The Rent Control Bomb

Socialist Swedish economist Assar Lindbeck once noted that, “In many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing it.”

San Francisco will celebrate the 40th anniversary of rent control policies next week, and is increasingly looking like a bomb went off in some areas of the city.

Homelessness and housing shortages have reached crisis levels.

While some may look at the housing crisis as evidence for the need for more sweeping protections for tenants, those who study the subject say that such policies are in fact responsible for the current crisis.

SF rent control turns 40 | 48 hills

Not Your Grandaddy’s Federalism…
Christian Britschgi covers the rent control beat for Reason Magazine, and has been documenting the slow-motion disaster caused by California’s housing policies. Show producer Charlie Deist joins the show to discuss Christian’s coverage, including various proposals to implement state-wide rent control in places like Oregon, California, and New York.

For now, California appears to be moving towards a 7% per year cap on rent increases, mimicking a recent Oregon law that has been praised by Kamala Harris.

This epitomizes the unfortunate pattern of “bizarro-Federalism,” whereby cities like San Francisco incubate failed policies, which get copied and magnify policy failures at the state level before spreading their devastation to other states across the country. As if Oregon’s 7% cap on rent increases wasn’t bad enough, New York is now considering a state-wide ban on “unconscionable” rent increases of more than 1.5% the rate of inflation.

Yet California still takes the cake for exacerbating its housing shortage with misguided policy. Here’s the LA Times:

Nine of the 15 metropolitan areas with the highest median home values in the country are in California, with those in Silicon Valley topping the list at $1.2 million, according to real estate website Zillow.

Of course, rent control isn’t the only reason for this. The failure to build new housing is the primary culprit.

Tech companies are taking the blame for attracting high-earning outsiders, who then push up rents in poor and working class neighborhoods. Noah Smith, a liberal writer for Bloomberg, notes that there is some truth to this. However, he says that the answer is to build more market-rate housing in the center of SF to accommodate the influx of tech workers, so that they aren’t competing for a scarce supply in neighborhoods where people are most likely to complain about gentrification.

[Rent control] epitomizes the unfortunate pattern of “bizarro-Federalism,” whereby cities like San Francisco incubate failed policies, which get copied and magnify policy failures at the state level before spreading their devastation to other states across the country.

Britschgi concurs, saying that the best way to solve the housing crisis is through de-regulation of zoning laws in urban areas. In other words, we need a free market for housing.

The Public Choice of Rent Control
Why do politicians continue to push policies that have failed so miserably when a ready solution exists? One reason might be that it’s harder to take credit for deregulating the housing market, which only produces benefits several years down the road — after new housing projects have been completed, and the market achieves equilibrium.

Rent control, is economists point out, does create some upfront benefits for existing renters — until landlords begin to neglect their properties (unable to recoup the costs of maintenance) or convert apartments into condominiums and further restrict housing supply.

It’s Episode #5,247 of “The Seen and immediate versus the unseen, long-run consequences.” This show always ends the same way: demagoguery and disappointment, followed by more calls for regulation to solve the problem created by regulation in the first place.

There is also the persistent myth in American politics that landlords are always rich and powerful while renters are always poor and disenfranchised. The reality is that rent control abrogates property rights and coerces landlords into becoming serfs for their tenants.

The Bob Zadek Affordable Housing Program:
Here’s my take: let developers build non-rent-controlled market-rate housing to satisfy demand. It’s really that simple.

We shouldn’t be celebrating 40 years of rent control in San Francisco — we should be lamenting it and saying “good riddance.” There’s no rent control in Tokyo, and prices haven’t gone up for two decades thanks to limited restrictions on height and density.

It’s not too late to fight the NIMBYs and the opportunists. Stop demagogues like Kamala Harris by spreading the word: