A Defense of Rent Control

 

 

Property Rights are Not the Only Rights

Free market advocates often talk as if property rights are the only rights.  And in the context of California’s housing crisis, free market extremists focus on landlords’ property rights, mistakenly assuming that property rights are the only rights that can be or should be respected and protected in our society.  This view is mistaken and harmful.

While property rights should have some reasonable protections in our economic system, they are not absolute.  Property rights are not the only rights, nor the most important.  In fact, property rights are just one of many values or principles that a fair and just society acknowledges.  And there is no legal or philosophical reason that property rights should take priority over other rights, such as the right to decent and affordable housing.   

All property use is regulated by the law in some manner, and always has been, and regulating rents is not a new or radical idea.[1]  State and federal courts, for example, have consistently ruled for the past hundred years that rent controls are valid regulations serving legitimate public policy goals.[2]

There is a growing recognition worldwide of the right to decent and affordable housing.[3]  “Housing has an almost essential importance for people to live in dignity and is valued on par with having a job, good health and enriching social relationships.”[4]

Criticism Of Rent Control Is Often Misguided and Ideologically-Motivated

Several scholars who have spent years studying it have concluded that “much of the criticism of rent control is misdirected and misguided.  Most studies [critical of rent control] examine extreme or unusual cases while ignoring typical rent control cities.  A comprehensive review of numerous studies of the effects of rent control indicates that the criticism is based on highly restrictive forms of rent control [e.g., absolute rent freezes] which are rarely found among the 180 localities that currently have some form of rent control.”[5]

One economist recently determined that many criticisms of rent control “are ill-founded on both theoretical and empirical grounds.  Well-worn myths about rent regulations—that they reduce the quantity and quality of rental accommodation–derive from a simple textbook model of ‘rent controls’ applied to first generation programs [i.e. ‘rent freezes’] that existed in the 1950s.  More sophisticated analysis of second generation programs–such as that which exists in Manitoba [similar to the rent control laws currently in place in San Francisco and other California cities]—indicate that well-designed rent regulations can improve the economic security of tenants and, at the same time, have a beneficial effect on the market’s efficiency.”[6]

Efforts to weaken or end rent control in cities throughout America are typically led by real estate, commercial landlord and other big developer interests, all of whom are seeking to maximize their profits in residential rental properties.[7]  These special interests are inherently biased, of course, and their arguments are largely based on outdated and misguided economic studies that dealt with absolute price ceilings or “rent freezes,” which are not the same as the modern, moderate forms of rent control currently in place in many California cities.

Rent Control is Not the Cause of Rising Rental Rates

A 2016 analysis of seventy years of San Francisco rental prices (1956 to 2016) shows that rents have risen fairly consistently at 6.6% per year, and that this is true both before and after rent control was instituted in 1979.[8]  When rent control was eliminated in Cambridge, MA, housing costs rose dramatically, both for formerly rent-controlled and uncontrolled units.[9]

Many factors drive increases in rental prices, including the recent tech boom and the city’s failure to enforce local laws intended to prevent conversion of rental units to short term rentals such as AirBnb.[10]  And if there is any single factor having the most direct effect on rising rents, it is speculative investments by venture capital.[11]

Factors such as the number of jobs located in San Francisco County; the total amount of housing within the county, and the total amount of money that is paid to everyone who works jobs in San Francisco County, are collectively much better predictors of trends in rental prices.[12] 

Rent Control Creates Stable Neighborhoods And Communities

The evidence so far on rent control demonstrates that it is “an essential policy to prevent the displacement of working class tenants, seniors, immigrants, and communities of color from hot urban real estate markets.”[13] 

“[Economist Joshua] Mason reports that rent regulations give tenants a greater stake in their community and incentivize them to put time, energy, and even money into their homes. Without that kind of security in their occupancy, there is little return for contributing to the neighborhood and building relationships in the surrounding blocks.”[14]

There is a “close connection between a right to security of tenure and rent control.  Without rent control, rights to security of tenure are easily circumvented by landlords.”[15]

“The main reason to support rent control is that in the Bay Area the housing market is producing windfall profits for some while driving renters out.  Our community thrives on stability and diversity, not constant churning. Stability means you get to know your neighbors, can work with them to make the neighborhoods safe and work together to improve the neighborhood.  Diversity means a richness of backgrounds and experiences and valuing of all our residents.”[16]

Rent Control is Good Public Policy

In addition to helping create stable neighborhoods and communities, including protecting our most economically vulnerable citizens from unpredictable and erratic rent increases and arbitrary evictions, rent control serves other important social values.[17]

For example, rent control creates a high level of transparency between landlords and tenants.  Tenants under rent control have greater rights and security of tenure, making “rent controlled cities more desireable when choosing a city of residence.”[18]  This suggests the existence of benefits to local economies more widespread than just protecting stable neighborhoods.

Rent Control is Fair to Tenants AND Landlords

Modern rent control laws balance the interests of tenants and landlords.[19]  “The balance is obtained by guaranteeing a fair and reasonable return on investment to the landlord while eliminating the practice of excessive annual rent increases (price gouging).”[20]

Rent control thus does not prevent landlords from earning a reasonable profit on their residential rental properties.  In fact, even under rental control, landlords receive a fair return on their investment because contemporary rent control in San Francisco and other American cities is designed to give landlords consistent increases in rent based on the consumer price index (CPI), which is more or less the overall rate of inflation.  Rent controlled property appreciates in value, and the law protects the profitability of rental property (e.g., in California, Prop 13 keeps landlord taxes low, and the Costa-Hawkins law[21] keep rents high by severely limiting the expansion of rent control into new properties.[22]

 In New York City, for example, “there is no evidence that owners of rent-regulated buildings – whether they purchased before or after rent regulation went into effect – have received less than fair returns on their properties.”[23]

Moreover, existing law already allows landlords to evict tenants who fail to pay their rent or who otherwise violate the terms of their leases.[24] Landlords may also use “owner move-in” evictions and Ellis Act (taking a building off the rental market) evictions if they want to change the use of the building or leave the rental business.

Building More Market-Rate Housing is Not a Solution to the Housing Crisis

In 2016, the Urban Displacement Project (UC Berkeley and UCLA) studied the theory that just building more housing will eventually create more affordable rental units, and found that there is no evidence to support this claim.[25]

Rent control is an important policy protecting poor and working-class renters, and building more market rate housing will not help these families because market rate housing in many areas is, for all intents and purposes, luxury housing that is unaffordable for people working minimum wage or other low wage jobs.  Markets do not respond to poverty, and thus relying solely on free markets to provide affordable housing is misguided at best.[26]

Free market advocates (such as YIMBY groups) are mistaken in their belief that just building more market-rate housing will solve the housing crisis.  In San Francisco, for example, from 1960 to 2010, new housing units constructed exceeded the increase in population, but “many of the units are unaffordable, making the problem less about quantity and more about housing type . . .”[27]

Additionally, the “YIMBY” argument that market-rate construction will eventually lower rents and provide more affordable housing is mistaken.  By 2016, San Francisco had approved 181% of projected market-rate housing for 2022, but the city only approved 16% of its low-income requirements during the same time period.[28]  “In this way, new market-rate construction creates more of a demand for affordable housing than the market supplies.”[29]  In a purely free market environment, “the poor will always be outbid;  supply and demand logic will continually fail to shelter them.”[30]

Rent Control Does Not Cause Poor Maintenance Or Abandonment Of Rental Units

Urban planner John Gilderbloom showed that modern rent control laws in 100 American cities “have not negatively impacted the quality and quantity of rental units and actually motivated landlords to increase maintenance of rental housing.”[31]

A 1988 study determined that “there is no basis for economists’ strongly-held belief that rent control leads to worse maintenance.”[32]

Rent Control Does Not Decrease New Housing Construction

Cities with rent control have some of the highest per capita construction rates in California.[33]  And this is true not only in California, but elsewhere.  For example, “housing construction in New Jersey fell by 52 percent in cities that enacted rent control regulations in the early 1970s—but fell 88 percent in those that didn’t.”[34] 

“Moderate rent control has no impact on new construction primarily because of the non-restrictive nature of moderate rental controls which guarantee a landlord a fair return on investment, and exempt newly constructed buildings.”[35]

Manitoba, Canada has moderate rent control similar to that in San Francisco and other California cities, and one researcher has found “no evidence that Manitoba’s rent regulation program has a negative impact on the supply of rental accommodation, either in the conversion of existing units to condominium ownership, or in slowing the rate of construction of new rental units.”[36]

California’s Costa-Hawkins law exempts housing built after 1995 from rent control, and thus guarantees that rent control does not apply to new rental units.  And a “glance at San Francisco, Oakland and Berkeley should be proof that rent control does not stop development.”[37]

Endnotes:


[1] Ambrosius, Joshua D., John I. Gilderbloom, et al, “Forty Years of rent control:  Reexamining New Jersey’s moderate local policies after the great recession,” Cities 49 (2015) 121-133, at 121, noting that “[r]ent control – diverse sets of restrictions on landlords’ abilities to raise tenants’ rent payments – has existed in some form since ancient Rome, making it one of the oldest housing regulations still practice today (internal citation omitted).”

[2] Id., at 122-123, listing numerous federal and state court decisions, the vast majority of which have upheld, and continue to uphold, rent control laws in various jurisdictions and rejecting landlords’ property rights or “takings” claims.

[3] Bergenstråhle, Sven, “The importance of affordable rental housing,” July 7, 2016, noting that it “is a human right to have a home.  A series of international declarations and conventions say so.  UN Covenant on Economic, Social and Cultural Rights declares the right to ‘adequate housing.’”;  http://www.iut.nu/Tillfalliga_artiklar/2016/SB_The_importance_of_affordable_rental_housing2.pdf

[4] Id.

[5] Gilderbloom, John I., John Markham, “Moderate Rent Control:  Sixty Cities Over 20 Years,” Journal of Urban Affairs, Vol. 18, No. 4, 1996, at 413. 

[6] Grant, Hugh, “An Analysis of Manitoba’s Rent Regulation Program and the Impact on the Rental Housing Market,” Department of Economics, Faculty of Business and Economics, The University of Winnipeg, January 2011; http://www.gov.mb.ca/cca/pubs/rental_report.pdf

[7] See, e.g., Ambrosius, Joshua D., John I. Gilderbloom, et al, “Forty Years of rent control:  Reexamining New Jersey’s moderate local policies after the great recession,” Cities 49 (2015) 121-133, at 130-131.

[8] Fischer, Eric, “Employment, Construction, and the Cost of San Francisco Apartments,” Experimental Geography blog, May 14, 2016;  https://experimental-geography.blogspot.com/2016/05/employment-construction-and-cost-of-san.html

[9] “Communities Thrive with Rental Control:  A Guide for California Cities,” Tenants Together, 2017, at 11.

[10] Preston, Dean, and Shanti Singh, “Rent Control Works:  A Response to Business School Professors’ Misguided Attack on Rent Control,”  Tenants Together, March 2018, at 7.

[11] “Communities Thrive with Rental Control:  A Guide for California Cities,” Tenants Together, 2017, at 6.

[12] Fisher, supra.

[13] Preston and Singh, supra, at 2.

[14] Blumgart, Jake, “In Defense of Rent Control,” Pacific Standard, April 1, 2015;  https://psmag.com/economics/in-defense-of-rent-control

[15] Ken Hanly, “The Ethics of Rent Control,” Journal of Business Ethics 10: 189-200, 1991, at 195.

[16] Parker, Mike, “ReBUTTal: The arguments for rent control in Richmond,” San Francisco BayView, May 1, 2015;  http://sfbayview.com/2015/05/rebuttal-the-arguments-for-rent-control-in-richmond/

[17] Ambrosius, 2015, supra, at 131, stating that “Rent Control cannot be measured solely by its ability to keep rents low, but also by its protections from extreme rent increases and arbitrary evictions, and mechanisms for tenants to challenge unreasonable rent increases and landlord practices.”

[18] Id.

[19] Gilderbloom, 1996, supra, at 411. 

[20] Id.

[21] Costa-Hawkins is a 1995 California state law that restricts the extension of rent control in cities that already have rent control.  This law prevents rent control from covering condos, single-family homes, rental units built after 1995, and allows landlords to charge market rate for new tenants (i.e. vacancy decontrol.)  See California Civil Code §1954.50.

[22] Preston and Singh, supra, at 4.

[23] Collins, Timothy L., “Rent Regulation in New York:  Myths and Facts,” at 8; https://mvtenantscoalition.files.wordpress.com/2016/05/myths-and-facts-final-1.pdf

[24] Preston and Singh, supra, at 6.

[25] “Communities Thrive with Rental Control,” supra, at 7.

[26] See, e.g., Woocher, Jacob, and Shanti Singh, “The Market Will Not Fix California’s Housing Crisis,” Dissent, March 28, 2018.

[27] McElroy, Erin, Andrew Szeto, “The Racial Contours of YIMBY/NIMBY Bay Area Gentrification,” Berkeley Planning Journal, 29(1), 2017;  https://escholarship.org/uc/item/4sw2g485

[28] Id., at 16-17, citing San Francisco Planning Department 2016, “Residential Pipeline Entitled Housing Units, 2016 Q3.”

[29] Id., at 17.

[30] Id.

[31] Id., at 12.

[32] Blumgart, supra.

[33] Id., at 9.

[34] Blumgart, supra.

[35] Gilderbloom, 1996, supra, at 424.

[36] Grant, 2011, supra, at ii.

[37] Parker, supra.