A recent survey commissioned by Redfin exposes a stark misconception among Americans about rent control. Although economists are in almost total agreement that rent control drives up rent rates over time and reduces supply and choice, the survey suggests that a majority of Americans still believe the policy is an effective way to keep housing affordable.
More than three-quarters of survey respondents, 82 percent, believe that a cap on the amount of rent increases landlords can charge tenants is warranted.
Participants in the survey conducted by Ipsos in September included 1,802 U.S. renters and homeowners between the ages of 18 and 65.
Their views varied little across political affiliation or whether they rented or owned a home. Of those who believe rent caps should be imposed, 86 percent identified as Democrats, while 79 percent identified as Republicans. In addition, 86 percent of renters said they believe rent increases should be capped compared with 78 percent of homeowners.
Spotlight on California
Nearly four of every five survey respondents (188) who live in California said they believe caps on rent increases should be imposed.
California is no stranger to rent control. Landlords in the state are prohibited by the Tenant Protection Act from raising rents by more than five percent plus the increase in the annual cost of living.
In 2016 and 2017, seven Northern California cities had rent control initiatives on the ballot. Two passed. In 2018, Los Angeles activist Michael Weinstein bankrolled a ballot initiative to repeal the Costa-Hawkins Rental Housing Act that has exempted certain kinds of residential rental units from rent control ordinances and shielded mom-and-pop landlords from rent control.
While it failed in 2018, this same initiative that would give local jurisdictions even more power to regulate rents is on the ballot this November in California as Prop 33.
The research
Redfin economists say rent control has the unintended consequence of increasing rental costs in the long term because it can make the supply shortage worse.
According to research jointly conducted by National Association of Home Builders and The National Multi Housing Council, 85 percent of multifamily developers said they avoid building in jurisdictions with rent control.
“Rent control sounds appealing for renters in theory because it limits price increases and saves money in the short term, but it eventually worsens rental affordability because it exacerbates the supply shortage,” said Redfin economic research lead Chen Zhao. “If rent increases are capped below the amount developers would need to make a profit, they have little incentive to build more apartments and homes. The best way to make rentals more affordable is to build more units.”
Almost all studies of rent control indicate that the policy leads to a deterioration in the quality of those dwellings subject to regulations because landlords whose revenues are eroded by rent control have less incentive to invest in maintenance.
The misconception
Americans do not seem to understand that rental price is tied to supply and other factors. For instance, in high-rent California, there is widespread agreement that 200,000 units of housing are needed each year to keep pace with existing growth, but only 80,000 are being built, thanks in part to NIMBY, permitting and regulation issues, said Ken Calhoun, real estate broker in California’s El Dorado County.
Calhoun points out that if California’s Costa-Hawkins is repealed, all communities will be vulnerable to rent control. California’s Prop 13, which sets evaluated home prices for tax purposes to current market value, could be the next target in what could become an avalanche of negative housing policy, he said.
“If we limit how much rent a landlord can collect, why not limit the amount of profit a home seller should be able to make on a sale?” he asks.
Prop 33 is just one housing initiative facing voters in this year’s national election. In July, the Biden Administration proposed a nationwide rent control policy that would cap rents on existing units at five percent.
Housing pundits urge voters to research the consequences of rent control, the initiatives on the ballot and support candidates who are pro-housing.
The Redfin study is available here.
