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A group of 32 economists have signed a letter released Thursday supporting the use of rent control nationwide, joining a campaign asking the federal government to regulate rents in buildings with government-backed mortgages.The letter from economists is part of a larger campaign initiated by the People’s Action’s Homes Guarantee campaign, which has been advocating for federal renter protections and met with the Biden administration last year. Earlier this week, the campaign also released a letter signed by 143 academics supporting rent regulations. 17 U.S. senators and more than 70 climate researchers also submitted comments in support of rent regulations in rental housing with government backed loans.
Economists have historically been the strongest critics of rent control, other than landlords, frequently arguing that it causes housing prices in non-regulated units to increase. They argue that this is because there are less eviction-caused vacancies and because landlords raise rents elsewhere to recoup their losses. But things are slowly changing: a surge of tenant-led movements for rent control have nevertheless emerged across the country in response to the housing crisis. In 2019, New York state enabled its cities to opt-in to rent control and a 2024 ballot initiative in California will allow the state’s residents to repeal a restriction on rent control. Along with this shift in the acceptance of rent control among tenants and legislators, some economists believe the orthodoxy on the topic has been contradicted by research and real-world examples. The letter compares economists’ opposition to rent control to historical opposition to a minimum wage, which evolved after predictions—like wide-scale job losses—did not come to pass after it was raised. The letter argues that “the economics 101 model that predicts rent regulations will have negative effects on the housing sector is being proven wrong by empirical studies that better analyze real world dynamics.”
One common argument against rent control is that it disincentivizes new construction when developers worry that they won’t be able to reap a profit high enough to pay off construction loans. Yet most contemporary rent control laws are regulated by boards that take into account material costs, inflation, and other factors. And as the letter points out, a 2007 study of 30 years of rent control policies across 76 cities in New Jersey found “little to no statistically significant effect of moderate rent controls on new construction.” The letter says repealing rent control in Massachusetts also did not lead to a boom in construction.Rent control has other economic benefits, such as preventing homelessness and evictions for non-payment, avoiding “increased public expenditures on emergency rooms, jails, prisons, and the courts system.”Mark Paul, an economist at Rutgers University and one of the co-authors of the letter, told Motherboard that when it comes to rent control, “all the empirical literature suggests that the basic economic story does not hold.”Paul said that the government has a role to play in increasing housing production and believes the recent series of Fed rate hikes could slow down the housing boom the U.S. has seen in the past few years. “We need complementary policies to rent control to increase availability,” he said. Motherboard reported last month that the U.S. is building more rental housing than it has in five decades but is failing to build for the lowest incomes, leading to a net loss in low-income housing stock due to deterioration and rent hikes.
Paul also said that the federal government already effectively engages in housing price controls when it comes to homeowners. “The government already provides rent control by fixing mortgage payments to 30 years,” Paul told Motherboard.The past few years have seen a lot of hand-wringing from experts over how much increases in consumer goods can be attributed to supply and demand and how much to price-gouging, with most conceding that many corporations had in fact been hiking up prices in 2021 and 2022 simply because they could get away with it. (It was difficult to deny since they were bragging about it on earnings calls.) Last year congressman Jamal Bowman introduced a bill meant to look into price controls in different commercial sectors, including housing.The federal government is empowered to implement price controls on consumer goods in the private market during emergencies, but has avoided doing so directly in recent decades, instead relying on loan purchases, failed bank acquisitions, or subsidies to control prices. Last year, President Biden intervened in oil markets by directing the Strategic Petroleum Preserve to increase production. The U.S. once controlled train prices until the industry was largely deregulated in the 1970s and 1980s. The federal government also set prices on commercial flights until 1978. And 80 percent of U.S. housing stock was under rent control, set by the federal government, during World War II.
“An increasing number of economists are coming around [to consumer price controls],” Paul said.But there are still plenty of economists who don’t agree.. A 2019 paper said that while rent control in San Francisco curbed short-term displacement, it “likely drove up market rents in the long run.” That paper found that landlords were initiating condo conversions to get around rent control, shifting them to owner-occupation and removing them from the private rental market. In the letter, Paul and other economists argue that “this simply highlights the need for policy design to eliminate loopholes.”The 2019 paper also found that most people who remained in their homes due to rent control would have been displaced otherwise. The paper also mentions that rent-controlled tenants have “neighborhood-specific capital” like friends and family and proximity to a job, putting them at higher risk if they’re displaced. This type of community preservation can not be replicated merely by market-based approaches which, even in the most optimistic projections, rely on people churning through the market as they try to rent newly-vacated units they can afford.The Federal Housing Finance Agency, which oversees the government-run private entities Fannie Mae and Freddie Mac, began a request for public input on potential renter protections in July 2022 which closed on July 31, 2023. Homes Guarantee says that tenants that it organized knocked on 4719 doors in rental properties with Fannie and Freddie-backed loans, drumming up 2000 public comments from tenants and advocates. The campaign is arguing that the FHFA, Fannie and Freddie can add restrictions on rent increases as a condition to their loan financing. Doing so runs the risk that developers will seek private financing instead, but economists who signed the letter argue this is unlikely due to the generous interest rates the government provides. The Homes Guarantee campaign also submitted its own comment. The letter says that Fannie and Freddie “enabled a market that, in some ways, incentivizes predatory behaviors by landlords” by guaranteeing overvalued loans that can only be paid back with rent hikes. Among the regulations it recommends are limits to egregious rent hikes, “Good Cause” eviction protections, protecting the right to organize and banning “source of income” discrimination against rental voucher holders.“We will continue working with the FHFA as they analyze the comments and begin drafting policy to ensure it centers tenants. It's time for federal rent regulations,” Homes Guarantee campaign director Tara Raghuveer said in a press release.