rent control rent control but we were only trying to help… by: sierra solomon & eileen norman
TRANSCRIPT
RENT CONTROL
RENT CONTROL
But We Were Only Trying to Help…By: Sierra Solomon & Eileen Norman
RENT CONTROL
• In order to retain lower- and middle-income people who need affordable housing, some cities have tried to control rents by enacting Rent Control laws.
• These laws have been shown to often have the opposite effect than was intended over the long-run.
Why?
Article Summary
RENT CONTROLRelevant Economic Concepts
RENT CONTROLRelevant Economic Concepts
How do landlords respond to incentives in a “free” rental market?
Keep their apartments clean, safe, and well-kept because they can command higher rents
So what happens to this incentive when we introduce rent control into the market?
Stop responding to renters’ concernsDefer maintenanceAbandon buildings all together
RENT CONTROLRelevant Economic Concepts
Proponents of Rent Control argue that Rent Control should work because Housing is inelastic (everyone has to live somewhere)….
BUT, what do we know happens to both Supply & Demand in the Long-term vs. the Short-term?
They get ______ elastic.
RENT CONTROLRelevant Economic Concepts
Proponents of Rent Control argue that Rent Control should work because Housing is inelastic (everyone has to live somewhere)….
BUT, what do we know happens to both Supply & Demand in the Long-term vs. the Short-term?
They get MORE elastic.
RENT CONTROLRelevant Economic Concepts
This means….
Though short-term effects of rent control are often positive, over the long-term, the negative effects are exacerbated as Supply & Demand become more elastic.
RENT CONTROLRelevant Economic Concepts
Rent Control is a price ceiling, which occurs when the government puts a legal limit on how ____ the price of a product can be.
RENT CONTROLRelevant Economic Concepts
Rent Control is a price ceiling, which occurs when the government puts a legal limit on how HIGH the price of a product can be.
In order for a price ceiling to be binding, it must be set ______the natural market equilibrium.
RENT CONTROLRelevant Economic Concepts
Rent Control is a price ceiling, which occurs when the government puts a legal limit on how HIGH the price of a product can be.
In order for a price ceiling to be binding, it must be set BELOW the natural market equilibrium.
What Happens?
RENT CONTROLRelevant Economic Concepts
Rent Control is a price ceiling, which occurs when the government puts a legal limit on how HIGH the price of a product can be.
In order for a price ceiling to be binding, it must be set BELOW the natural market equilibrium.
What Happens?
RENT CONTROLRelevant Economic Concepts
What are some intended consequences of Rent Control?
-Combat out-of-control housing prices-Provide affordable housing-Keep middle- and low-income in City
Do these actually happen in the short-run?
BUT, what happens in the long-run?
RENT CONTROLRelevant Economic Concepts
•Reduction in consumer mobility and potentially “hoarding” housing.
•Despite Fair Housing laws, rent control promotes housing discrimination.
•People with higher incomes benefit the most from rent control.
•Abandonment or conversion of rental housing…
RENT CONTROLThe Case of San Francisco
In San Francisco, all apartments
built in 1979 and earlier are rent-
controlled.
RENT CONTROL
• The “Ellis Act” is a state law passed in 1985 allowing landlords the unconditional right to evict tenants to “go out of business”
• The landlords chose from 2 options: • Take the apartment off the market for 5 years and then re-
rent at whatever starting rent they want.• Take the apartments off the market entirely and change them
into condos or TICs
• Either way, fewer apartments are available for rent.
Landlords trying to escape rent control…
RENT CONTROL
As landlords take apartments off the market through Ellis Act evictions, the supply of affordable apartments decreases, shifting the supply curve to the left.
So what happens then?
RENT CONTROL
As landlords take apartments off the market through Ellis Act evictions, the supply of affordable apartments decreases, shifting the supply curve to the left.
So what happens then?
With this shift, the shortage we had of demanded apartments further increases.
S1
S2
QD
PE
RENT CONTROL
RENT CONTROLSo how do we fix it?
Possible policy solutions might include
• Repealing the Ellis Act to aid in the reduction of supply
• Repealing “Costa Hawkins” which removed “vacancy control” or rent control from starting rents, allowing starting rents to be set at any price
• Helping the “demand curve” by increasing and improving subsidized housing and rental assistance to consumers.
• Providing financial assistance to renters/property owners to upkeep and maintain their buildings.
RENT CONTROLDiscussion
A study shows that over the long-run rent control was associated with…
• A 10% reduction in the stock of rental housing in both Berkeley & Santa Monica over a ten-year period; AND
• Major reductions in subgroups “targeted” by rent control such as low-income households, college students, people with disabilities, elderly people, and families with children.
Knowing this, why are people (even economists) still in disagreement over whether Rent Control should be imposed?