Why Rent Control Doesn’t Work Well in Urban Areas

Chicago, IL—Over the last 10+ years, the US has gone from constructing too many houses to not building enough housing. The limited supply of available housing now has triggered prices and rents to rise at rates exceeding inflation and has dramatically increased the cost of housing for millions of households. As a result, calls for rent-control measures to ease the burden on middle- and lower-income households in states has now increased across the nation, which has met with oppositions. In other words, this is not a debate that will be settled any time soon. Marcus & Millichap’s John Sebree, though, does add a new talking point to the discussion.

Rent-control laws can work in two ways: setting a rent ceiling and/or limiting rent increases.

“Rent-control laws reduce the available supply of rental housing, particularly through the conversion to ownership of controlled building. Furthermore, rent-control leads to higher rents in the uncontrolled market and rent control does a poor job of targeting those most in need,” Sebree, first vice president and national director of Marcus & Millichap’s National Multi Housing Group, tells GlobeSt.com.

Another major downside risk of rent control is that the new construction of apartments will significantly decline. Limiting or reducing the new supply of apartments will only deepen the issues associated with rising rents and shortages of available housing.

“Developers will not start new affordable apartment projects if rent levels and potential growth rates do not justify the risks of not being able to cover the construction costs,” explains Sebree. “On the other hand, constructing Class A properties makes it easier to make a profit but doesn’t address the workforce or affordable housing issues.”

Sebree further maintains that rent control is not the answer because it reduces the available supply of apartments which limits the number of households that benefit from the lower costs. Non-rent controlled units may also become more expensive as rents raise much faster than if no rent control was in place, financially hurting those households not in rent- controlled units.

“Just because a unit is rent controlled does not ensure that the benefit of that unit goes to a household most in need. In California and Canada, we have seen that rent control reduces the number of apartments being added to inventory, thus exacerbating the underlying reason for rents rising at rates significantly faster than inflation: lack of supply,” says Sebree.

Adding apartment properties targeting specific income ranges or using housing vouchers are more effective ways to address housing demand for lower-income households, not rent-control policies, Sebree adds.

“We must also educate the general population and lawmakers about this topic,” says Sebree. “It’s easy for politicians to say rents are too high and everyone cheers. However, there are several downfalls to rent control restrictions that needs to be widely publicized.”