[Photo Credit: Caelie Frampton via Flickr]
By Ashvin Pai
Republished from Michigan Specter.
The landlord-renter dynamic is one of the most complex and interesting social frameworks of modern capitalism. It is arguably the most divisive and inflammatory economic relationship present today. One can virtually guarantee that every renter has had a landlord they hated and conversely, every landlord, a tenant they despised.
In purely monetary terms, the rental housing market is one of the largest in the United States, netting in well over $100 billion in 2020, with most of this value managed by giant real estate companies (Ann Arbor’s own McKinley manages a $4.6 billion portfolio with over 34,000 apartments). It is in this backdrop, with these stakes, that the policy of rent control is being judged for its worthiness. It should come as no surprise, then, with so much capital threatened by affordable housing policies, that rent control has been the target of a relentless smear campaign.
Rent control, a robust package of policies aimed at increasing housing stability for the poor 一 including things such as restrictions on condo conversions and caps on rent increases 一 has historically enjoyed massive support among urban renters. However, for almost 75 years, status-quo economists have enthusiastically maintained the stance that rent control is a failed policy. These views have proliferated so widely into the public opinion that current conversations around rent control, liberal and conservative alike, treat it as an issue on which economics has reached a universal consensus. However, to put it mildly, the premise of this discourse 一 that economics has “proven rent control wrong” 一 is wildly inaccurate. Indeed, rent control, as a policy to promote housing stability for the poor, is an effective and efficient one that must be adopted.
A cursory search of rent control in the news reveals the critical nature of current conversations around the policy. Many mainstream news outlets have published pieces actively arguing against the policy when it gains popular support in communities. For example, in 2019, when London mayor Sadiq Khan called for progressive housing policies, the BBC released a fact-check article claiming “standard economic theory is that rent control does not work” and cited a Stanford study in a claim that “[rent] controls helped accelerate gentrification.”
In the United States, when several rent control laws seemed poised to pass in New York and California, The Washington Post published an op-ed in which author Megan McArdle argued that “every economist agrees that rent controls are bad.” In a similar vein, the recent ‘No on 21’ campaign, in opposition to California’s Prop 21 housing amendment, garnered the endorsement of 28 local newspapers including the Pasadena Star-News, Orange County Register, and Los Angeles Daily News, whose editorial boards all published the same opinion that rent control reduces homebuilding and land values, and forces properties off of the rental market.
The San Francisco Chronicle went even further, saying that rent control was “overwhelmingly rejected by experts and refuted by research.” The ‘No on 21’ campaign itself, which ultimately received a cease and desist letter for misleading voters, was funded by real estate giants Blackstone, Essex, and Equity Residential among others. Unsurprisingly, Prop 21 was rejected by California voters in the 2020 election.
Understanding that there is a large corporate and political interest in blocking rent control policies is easy enough. Using a technical analysis to point at specific points where these arguments go wrong is a little more difficult. The fact of the matter is that opposition to rent control has a long-standing economic tradition, with many famous economists from Milton Friedman to Assar Lindbeck coming out against it. It is upon this perceived economic consensus which rent control opposition stands. Reading the articles mentioned above, it becomes clear that while they offer some specific arguments against rent control, the real message they are pushing is essentially the same: economists have found the answer for rent control 一 it doesn’t work.
This begs the question, Where can one find this economic consensus? There is certainly some truth to this claim as economic papers, studies, and essays against rent control policies date back almost 75 years. Many people cite Friedman and George Stigler’s 1946 Roofs or Ceilings? as the original work that kicked off rent control opposition. Through the lens of free market analysis, Friedman and Stigler make a theoretical argument against rent ceilings, concluding that rent ceilings allocate space haphazardly, use that space inefficiently, retard new construction, and cause future depression in residential building. The next big study, Edgar Olsen’s 1972 ‘An Econometric Analysis of Rent Control’ continues in a similar vein, developing a more complex mathematical model to derive several inefficiencies surrounding rent control. Most notably, Olsen asserts that rent-controlled housing deteriorates suboptimally; that is, rent-controlled housing deteriorates faster than in the absence of controls and that only a free housing market can attain the optimal path of deterioration.
Several empirical rebuttals of rent control exist as well. The majority of these center around the effects of rent deregulation in Cambridge, Massachusetts in the 1990s. The most widely cited may be David Autor’s 2014 study, which empirically found that the removal of rent control caused a property appreciation of $2.0 billion between 1994 and 2004 in the Cambridge housing market. Henry Pollakowski’s 2003 study of Cambridge’s deregulation found to a similar effect that a significant amount of post-deregulation investment 一 16 to 24%, in fact 一 would not have occurred without deregulation. Pollakowski even claims that rent deregulation helps the poor as housing investment is not relegated to high-income neighborhoods, but instead equally spread across all socioeconomic boundaries.
For some time, studies of deregulation in Cambridge were the only empirical analyses of rent control and oppositional economists found that they were relying too heavily on theoretical arguments. This call for more empirical research led to Rebecca Diamond’s 2019 analysis of rent control in San Francisco, arguably the study most widely cited in the modern rent control discourse (referenced in both the BBC and ‘No On 21’ campaign articles mentioned above). One of the biggest conclusions of the study was that “rent control contributed to the gentrification of San Francisco’’ by incentivizing landlords to convert existing rental properties into condominiums. Many saw this as the final nail in the coffin for rent control, whose advocates often tout it as a policy to keep gentrification at bay.
Fortunately, despite these studies, political support for rent control is still alive and well. Perhaps even more importantly, that this political support remains IS justified. This is because, upon closer inspection, there exist several issues with the conclusions that the studies mentioned above have reached. That the conclusions of these studies have glaring issues is no light matter; these are some of the most widely cited pieces in the modern policy discourse surrounding rent control, and are authored by highly respected economists.
They say that the beginning is the most important part of the work. Thus, it only seems natural that a criticism starts there as well. Enter Friedman’s Roofs or Ceilings? While Friedman’s theoretical rebuttal of rent control may prove convincing to some, the truth of the matter remains there is little empirical evidence to back up his conclusions. Consider, for example, Friedman’s claim that rent control policies cause a slump in housing construction.
Much evidence suggests that this is simply not the case. In a report on the effects of rent control from 1978 to 1994, Berkeley, California’s planning and development department found “no evidence that rent control had any effect on construction of new housing.” More broadly, data indicates that, between 2007 and 2014, the cities in California’s Bay Area with rent control “produced more housing units per capita than cities without rent control.”
These results carry over to the East Coast as well. John Gilderbloom’s 30-year survey of over 70 New Jersey cities with rent control found that, in the period between 1990 and 2000, moderate rent controls had no significant impact on new constructions in the rental market. Conveniently, Gilderbloom also refutes Olsen’s analysis that rent control results in faster-than-optimal housing deterioration. In the same New Jersey study, it was found that there was no significant relationship between rent controls and the percentage of housing with working plumbing — widely accepted as a reasonable indicator for rental housing quality.
In Roofs or Ceilings? Friedman claims that his arguments against rent control are hedged in the interest of alleviating the housing crisis. In his view, the removal of rent controls would help the housing market perform more efficiently, in turn, helping the individual find the housing they desired. Thus, one could reasonably assume that if rent deregulation did not help the poor find affordable housing, Friedman would be against it.
So what actually happens when rent controls are removed? One only has to return to the example of Cambridge, Massachusetts to see the stark effects of ending rent controls on housing stability for the poor. Immediately following rent decontrol, tenants of previously controlled units saw a sharp increase in rents. This was accompanied by a significant increase in residential turnover, the number of transactions on the housing market, as people were no longer able to afford to live in their homes.
It wouldn’t be unreasonable to say that these transactions were happening primarily between poor individuals and large real estate speculators as housing investment in decontrolled units more than doubled on an annual basis — a far greater injection of capital than individual purchases could possibly contribute. So in Cambridge, at least, rent deregulation did not result in a more equitable housing market that helped the common person — the outcome Friedman was supposedly advocating for.
However, for some odd reason, proponents of rent deregulation ignore this and continue to dogmatically equate increased housing investment with economic success. Referring back to Autor and Pollakowski’s praises for deregulation, one finds that they are built on this exact premise, treating housing investment as the foremost metric to be concerned with rather than equitable housing or long-term housing security — the actual problems that common people in the housing market face. That such a blatant false equivocation is so unscrupulously made (most notably when Pollakowski cites equally distributed housing investment as evidence that deregulation helps the poor) is incredibly concerning and raises questions about the supposed good-faith standing of these studies, especially when their ultimate denunciations of rent control are made with no hesitation.
Similar inaccuracies extend into the aforementioned Diamond study of rent control in San Francisco. That this study in particular contains said inaccuracies is especially important as it has become one of the most widely cited in recent years by advocates of rent deregulation. One of the biggest claims Diamond makes is that rent control fueled gentrification in San Francisco by incentivizing landlords to “[convert] existing rental properties to higher-end, owner-occupied condominium housing.”
However, this critique ignores the fact that, historically, constructing new low-income housing without government subsidies is a largely unprofitable venture. In other words, with or without rent controls, landlords have no incentives to provide affordable housing when they could be making much higher profits catering to wealthier demographics. Thus, claiming that rent controls are somehow an incentive for condo conversions makes absolutely no sense as, in a deregulated market, these landlords would skip straight to condos anyway. The deeper insinuation that rent control contributes to gentrification is demonstrably false as well. Indeed, it seems the opposite may be the case; when Boston neighborhoods repealed their rent control laws in the mid-1990s, they saw a multitude of socioeconomic changes that signified gentrification, including a significant increase of rents and home prices.
Notwithstanding, even if rent controls act as an incentive for landlords to convert to condominiums, this observation is still not a valid critique of rent control laws. This is because rent control advocates have always proposed restrictions on condominium conversions as a feature of their policies. Thus, Diamond’s findings only suggest that there exists a political climate around rent control which allows for landlords to game the system through loopholes such as condo conversion — a political climate that studies such as hers feed into. Indeed, the hard data of the study itself shows that “beneficiaries of rent control are between 10 and 20% more likely to remain at their [home address],” and that rent controls helped protect populations from personal shocks that required them to change residence. In other words, even this incredibly popular study, which presents itself as a critique of rent control, conclusively found the policy accomplished its main task of increasing housing stability for poor renters.
Another theme present among critics of rent control, academics and news outlets alike, is that they misunderstand what the purpose of rent control is and what specific policies it entails. Historically, rent control has not been proposed as a simple price ceiling on rents, as Friedman critiqued it. A 1988 article in the Harvard Law Review defined rent control as “a regulatory scheme combining rent [regulation], a warranty of habitability, eviction restrictions, a moratorium on condominium conversion, and residential zoning restrictions,” emphasizing that “the full scheme [was] necessary to ensure rent control’s efficacy in a gentrifying market.” Even today, many rent control advocates don’t even focus on absolute rents, rather placing more emphasis on controlling rent increases. Thus, an analysis of rent control as a simple price ceiling is a pointless exercise. (Somewhat ironically, rent control is often used as the default price ceiling example in introductory economics classes.)
Furthermore, even with all these policies, rent control’s main aim is not to create affordable housing or improve housing quality for the poor, the grounds upon which Olsen, Autor, and Pollakowski took the most issue. Rather, rent control advocates envision it as a policy to ensure housing stability and protect people from being forced out of their homes by price increases. In his testimonial to the Jersey City Council, J.W. Mason, assistant economic professor at the City University of New York, said exactly this, advocating for rent controls on the grounds that renters “have a reasonable expectation of remaining in their homes in terms similar to the ones they experienced in the past.”
By no means does this mean that rent control ignores housing creation or housing quality. It may well be that with increased housing stability, renters will gain more political power against landlords and real estate companies. This increased political oomph could very well be the catalyst for higher ambitions of more affordable and quality housing. However, because these aren’t the main goals of rent control, critiques of the policy along these lines are fundamentally flawed.
When judged on its own terms, it becomes clear that the data on rent control is overwhelmingly in its favor. In terms of benefiting its intended constituency, rent control is generally successful. A study of rent control in Santa Monica found that lower-income tenants experienced a significant reduction in shelter costs, gaining proportionately more from the rent control law than their higher-income counterparts. Additionally, there was no significant evidence supporting an argument that rent control had unintended effects of providing disproportionate benefits to middle- and upper-class renters.
Rent control also effectively protects against forced mobility. A literature review done by Manuel Pastor, Vanessa Carter, and Maya Abood found that home mobility driven by factors of force can be countered through rent stabilization measures. Of course, some economists, such as Friedman, have seen low levels of mobility among renters as an inefficient allocation of housing. This view ignores the numerous external benefits of housing stability. Housing stability has wide ranging beneficial effects on communities; much research has been done linking evictions with higher levels of anxiety, depression, and trouble making social ties.
What’s worse is that already marginalized communities experience these types of evictions at higher rates; in Milwaukee, black women account for only 9.6% of the population but make up 30% of evictions. The curbing of forced evictions through rent control policies clearly has the potential of greatly improving mental health and alleviating financial stresses for already struggling communities. Additionally, housing stability has many effects on the academic success of children, with findings suggesting a significant negative relationship between residential moves and high school completion. Conversely, housing stability has a significant positive correlation to increased school attendance for children. With these facts in mind, it quickly becomes apparent that the effects of housing stability lie beyond solely the monetary realm, creating cascading effects which results in healthier and more vibrant communities.
These effects don’t take much time to manifest themselves either. Because rent control targets the private housing market, it can take effect on a large amount of housing with very little cost in very little time. Furthermore, it is extremely cost-efficient for governments to implement; both Berkeley and Santa Monica’s rent boards do not rely on general city funds and as little as 26 full-time staff are able to oversee over 25,000 units.
This low-cost implementation means that rent control is significantly cheaper than other affordable housing policies. For example, Berkeley’s rent control program was able to stabilize 19,000 units for just $4 million dollars. In comparison, it would have taken $20 million to provide housing vouchers for a little over 2,000 units, and $220 million to build or rehabilitate 2,000 units. This type of data makes it unrealistic that a lack of government funds is a reason to not implement rent controls. The implications of this argument are quite stark; in the eyes of policymakers, allowing the housing crisis to go on is seen as justifiable and even desirable because it results in less government spending.
As the housing crisis grows worse, the need for policies such as rent control becomes more immediate. However, with this urgency, one can expect a greater oppositional narrative and an increased effort to execute the smear campaign against affordable housing. The current perception of economic consensus around rent control as ineffective is flawed at best and intellectually dishonest at worst. Much of the traditional literature all the way from Friedman to Diamond misunderstands the aims of rent control, makes false equivocations which result in flawed conclusions, and isn’t backed by empirical data.
Despite this, the message that rent control is a failed policy is being continually pushed out to the public in the language of these studies and essays. Economists such as Mason, Levine, and Gilderbloom, among others, are thrown by the wayside in the desperate appeal to authority that decontrol advocates invariably resort to. It is dangerous to pretend that there are no political motivations to these decontrol studies when they have such clear flaws.
It is dangerous to pretend that the free-market economics criticizing rent control aren’t ultimately biased toward what is best for giant real estate corporations. With the large successes that rent control has had in creating housing stability, it is important that the false narratives around the policy be challenged whenever they are brought up. The data is clear: rent control works.
