National Housing Controls Would Shrink Supply of Affordable Housing

COMMENTARY Housing

National Housing Controls Would Shrink Supply of Affordable Housing

Mar 6th, 2020 2 min read
COMMENTARY BY
Joel Griffith

Research Fellow, Financial Regulations

Joel is a research fellow in the Roe Institute at The Heritage Foundation.
Would federal control of the private home rental market make housing more affordable? Sen. Bernard Sanders of Vermont seems to think so. Mint Images/Getty Images

Key Takeaways

A key element of this “Housing for All” proposal is to establish a national rent-control program.

For the last 20 years, rental costs have increased at a greater pace than inflation. Nationally, rental costs increased 36% in just the last decade.

Artificially depressing rents and handcuffing property managers does nothing to solve the affordable housing problem.

Would federal control of the private home rental market make housing more affordable? Sen. Bernard Sanders of Vermont seems to think so.

A key element of his “Housing for All” proposal is to establish a national rent-control program. It would prohibit landlords from increasing rents more than 3% annually or 1.5 times the rate of inflation, whichever is higher. The only way landlords would be able to exceed these limits is to demonstrate to the satisfaction of federal bureaucrats that they have made “significant capital improvements” that would justify a larger increase.

The rent-control component is just the start of federal intervention in the rental market. The Vermont socialist also proposes a 25% tax on house flipping, a 2% property tax on vacant properties, and steep curbs on evictions—plus a myriad of other restrictions.

Unfortunately, this plan embraces some of the worst local policies already in existence. And experience with those policies demonstrates that they wind up shrinking the supply of housing—harming both renters and property owners.

Many see rent control as a quick fix for a long-term problem. For the last 20 years, rental costs have increased at a greater pace than inflation. Nationally, rental costs increased 36% in just the last decade.

Some urban areas have experienced far steeper jumps in rent. For instance, rental costs in the Seattle metro area jumped 55% over the last decade. And rents in the largely rent-controlled San Francisco metro area soared 57%—both nearly triple the overall rate of inflation.

Stringent zoning restrictions, density limitations, and aggressive environmental regulation limit the supply of housing while increasing the costs of construction.

Regulations often account for more than 30% of the costs of rental housing construction, a reality that rental and ownership costs must reflect. Reforming land-use laws—in effect, increasing supply—would be a big step in the right direction. With increased supply, rental prices could plateau or even decline.

Rather than ease pressure, rent control compounds the problem of affordability. It does nothing to make housing less costly to build while having the perverse effect of shrinking future supply by deterring new construction and giving landlords fewer incentives to spend on upkeep and remodeling.

As far back as 1965, Gunnar Myrdal, one of the visionaries behind Sweden’s welfare state, warned, “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” Economics professor Assar Lindbeck, Myrdal’s fellow Swede, cautioned in 1972, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

In 1989, Vietnam’s leadership linked the abject condition of Hanoi’s housing directly to rent control. Then-Foreign Minister Nguyen Co Thach said, “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.”

Government intrusion in the housing market—whether motivated by good intentions, blatant political maneuvering, or a raw appetite for power—has stoked an affordability crisis. Layering on even more intervention would only add fuel to the fire.

Artificially depressing rents and handcuffing property managers does nothing to solve the affordable housing problem. Forcing the entire nation to model Portland, New York City, and San Francisco will only force renters to live in more dilapidated conditions and dampen interest in building additional units.

Beyond these quite practical problems associated with rent control lies an even larger issue. This kind of heavy-handed intervention in the rental market is nothing less than an assault on fundamental private-property rights.

This piece originally appeared in The Washington Times