any number of other fine-sounding alternatives to "I would like my neighborhood to stay exactly the same, or get more expensive," but that's the end result.
This creates a powerful political conflict between renters and homeowners. And one way to resolve the conflict is to turn renters into quasi-homeowners, with the same sort of incentives that homeowners have, because they will be invested in keeping the neighborhood as it is rather than pushing to loosen all the restrictions that make it tough to build.
For politicians, this is a splendid solution. It's not so bad for the current renters, either. But there is no free lunch in policy, and we know that this is coming at the expense of someone else. Who, in this case, is "someone"?
Landlords are the culprit normally cited, which is great, because almost no one likes the landlord. He collects a lot of money from you every month, still hasn't fixed that broken faucet, and won't even consider your sensible and stylish plan to paint the living room fuschia! But while landlords are certainly hurt by rent control, they're far from the only people affected. This hurts another very large, and not particularly well-off, group of people: the folks who would like to live in your city.
In terms of the public good, this is terrible. But this has one key advantage for local politicians: People who are not already living in your city cannot vote in local elections. Maybe in 25 years, when rent control has pushed unregulated prices sky-high and your city can't grow because there's nowhere to put anyone, this will become a problem for politicians. But those will be some other politicians in charge by then.
So while virtually all economists can agree that rent control is a terrible idea, local politicians may well think it's splendid. And you can sort of see their point. The economists may well be right, but they don't have to get re-elected every few years.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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