Rent controls: A solution to housing affordability?

By Dr. Harold A. Black

Knoxville’s mayor is said to favor rent controls as a “solution” to housing affordability. She, like most progressives, ignores Santayana’s “Those who cannot remember the past are doomed to repeat it.” Rent controls are one of the few things that most economists agree on: it is bad. So bad in fact that the Swedish socialist Gunnar Myrdal said “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” Another Swedish economist Assar Lindbeck stated, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” Actually, Lindbeck’s comment was an understatement. Consider that after the Vietnam War, the Vietnamese foreign minister Nguyen Co Thach said that controls had artificially encouraged demand and discouraged supply. House rents had been kept low so all the houses in Hanoi had fallen into disrepair. “The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents. We realized it was stupid and that we must change policy,” he said.

The progressives have yet to realize the stupidity of their ways. Like any other price, rents are set by the market. Rent controls constitute a maximum rent that can be charged. If the controls are set above what the market dictates, then it will not have any impact. For example, suppose rent controls were $20,000 per month. They would not have an effect on the Knoxville market. However, that rent would be well below the most expensive rentals in New York where one apartment lists for $170,000 a month. For rent controls to have any effect, the rent must be set at an amount below what the market dictates. The average rent in Knoxville is $1,600 per month. This is the average for all rental units from studios to multiple bedrooms. Let’s assume that the mayor deems this amount to be too high and gets the city council to vote to lower the rent to a maximum of $1,000 on any rental. Wouldn’t that be wonderful? Well no. Those units that are rented for less than $1,000 would find that their rents will go up as renters who are paying more than $1,000 would seek lower-cost apartments. Those renters who were paying less than $1,000 would find their rents increasing and many could end up homeless, increasing homelessness in the city. Many more expensive units would be converted into condos or co-ops circumventing the controls altogether. As has been the case elsewhere, units would fall into disrepair as landlords would defer or stop maintenance. Research has shown that in rent-controlled cities, the housing stock deteriorates and property values fall as the quantity and quality of the properties fall. The building of new units declines and monies that once went to build apartments go elsewhere in the real estate market, not under controls such as condos and commercial buildings. It has been estimated that in New York City, more than 30,000 apartments are abandoned annually. Researchers find that “Rent control has destroyed entire sections of sound housing in New York’s South Bronx and has led to decay and abandonment throughout the entire five boroughs of the city.”

Those tenants who are residing in a rent-controlled apartment obviously benefit, although the building may suffer from decreased upkeep and maintenance. The tenants seldom move. A good friend of mine lived in a rent-controlled apartment in Washington, DC. where the controls only apply to those in place. She continued to rent the apartment even after she had moved to another state. Her landlord finally offered her a substantial amount to give up the apartment so he could rent it out at a rent three times higher than what she was paying. The DC case is not an isolated one. Economic research has shown that the imposition of rent controls has short-term benefits to those in place by keeping their rents artificially low. However, the controls lower property values. There is a study of Cambridge, Massachusetts that estimates that property values fell by $2 billion after the imposition of controls. Interestingly, the values fell not only on the rent-controlled properties but also on the surrounding neighborhoods.

These are the facts. Rent controls is stupid policy, but since when did progressives ever heed facts?