The Case Against Rent Control

Jenny Schuetz follows up on the news of the nation's first statewide rent control law, approved recently in Oregon.

The economic rationale is to lessen financial strain on renters, given that housing costs have risen faster than incomes. In many large cities along East and West Coasts, even middle-income families are stretching to pay for good quality housing in desirable neighborhoods. The political motivation behind Oregon’s new law is also clear: Unhappy rentershave emerged as a more vocal constituency across the country, and policymakers in both parties, from Boston to Minneapolis to San Diego, are taking notice.

According to Schuetz, however, rent control is ineffective in addressing the two crises of housing affordability in Oregon and the rest of the country.

The first affordability problem is that the nation’s poorest 20 percent have too little income to afford minimum quality housing without receiving subsidies. That’s not a failure of housing markets, but a function of the low wages and unstable incomes generated by labor markets. Poor families could be helped by expanding existing programs such as housing vouchers or the Earned Income Tax Credit (EITC) to cover more poor households. But to fund those programs, middle- and higher-income households would have to pay more in taxes—which state and federal lawmakers have been reluctant to propose.

The second, more challenging affordability problem is that over the past 40 years, the U.S. hasn’t built enough housing in the locations where people most want to live. Metropolitan areas with strong labor markets and high levels of amenities—including Portland, Ore., Seattle, Wash., most of coastal California, and the Northeast corridor from Washington, D.C. to Boston, Mass.—have underbuilt housing relative to demand. The same pattern is true for neighborhoods within cities. Affluent residential areas with good public schools, access to jobs and transportation, have effectively shut down new development of anything other than expensive single family homes on large lots.

Instead of rent control, Schuetz says only new housing supply—especially "less expensive housing in cities and neighborhoods where demand is high"—enabled by sweeping changes to land use regulation can solve these crises.

Schuetz also explains where the risk in rent control comes from—that landlords respond to the cap in rent increases with more harm than good.