Specifically, Bernie Sanders proposes a national cap on annual rent increases to 1.5 times the rate of inflation or 3 percent—whichever is higher.
Ironically, the article Sanders tweeted out attributes the cause of higher rent prices, in part, to government control over the private housing market. This simply reinforces what many economists already know to be true: the left’s prescriptions for lowering housing prices are precisely what keeps prices high and supply low.
“Some dumb ideas are new. Rent control is an old, dumb idea. Price controls have failed for thousands of years,” said Grover Norquist, president of Americans for Tax Reform.
A national rent control scheme would have the following effects:
1. It would be a flagrant infringement of American property rights and a vast expansion of the federal government’s control over the private housing market.
The government should have no role in determining rental costs. All governments are ill-equipped to consider the many visible and invisible factors that determine the market price of a rental property.
What enforcement mechanisms would come down on the American people under a national rent control bureaucracy? If a local landlord, for whatever reason, fails to comply with the new federal standard, what kind of punishment would ensue? Might the IRS garnish his wages? Would federal law enforcement lock down his property? Would he be fined out of business? Put in jail? The reason why none of that passes the smell test is because none of it feels like it’s an appropriate use of the federal government’s power nor is it even within the scope of power that the government ought to operate in.
2. National rent control would require the creation of an elaborate bureaucracy with substantial administrative costs.
Enforcing rent control requires an elaborate bureaucracy—especially on a national level. In Santa Monica, the Rent Control Board in 1996 had a $4 million a year budget for enforcing rents on only 28,000 apartments. This fiscal year, San Francisco’s Rent Arbitration Board can expect to bring in over $5 million. The system only gets more complicated as it grows. The National Multifamily Housing Council explains, “Rental property must be registered; detailed information on the rental property must be collected; and elaborate systems for determining rents and hearing complaints and appeals must be established.”
3. It would reduce housing supply across the country.
Evidence shows the 1994 rent-control expansion in San Francisco actually led to landlords converting their properties to condos or a Tenancy in Common, both of which are exempt from rent control. This is reflected by a 15 percent decline in the number of renters living in these buildings and a 25 percent reduction in the number of renters living in rent-controlled units. Instead of encouraging affordable housing, the government incentivized conversion away from it.
Rent control discourages the construction of new rental housing, even when controls don’t apply to new developments. Investors anticipate future policy changes that would subject their developments to similar, pricey controls.
This is why in Cambridge, Mass., when rent control was abolished, economists found that direct dollar investments in housing units doubled in just a few years. This led to an increase in housing supply. According to a Cato Institute policy analysis by William Tucker, non-rent-controlled cities have normal vacancy rates at or above 7 percent, while rent-controlled cities experience vacancy rates at around 5 percent.This speaks to a central problem with rent control: its tendency to suppress housing supply. This creates severe, visible consequences: restricted housing options and even homelessness.
4. It would increase rent prices across the country.
The San Francisco study also found that, as a result of rent control, there was a city-wide rent price increase of 5.1 percent. A study of New York City’s 1968 rental market found that rents in noncontrolled units were 22 percent –25 percent higher than they would have been without the presence of rent control.
Landlords, as a way to make up for their inability to increase rents once a tenant moves in, will set rents artificially high in their initial contracts with tenants. Also, because of existing tenants’ depressed rents, many will stay in apartments for longer than they otherwise would. This reduces the housing supply for other potential tenants; specifically, the supply of rent-controlled units. This increases the prices of non-controlled housing units, which often become the only option for a number of people.
5) It would reduce the quality of tenant housing.
Hendrix of the Manhattan Institute points out that, under rent control, landlords have a limited ability to “recoup operational costs and investments through rents or an appreciation of their building’s value.” Also, because they cannot raise rents, there’s little incentive to improve their properties, as they will not see a payoff for building improvements.
In the aftermath of price controls in Cambridge, Mass., housing units were described as “older, in worse condition, and more in need of very essential repairs.” Once rent control was abolished in the city in 2004, “property investments rose 20% over what would have been the case under rent control and led to major improvements in housing quality.”
6) It would harm disadvantaged groups.
Michael Hendrix of the Manhattan Institute explained that all the savings associated with rent control are offset by the increased costs of non-controlled housing units. However, those who benefit from rent control are disproportionately white, affluent renters. Hendrix notes, “White renters in 2017 claimed a 36% discount on market-rate rents in New York City because of rent control, compared with 17% for Hispanic renters and 16% for black renters; affluent renters received a 39% discount. The city’s rent-control and rent-stabilization laws have apparently induced landlords to favor older tenants and smaller households (primarily those without children), and rent control’s benefits are similarly biased against young people and larger families.”
Rent control hurts the very people it aims to help. It restrains consumers’ ability to find a place that works for them. As a consequence, the housing market in rent-controlled cities is defined by dissatisfaction, maddening trade-offs, and paycheck-consuming prices.
If rent control on the local level causes increases in rent prices and limits housing supply, it’s not hard to imagine just how severe the effects would be on a national scale, when the federal government tries to impose Manhattan-type rent control policy on Thurmond, W. Va.
Even the socialist Swedish economist Assar Lindbeck said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”