Brian Snyder/Reuters
Good guy. Bad idea.
- Sen. Bernie Sanders recently called for a nationwide rent-control law as part of his housing-policy platform.
- While the idea may sound good in theory, in practice it would be lousy.
- Rent control helps existing tenants but drives up prices for future ones. It also depresses values in surrounding areas.
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The Democratic presidential candidate Sen. Bernie Sanders recently announced his housing policy, which, among other things, calls for a new nationwide rent-control law.
Specifically, Sanders wants to limit annual rent increases across the country to one and a half times the rate of inflation or 3%, whichever is higher.
For anyone who has ever struggled to "make rent" - or been appalled by how high rents are in popular cities like New York and San Francisco - this sounds appealing.
Alas, it's actually a lousy idea.
We've never had nationwide rent-control laws, so we don't have any history to look at there. But plenty of cities have or have had rent control. And their experience has made many things clear.
First and foremost, although rent control does provide obvious benefits for existing tenants who never move, it's bad for almost everyone else.
The folks who get screwed by rent control aren't just landlords. They're future tenants and property owners, and renters in neighborhoods with a lot of rent-control units.
Why is rent control bad for everyone but existing tenants?
First, thanks to the usual law of supply and demand, rent control increases rents for everyone who doesn't already live in a rent-controlled apartment.
Rent-control laws artificially depress rents for rent-controlled apartments. Consequently, as a study of rent control in San Francisco found, tenants stay in these apartments longer than they otherwise would. This reduces options for new tenants, thus pushing market prices up on other apartments.
Below-market rents also encourage landlords to convert rent-controlled apartments into condos or otherwise take them off the market. This further reduces the supply of total apartments, which, in turn, puts additional upward pressure on fair-market rents.
Rent-control laws also often don't apply to new buildings, so as not to discourage new construction. This, of course, jacks up rents in the new buildings because there are fewer free-market rentals than there would be if other apartments weren't subject to rent control.
Beyond pushing up fair-market rents on noncontrolled apartments, a study of rent control in Cambridge, Massachusetts, found another negative impact of rent control. It reduced the value of not just buildings with rent-control apartments but also the surrounding neighborhoods.
Landlords have less incentive to invest in rent-controlled properties. (Why pay top dollar to maintain an apartment that you can't rent for top dollar?) As rent-controlled buildings deteriorate, they drag down the value of nearby real estate. And as the neighborhood deteriorates, fewer people want to live there, depressing values and development incentives even further.
"Ah, but Bernie will make sure none of those bad things happen!" a Bernie Sanders fan might say.
"Bernie will insist that rent control applies to new buildings too. Bernie will make it so landlords can't move in or convert to condos. Bernie will make sure that rent control applies to every dwelling in the country - no exceptions! - and eliminate any step-up in rents between tenants. This will keep rents low for everyone, including future tenants!"
Yes, this approach would likely keep rents lower than they would otherwise be, even for future tenants.
But it would also drastically reduce the incentive for anyone to build new buildings or maintain existing ones, thus dragging down property values for everyone who lives near any rental houses or apartments.
The impact on the "surrounding neighborhood," by the way, should not be underestimated. Most Americans live in the "surrounding neighborhood."
Almost 65% of Americans own their houses or apartments. Only about 35% rent. So if Sanders enacts his rent control law, almost two-thirds of Americans stand to lose over the long term.
Sanders' law would also create an ever-greater disparity between free-market rents and the artificially low rents mandated by rent control.
This, in turn, would make it likely that the 65% of Americans who own their homes - including, yes, a lot of landlords - would increasingly advocate to have the law overturned. Which, eventually, it probably would be - just like the rent-control law in Cambridge.
In short ...
There's a reason Sanders' proposal sounds appealing. Rents are, in fact, often "too damn high."
But the answer isn't rent control.
In a growing country, it's the other half of the housing supply-demand equation ...
Building more housing.
This is an