New Research Indicates Rent Control “Provides Real Benefits”

According to a new study from Columbia Business School, rent control initiatives may serve as “valuable policy tools” that improve the overall welfare of the cities in which they are enacted[1]. Furthermore, reported Columbia professor Stijn Van Nieuwerburgh and his team, rent control can, when employed correctly, “reduce housing inequality [and] benefit lower-income households, especially.” The researchers published their conclusions shortly after Oregon passed a statewide rent-control bill and California residents voted down a statewide ballot initiative that would have permitted local governments to implement rent-control policies for their specific municipal areas. Another similar measure will be on the state ballot in 2020.

Does Cost-Burden Outweigh Profits?

The conventional argument against rent control has always been that keeping rents artificially low hurts landlords and removes a major incentive – profits and returns – for offering rental properties. However, wrote Van Nieuwerburgh, since the 1960s, “the share of cost-burdened renters in the United States has risen from 23.8 percent [of the renting population] to 47.5 percent in 2016.” He warned, “Our most productive cities are smaller than they should be because of lack of affordable housing options.”

In the research paper, the team identified four main methods most policy-makers use to improve affordability[2]:

  • Rent control
  • Flexible zoning policies
  • Housing vouchers
  • Tax credits for developers

The group opted to consider “all government-provided or regulated housing that rents at below-market rates” in the rent-control sector.

In the paper, the group also tackled misconceptions about landlords. They argued against the “typical assumption of absentee landlords,” saying “local homeowners are the landlords to local renters.” They also eliminated renters as landlords for other properties and assumed, “for simplicity,” that owners can only buy investment property in the same general area as their primary residence. Having made these assumptions, they applied the study to the New York City metropolitan statistical area (MSA) and concluded, “Increasing the housing stock in the urban core by relaxing zoning regulations is welfare-improving,” but “increasing the generosity of the rent-control or housing-voucher systems is welfare-increasing.”

While these conclusions, paired with the assumptions made in order to conduct the study, may seem weak at best, the group ultimately concluded that most housing policy positively or negatively affects a community’s need for welfare “depending on how the policies are financed.” Van Nieuwerburgh stated, “Rent control policies can be a useful took and a bulwark for residents struggling with the cost of living in the face of rising income risk.”

Significant Limitations

Of course, a study that assumes there are no absentee landlords in a market like New York City and that the population of rental owners in New York City, one of the most expensive markets in the country, is typical of other municipal areas, certainly has some limitations. The important takeaway from the research is not that rent control is a necessity or even a necessary evil, however. Instead, Van Nieuwerburgh urges policy-makers, investors, and every reader of the paper to consider that there are more options under the rent-control umbrella than many realize.

“Economists have typically taken a narrow view toward rent control, preferring other options,” he said. “Better targeting of rent-controlled housing units toward the lowest-income households can amplify these benefits.”

Tell us what you think:

  • Is rent control too slippery a slope to risk enacting these policies?
  • Can rent control ever be a good thing for landlords?
  • Would you invest in a state with rent control legislation active on a state level?

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[2] file://Downloads/SSRN-id3265918.pdf

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