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despite the fact that technically these buildings would be free from rent control.”21 Following the removal of rent control in Cambridge, Massachusetts, in 1995, building permits rose by 20%, and construction spending doubled.22 Moreover, the motivation to demolish buildings—legally or illegally— grows over time as a means to decontrol units.23 And if property owners find it difficult to build, rehab, upgrade, or demolish their units, there’s always abandonment.24
Rent control discourages new units from being brought to the market; it also encourages owners of rent-controlled housing to convert their units to for-sale condominiums, which are not subject to price controls and thus have greater profit potential. These condominium conversions further contract the housing supply and put upward pressure on noncontrolled rents, all while pushing out renters in favor of homeowners (usually with higher incomes). When rent control was expanded in Cambridge, Massachusetts, in 1970, some 10% of the city’s rent-controlled units were converted to condominiums25, leading to an overall shrinkage in the available housing stock across the Boston area.26 In San Francisco, controlled units were 8% more likely to become condominiums than noncontrolled units.27
Renters who snag available controlled units often end up in the “wrong” ones.28 Since price no longer sorts scarce housing stock based on varying household composition or earnings, empty-nesters whose children have moved have a strong incentive to remain in unnecessarily large apartments—the rents are too good to give up. Others in smaller units may end up overcrowded as children are born or relatives move in.29 Simultaneously, wealthier, long-term tenants may pay below-market rents for spacious units while lower-income families find them unavailable. One study found that 21% of all New York City renters in 1990 were living in far larger or far smaller apartments than they otherwise would in similar non-rent-controlled cities.30 Inefficient allocation, according to another study, “may cost consumers all the surplus gains they receive from a lower price and more.”31
Footnotes:
1. Bernie Sanders, Twitter, Sept. 18, 2019.
2. “National Rent Control Cap: Where 2020 Democrats Stand,” Washington Post, Nov. 20, 2019
3. Gregory Prosser, “AOC Releases Housing Bill,” The Real Deal: New York State Real Estate, Sept.
25, 2019.
4. Assar Lindbeck, The Political Economy of the New Left: An Outsider’s View (New York:
Harper & Row, 1977), 39. The author was referring to New York City.
5. “Rent Control Survey,” IGM (Initiative on Global Markets) Forum, University of Chicago
Booth School of Business, Feb. 7, 2012.
6. Mark Green, “NYC Public Advocate Mark Green Writing to Governor Pataki and Senator
D’Amato,” Tenant.Net, Apr. 23, 1997.
7. Luis Ferré-Sadurní, Jesse McKinley, and Vivian Wang. “Landmark Deal Reached on Rent
Protections for Tenants in N.Y.,” New York Times, June 11, 2019.
8. Liam Dillon, “California Will Limit Rent Increases Under Bill Signed by Gov. Gavin Newsom,”
Los Angeles Times, Oct. 9, 2019.
9. Elliot Njus, “Oregon Legislature Passes Nation’s First Statewide Rent Control Policy, Eviction
Protections,” The Oregonian, Feb. 26, 2019.
10. Michael Hendrix, “Strangling the Cities,” City Journal, Oct. 22, 2019.
11. Michael Hankinson, “When Do Renters Behave Like Homeowners? High Rent, Price Anxiety,
and NIMBYism,” Housing Perspectives (blog), Joint Center for Housing Studies of Harvard
University,” Feb. 7, 2017.
12. “America’s Rental Housing: Meeting Challenges, Building on Opportunities,” Joint Center for
Housing Studies of Harvard University, Apr. 26, 2011.
13. Sam Khater et al., “The Major Challenge of Inadequate U.S. Housing Supply,” Freddie Mac,
Dec. 5, 2018; “Unfilled Construction Jobs at Post-Recession High,” NAHB (National Associa-
tion of Home Builders) Now, June 13, 2019.
14. Edward Glaeser and Joseph Gyourko, “The Economic Implications of Housing Supply,” Journal
of Economic Perspectives 32, no. 1 (Winter 2018): 3–30.
At the end of the day, if there are not enough apartments, many people will be left out in the cold. Rent control doesn’t meet their needs; it merely rations access through waitlists rather than prices. Rent control may restrict rents on some units, as compared with market-rate units, but this comparison fails to account for the costs of waitlists, high search costs, and even bribes. For example, the average wait time for a rent-controlled apartment in Stockholm is nine years. The wait runs north of 30 years for the most in-demand neighborhoods.32 When a single apartment opens in the city, thousands compete for the privilege to live there.33 The result is a thriving black market: bribes run about $10,000 for a single room.34 Obtaining a full contract on an apartment may cost, by one estimate, some 20% of the unit’s total market value.35
Rent Control Harms Disadvantaged Groups
San Franciscans in rent-controlled apartments saved $2.9 billion from 1995 to 2012; meanwhile, current residents and future renters paid $2.9 billion more for housing because of higher rents in noncontrolled units, offsetting those savings.36 In Cambridge, Massachusetts, rent control depressed property values citywide; once the controls were lifted in 1994, property values increased by $2.0 billion over the next decade, and “more than half of the capitalized cost of rent control was borne by owners of never-controlled properties.”37 While rent control ostensibly acts as a transfer from landlord to renter, even that process is markedly inefficient: the costs to landlords exceed the benefits to renters by roughly 75%.38
Whatever benefits do exist from rent control are poorly targeted, often missing people in need.39 In New York City, the wealth transfer from rent-controlled landlords to tenants was disproportionately claimed by white,40 economically advantaged renters.41 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
15. Michael P. Murray et al., “Analyzing Rent Control: The Case of Los Angeles,” Economic Inquiry 29, no. 4 (October 1991): 601–25.
16. Rebecca Diamond, Tim McQuade, and Franklin Qian, “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco,” American Economic Review 109, no. 9 (September 2019): 3365–94. The authors explain (3365, 3388): “Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner- occupants and redeveloping buildings.... [A] number of buildings which were subject to rent control status in 1994 were redeveloped in such way so as to no longer be subject to it. These redevelopment activities include tearing down the existing structure and putting up new single family, condominium, or multi-family housing or simply converting the existing structure to condos.”
17. Steven B. Caudill, “Estimating the Costs of Partial-Coverage Rent Controls: A Stochastic Fron- tier Approach,” Review of Economics and Statistics 75, no. 4 (1993): 727–31.
18. Murray et al., “Analyzing Rent Control.”
19. John Nagy, “Do Vacancy Decontrol Provisions Undo Rent Control?” Journal of Urban Eco-
nomics 42, no. 1 (July 1997): 64–78. This result is primarily true if so-called vacancy decontrol
is allowed.
20. Dirk W. Early, “Rent Control, Rental Housing Supply, and the Distribution of Tenant Benefits,”
Journal of Urban Economics 48, no. 2 (September 2000): 185–204.
21. Edward L. Glaeser, “Does Rent Control Reduce Segregation?” Swedish Economic Policy
Review 10 (2003): 190.
22. David H. Autor, Christopher J. Palmer, and Parag A. Pathak, “Housing Market Spillovers:
Evidence from the End of Rent Control in Cambridge Massachusetts,” NBER working paper
18125, June 2012.
23. Peter Navarro, “Rent Control in Cambridge, Mass.,” Public Interest 78 (January 1985): 83–100.
24. Richard Arnott, “Time for Revisionism on Rent Control?” Journal of Economic Perspectives 9,
no. 1 (Winter 1995): 99–120.
25. Navarro, “Rent Control in Cambridge, Mass.”
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