Rent Control is NOT a Good Choice

The City of Portland has occasionally dabbled in the idea of rent control, but the most recent housing bust and consequential rental squeeze have pushed many to demand rent control in Portland. I understand the frustration of seeing rents rise double-digits annually and feeling forced out. But rent control is a bad idea.

Let me back up a bit. Price controls, generally (except in temporary cases), are a terrible idea, and rent control is merely one form of price controls. It is a Socialistic system of treating private goods as those of public, creating distortions between supply and demand in what is otherwise a Capitalistic model. There is a case to be made for temporary price controls, but laws at the local level rarely have sunset provisions in them, and more often than not, people see the positive front end of price controls and believe that it should be applied forward indefinitely. Worse, once the negative effects are fully in place, governments usually react by addressing the effects rather than the cause. 

When the subject comes up, I always relate my experience of Santa Monica in the early 90s, but for a change, I offer up Alex Tabarrok's post from today:

Walking around Mumbai it’s common to see some lovely, older buildings (circa 1920s perhaps) that are in a great state of disrepair. A well maintained building can last for hundreds of years so why are these buildings falling apart? The answer is rent control. Bombay passed a rent control act in 1947 that froze rents at 1940 levels. 

More than fifty years later, rents remained frozen at 1940 levels. It wasn’t until 1999 that the Act was modified slightly to lift controls on some new construction and to allow rent increases of 4% per year. After a fifty two year freeze, however, a 4% increase was a pittance. Thus, even today there are thousands of flats where tenants are paying rents of 400-500 rupees a month (that’s $6 to $8 a month!)–far, far below market rates. 

The rent control law meant that there was virtually no construction of rental housing (WP) for decades and a slowly dilapidating housing stock. (Ironically, the only free market in rental housing is in the slums.)

This is obviously the extreme case of price controls but my Santa Monica experience falls in line with this. Prior to leaving Southern California, you had to sign up on a 2-year waiting list to find an apartment to rent and all of the apartment buildings were 20+ years old. Over time, Santa Monica changed the laws in favor of a less-strict rent control, which was followed by a rush of new residential development.

It is a cautionary tale, I would hope, but the inevitable follow-up question is, "Yeah, but what do we do about the rent increases?" The answer depends on whether or not you believe gentrification is a net-positive or a net-negative -- if net-negative, then you're going to love Mumbai and I have no solutions for you; if net-positive, then I say redirect the Portland Development Commission (PDC) to focus on targeted rental rate apartment development.

That is to say, offer up money to create new apartment buildings that cap rental rates for X-number of years, in exchange for guaranteeing X% profit for development and ROI% during those X-number of years in the agreement. Take the risk out of affordable apartment development and you'll get people interested quickly. Do any number of similar things, but not rent control. If you pass rent control in Portland, it is in the periphery cities where housing will grow -- in that case, wait for me to move to Beaverton, then pass rent control in Portland. :D