New Study Shows Rent Control Doesn't Work
Stanford University researchers recently published a new study on the impacts and effects of San Francisco’s rent control policies and the results, well, they speak for themselves. RHAWA has long held that rent control is a failed policy, has far more unintended consequences which harm the housing market than there are good outcomes, and discourages the production of rental inventory to meet demand. On this, economists are near unanimously in agreement.
Before we share the how’s and why’s of rent control failures, let’s start with the summary in the direct words of the researchers.
“Taken together, we see rent controlled increased property investment, demolition and reconstruction of new buildings, conversion to owner occupied housing and a decline of the number of renters per building. All of these responses lead to a housing stock which caters to higher income individuals. Rent control has actually fueled the gentrification of San Francisco, the exact opposite of the policy’s intended goal.”
That’s quite the indictment of a policy long-favored by tenant advocates and politicians who expressly claim that rent control is the only way to ensure housing affordability and to prevent gentrification. In fact, it’s now been announced by Rep. Nicole Macri that legislation will be introduced in the 2018 session in an attempt to overturn the state ban on rent control.
Of the details included in the Stanford study, the more interesting points include:
Less rental housing supply costs tenants substantially
Owners of rent controlled properties substitute toward other types of real estate that are not regulated by rent control. In particular, rent-controlled buildings were almost 10 percent more likely to convert to a condo or a Tenancy in Common (TIC) than buildings in the control group, representing a substantial reduction in the supply of rental housing. Consistent with these findings, there is a 15 percent decline in the number of renters living in these buildings and a 25 percent reduction in the number of renters living in rent-controlled units, relative to 1994 levels.
These effects are counterbalanced by landlords reducing supply in response to the introduction of the law. We conclude that this led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters.
High-rent areas are much more likely to gentrify due to financial incentive for landlord to remove tenant.
Decreased social mobility and less housing opportunity for newcomers
“Rent control increased the probability a renter stayed at their address by close to 20 percent." The beneficiaries of rent control have no motivation to move, meaning less housing opportunities are made available to renters new to the market.
Decline in numbers of renters
here is an eventual decline of almost 30 percent in the number of renters living in rent-controlled apartments, a decline which is significantly larger than the overall decline in renters in the city. This is because a number of buildings which were subject to rent control status in 1994 were redeveloped in such way so as to no longer be subject to it. These redevelopment activities include tearing down the existing structure and putting up new single family, condominium, or multifamily housing or simply converting the existing structure to condos.
This study points to the simple fact that rent control is bad for the cities where it is in place and would simply be a disaster to Seattle. RHAWA will continue to work with law makers and local leaders to find solutions to the housing supply problems in Seattle that include the community and other stakeholders. Keeping the market open allows the Greater Seattle area to keep building and exploring free-market alternatives to dangerous regulations that simply do not work.