RENT
CONTROL
RENT CONTROL
But We Were Only Trying to Help…
By: Sierra Solomon & Eileen Norman
RENT
Article Summary
CONTROL
• In order to retain lower- and middleincome 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?
Relevant Economic Concepts
RENT
CONTROL
People Respond to Incentives
Supply & Demand
Price Controls
Unintended Consequences of Policy Directives
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
Price Controls
Unintended
Consequences of Policy
Directives
RENT
CONTROL
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’ concerns
Defer maintenance
Abandon buildings all together
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
CONTROL
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?
Price Controls
Unintended
Consequences of Policy
Directives
RENT
They get ______ elastic.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
CONTROL
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?
Price Controls
Unintended
Consequences of Policy
Directives
RENT
They get MORE elastic.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
Price Controls
Unintended
Consequences of Policy
Directives
RENT
CONTROL
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.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
Price Controls
Unintended
Consequences of Policy
Directives
RENT
CONTROL
Rent Control is a price ceiling, which occurs
when the government puts a legal limit on how
____ the price of a product can be.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
Price Controls
Unintended
Consequences of Policy
Directives
RENT
CONTROL
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.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
Price Controls
Unintended
Consequences of Policy
Directives
RENT
CONTROL
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.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
Price Controls
Unintended
Consequences of Policy
Directives
RENT
CONTROL
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.
Relevant Economic Concepts
People Respond to
Incentives
Supply & Demand
RENT
What are some intended consequences of
Rent Control?
-Combat out-of-control housing prices
-Provide affordable housing
-Keep middle- and low-income in
City
Price Controls
Do these actually happen in the shortrun?
Unintended
Consequences of Policy
Directives
CONTROL
BUT, what happens in the long-run?
Relevant Economic Concepts
RENT
CONTROL
People Respond to
Incentives
• Reduction in consumer mobility and
potentially “hoarding” housing.
Supply & Demand
• Despite Fair Housing laws, rent control
promotes housing discrimination.
Price Controls
• People with higher incomes benefit the
most from rent control.
Unintended
Consequences of Policy
Directives
• Abandonment or conversion of rental
housing…
The Case of San Francisco
RENT
CONTROL
In San Francisco, all
apartments built in
1979 and earlier are
rent-controlled.
Landlords trying to escape rent control…
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 rerent 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.
So what happens then?
As landlords take
apartments off the
market through Ellis
Act evictions, the
supply of affordable
apartments decreases,
shifting the supply
curve to the left.
RENT
CONTROL
RENT
So what happens then?
As landlords take
apartments off the
market through Ellis
Act evictions, the
supply of affordable
apartments decreases,
shifting the supply
curve to the left.
S2
S1
PE
With this shift, the
shortage we had of
demanded apartments
further increases.
QD
CONTROL
RENT
CONTROL
So how do we fix it?
RENT
CONTROL
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.
Discussion
RENT
CONTROL
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?