Oregon’s Proposed Rent Controls Would Shrink Supply of Housing

COMMENTARY Housing

Oregon’s Proposed Rent Controls Would Shrink Supply of Housing

Feb 28th, 2019 4 min read
COMMENTARY BY
Joel Griffith

Research Fellow, Financial Regulations

Joel is a research fellow in the Roe Institute at The Heritage Foundation.
Oregon Senate Bill 608 limits annual rent increases to the inflation rate plus 7 percent and imposes stringent restrictions on the ability to evict tenants without cause. David Gn Photography/Getty Images

Oregon just took a big step this week toward becoming the first state in the nation to impose statewide rent controls—a step in the wrong direction.

Senate Bill 608—which has now passed both houses of the Legislative Assembly—limits annual rent increases to the inflation rate plus 7 percent and imposes stringent restrictions on the ability to evict tenants without cause. (It exempts new construction for 15 years.) 

A united Republican caucus was joined by only three Democratic House members in opposition when it passed the lower chamber Tuesday. Only one Democrat opposed the legislation when it cleared the state Senate on Feb. 12.

The Willamette Week reported that Gov. Kate Brown, a Democrat, is likely to sign the measure into law.

Unfortunately for Oregon residents, public policy crafted in defiance of economic reality yields poor results, good intentions notwithstanding. 

Rent control is the cause celebre of the chief sponsor of the legislation, state Sen. Shemia Fagan, D-Portland. She knocked off incumbent state Sen. Rob Monroe in a Democratic primary last May in part by sharply criticizing his opposition to rent control.  

Her win proved instrumental in shifting the entire Democratic caucus to the left on the issue. Her stern message to fellow Democrats: “They need to take a message from my victory. My community is not interested in watering down my victory.” 

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

Rental costs reflect those realities. Capping rent increases does nothing to make housing less costly to build. But it will have the perverse effect of shrinking future supply by deterring new construction and incentivizing landlords to spend less money on upkeep and remodeling. 

With rents capped, demand likely will increase further, but with supply unable to keep up with demand, housing shortages will likely continue. 

“Oregon Democrats are carpet-bombing our state with regulations that will deliberately destabilize the housing market and leave it obliterated,” said Jonathan Lockwood, a spokesman for a group of Republicans in the Oregon House and Senate. “And in the smoldering remains, they will cry out that Senate Bill 608 wasn’t enough.”

The legislation also denies landlords the option to give a tenant a one-month “no-cause notice” to vacate a unit after 12 months of tenancy. Ostensibly, the intent of the sponsors is to protect tenants from higher-priced rents elsewhere or the inconvenience of relocating. 

Legislators neglected to take note that a no-cause notice is also the best way for a landlord to remove a tenant engaged in harassment of his or her neighbors. In effect, this new prohibition will restrict compliance with Fair Housing Act protections against harassment.  

Salem, Oregon, property manager Melodie Atkinson warned in a Feb. 8 op-ed in The Oregonian that “taking away landlords’ ability to issue these no-cause notices removes a valuable tool in protecting other tenants from one who has been harassing them or engaging in behavior that falls short of a for-cause eviction.”

She added, “Under current law, residents are better protected, and bad actors creating a hostile environment are given ample time to make alternative arrangements.”

Criticism of rent control as bad economics is hardly limited to landlords or to free-market conservatives.

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, communists running Vietnam 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.”

Although the Oregon legislation may score cheap political points, rent control and handcuffing property managers does nothing to solve the affordable housing problem. 

It’s no surprise that with its already onerous restrictions on landlords, rents in Portland soared 42 percent from 2010 to 2017, more than triple the overall rate of inflation. Now, these ills are likely to adversely affect the rest of the state, too. 

By contrast, 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.

The governor defends land-use regulations as a reason why the state’s wine industry thrives. Even if that were true, the unaffordable rental costs would amount to a hidden tax on the general public (many of them working class) in order to allow wealthy vineyard owners to thrive. 

Adding new controls will only force renters to live in more dilapidated conditions and preclude additional units from being built. 

That’s what you might call a Pyrrhic victory for Fagan and her fellow advocates of rent control.

This piece originally appeared in The Daily Signal