14 Reasons Rent Control Hurts Housing, Respected Economist Says

Respected economist Jay Parsons says science and history show why rent control does not work and hurts the affordability of rental housing

Respected economist Jay Parsons says science and history show why rent control does not work and hurts the affordability of rental housing.

In a long Twitter thread, Parsons says, “Lots of articles of late are saying things like ‘rent control remains rare due to landlord opposition.’ This is very misleading. Sure, landlords oppose it. But who cares? More importantly: The SCIENCE of economics opposes rent control. And history, too.

“It’s disingenuous to say, ‘landlords argue rent control reduces supply and backfires on low-income households.’ Science and history show us the facts, and that’s more important than whatever landlords say,” Parsons explains. You can follow him on twitter @jayparsons. Here is what Parsons writes:

  1. Rent control is rare because history shows us it doesn’t work as intended. Rent control is a short-term fix for current residents, at expense of long-term affordability for a much broader population. This from a Stanford economist.
  2. You might argue: We’ll exempt new construction from rent control, so it’s OK! But the science says otherwise.
  3. The science of economics also tells us that rent controls not only limit new supply, but also lead to removal of existing supply, New York being a case in point.
  4. That science also tells us that rent control provides benefit to a share of households but at enormous cost, one being inability to fund maintenance. Rent control often leads to poorly maintained, outdated housing — and battles between tenants and landlords over upkeep.
  5. One important note that is often overlooked: Rent control primarily benefits wealthier households who do not need the benefit. Case in point: Former NYC Mayor Ed Koch for decades kept a $475-a-month bargain in high-end Greenwich Village, which meant he (and many others) received benefits others need more — which means wealthier households are either squatting in affordable units or squandering benefits that could otherwise be spent on lower-income households in need.
  6. Historically, price controls in the United States were associated with the Soviet Union– which made it a “red flag” for many Americans. For Soviets, price controls led to severe supply shortages, a runaway black market and depression… but three decades later, memories and lessons are fading.
  7. Rent-control proponents point to Europe as models, but fail to point out the resulting disaster of a supply shortage. Read this quote from an economist in Sweden: “Five percent of the entire population is on a waiting list for a rental.” Wow!
  8. In Toronto, rent controls sharply reduced new construction to only pricey units and gave way to a surge in for-sale condos as “shadow” alternatives, bought by small investors and rented out individually, ultimately making affordability worse.
  9. In Cambridge, Mass., research showed the city benefitted from the removal of rent controls in the 1990s. A Harvard professor noted more supply, more maintenance/upgrades, and less crime.
  10. In an IMG survey of economists, only two percent said rent controls in places like New York and San Francisco have had a positive impact on affordable housing.
  11. Opposition to rent control is not a partisan issue. Economists on both sides of the aisle oppose it, from right-wing Milton Friedman to left-wing Gunnar Myrdal (both Nobel winners).
  12. Myrdal stated: “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”
  13. The science of economics tells us the best solution to affordable housing is supply. Harvard’s Ed Glaeser: “The most natural tool towards affordability is supply, and to make sure that we are making it easy enough to build moderate-cost rental-apartment buildings in these cities.” But not ironically, most cities with rent control or that are seriously discussing it are themselves guilty of making it way too difficult to build housing– which makes what does get through more expensive.
  14. Direct subsidies to lower-income renters are also effective in solving housing access issues without distorting supply, yet they’re underfunded at every level and too often entangled in red tape.

In summary, Parsons says, “Rents have kept up with incomes in market-rate apartments, which is why rent control is mostly a misallocation of resources to wrong households. The root problem is underfunding and undersupply of affordable housing by governments at every level.”

Respected economist Jay Parsons says science and history show why rent control does not work and hurts the affordability of rental housing

About the author:

Jay Parsons serves as vice president and head of economics and industry principals for RealPage. He is a frequent author and speaker on topics including rental housing investment and asset management strategy, rental housing policy issues, risk management and property management – covering apartments and single-family rentals.

Blog: Respected Economist Takes Down Rent Control