Rent Control

A Flawed Solution to a Difficult Problem

By Ann Marie Moriarty

For the past decade, increasing numbers of people have moved to urban centers in search of employment. With fewer sites to support multifamily construction, supply has quickly tightened amid the increased demand. Rising development costs also mean that builder/developers will need to attract renters who can pay enough to allow them to pay their mortgages and stay in business. That means more luxury rentals and fewer that are more affordable.

This equates to the development of many urban apartments that most renters can’t afford, long commutes for many suburban workers, and calls for cities and/or states to impose rent controls.

In California, the poster child for high-priced housing, a 2018 ballot initiative that called for rent control was narrowly defeated. In 2019, the Oregon legislature passed a rent control measure capping rental rates to 7% over the Consumer Price Index (CPI) and prohibiting termination of leases without cause after one year of occupancy. In 2020, the California legislature, with support from Gov. Newsom, passed its own statewide rent control bill. New York also has tightened its rent control laws, and Illinois, Massachusetts, Colorado and Washington have seen pressure to adopt similar measures.

How Effective is Rent Control?

Many economists say that rent control doesn’t work, and in fact, exacerbates the problem.

According to Heritage Foundation Fellow Joel Griffith, rent control will likely lead to a decline in affordable housing stock. In March 2019, he wrote:

For the last 20 years, rental costs have increased at a greater pace than inflation. Nationally, rental costs increased 36 percent in just the last decade. Some urban areas have experienced far steeper jumps in rent. Rather than ease pressure, rent control compounds the problem of affordability. It does nothing to make housing less costly to build, while having the perverse effect of shrinking future supply by deterring new construction and giving owners fewer incentives to spend on upkeep and remodeling.

Rebecca Diamond, associate professor of economics at Stanford University, also cited the negative consequences of keeping rents below market rates, as highlighted in various economic studies.

Some argued that a cap on rents would lead owners to sell their rental properties to owner-occupants so that they could still earn the market prices for their real estate. Rent control can also lead to a mismatch between residents and rental units. A resident in a rent-controlled apartment may not choose to move in the future and give up rent control, even if the renter’s housing needs change. This can lead to empty-nest households living in family-sized apartments and young families crammed into small studios. Rent control also can lead to decay of the rental housing stock; owners may not invest in maintenance because they can’t recoup their investment by raising rents. 

Diamond also noted the effect of removing rent control in Cambridge, Mass.

Economists studying the impact of the unexpected change found that newly decontrolled properties’ market values increased by 45 percent. Neighboring properties’ values also saw a boost. The greater the number of rent-controlled properties in a neighborhood, the greater the gain in property value, suggesting that the effect of rent control had been to reduce the whole neighborhood’s desirability.

Instead, housing economists recommend the best way to make rental housing more affordable is to build more rental housing, resulting in competition in the marketplace that will set prices at a reasonable level. For more information about rent control efforts, see NAHB’s Rent Control page and the National Multifamily Housing Council’s Growing Homes Together website.

About the Author

Ann Marie Moriarty

Ann Marie Moriarty is the communications manager for multifamily housing at NAHB.