Many 7th and 8th grade Rogers Park boys had an eventful day on Monday, January 21st, Martin Luther King Day, as Sullivan High School, Friends of Sullivan and the Chicago Park District co-hosted Sullivan High School’s First Middle School Invitational Basketball Tournament.
That rent control is an ineffective and often counterproductive housing policy is no longer open to serious question. The profound economic and social consequences of government intervention in the nation's housing markets have been documented in study after study, over the past twenty-five years. In response to this hard-earned experience, states and local jurisdictions from Massachusetts to California have banned or greatly constrained rent control. Nevertheless, a number of communities around the country continue to impose rent controls, usually with the stated goal of preserving affordable housing for low- and middle-income families. Rent control does not advance this important goal. To the contrary, in many communities rent control has actually reduced both the quality and quantity of available housing.
Role of Rents in a Market Economy
Too often, those who advocate rent regulation have ignored the basic laws of economics that govern the housing markets -- treating privately-owned, operated and developed rental housing as if it was a "public utility." In so doing, they harm not only housing providers, but also, in the long-run, the consumers they intend to serve.
Rents serve two functions essential to the efficient operation of housing markets:
This second function is particularly important in evaluating the economic implications of rent control. In an unregulated market, a housing shortage -- the reason usually cited for imposing rent control -- will be addressed in a two-step process. In the short-term, rents on the margin will rise as consumers compete for available units. Over time, these higher rents will encourage new investment in rental housing -- through new construction, rehabilitation, and conversion of buildings from nonresidential to residential use -- until the shortage of housing has been eliminated. Without the increased rents required to attract new investment, new housing construction would be sharply limited and there would be no long-term solution to the housing shortage. Conversely, a fall in rents sends the message to the market that there is no room for new investments.
When a community artificially restrains rents by adopting rent control, it sends the market what may be a false message. It tells builders not to make new investments and it tells current providers to reduce their investments in existing housing. Under such circumstances, rent control has the perverse consequence of reducing, rather than expanding, the supply of housing in time of shortage.
Three additional factors must be considered in the economic implications of rent control. First, the longer rent control remains in place, the more substantial the gap between controlled rents and true market rents is likely to be. Second, the costs of rent controls are not confined to the political boundaries of those communities that adopt them, but often impose significant costs throughout regional housing markets. Third, while the distortions induced by rent control depend on their stringency, any application of rent control leads to inequities and inefficiencies in the housing market.
Harm Caused by Rent Control
Economists are virtually unanimous in their condemnation of rent control. In a survey of economists of the American Economic Association, fully 93 percent agreed that "a ceiling on rents reduces the quality and quantity of housing available."(1) Economists generally point to six principal objections to rent control:
Social Implications of Rent Control
In addition to the substantial economic costs associated with rent control, the decision whether to regulate rents raises difficult questions of social policy:
Economists have long considered rent control a failed housing policy. As Dr. Anthony Downs, a leading economist and nationally-recognized expert on housing policy, concluded in a recent report on rent controls, other than during wartime, the economic and social costs of rent control "almost always outweigh any perceived short-term benefits they provide."(16) He also found that rent controls are both "unfair to owners of rental units and damaging to some of the very low income renters they are supposed to protect." Given this fact, reliance on rent control as a solution to the problem of housing affordability cannot be justified.
American Seniors Housing Association
California Apartment Association
California Housing Council
Community Housing Improvement Program
Institute of Real Estate Management
Manufactured Housing Institute
National Apartment Association
National Association of Home Builders
National Association of Realtors
National Multi Housing Council
Real Estate Board of New York
Rent Stabilization Association of New York City
Rental Housing Association, Greater Boston Real Estate Board
1. R.M. Alston, J.R. Kearl, and M.B. Vaughan, "Is There a Consensus Among Economists in the 1990s?" American Economic Review, May 1992, 82, 203-9. The criticism of rent control is so universally shared by economists that rent control often is cited by textbook writers as a paradigm of the harm governmental interference can have on the operation of a competitive market. See, for example, P. Samuelson and W. Nordhaus, Economics p. 79 (14th edition, 1992).
6. U.S. Bureau of the Census, Housing Division, 1987 New York City Housing andVacancy Survey, Series IA; M Lett, Rent Control: Concepts, Realities, and Mechanisms (Center for Urban Policy Research, Rutgers University, 1976).
8. Community Development Department, City of Berkeley, Rent Control in the City of Berkeley, 1978 to 1994: A Background Report for Updating the City of Berkeley's General PlanHousing Element. Berkeley, 1994.