Every time I turn around there is yet another proposal to implement rent control. The…
In a recent survey done by New Era Colorado where they polled 506 Coloradans between 18 and 34, a whopping 91% supported “rent stabilization” policies. The legislature is hearing this drumbeat loud and clear. The biggest focus of this legislative session has focused on housing and in turn rent stabilization. What happened to the two primary housing bills in the legislature? Will these policies help or hurt affordability in Colorado. Economists, for once, are almost in unanimous agreement.
Rent “Stabilization” in Colorado
First it is important to clarify that “stabilization” is just a fancy term for rent control. In this years Colorado legislature, the attempts at rent control are astounding. There is the straightforward HB 23-1115 which would allow cities to enact rent control that recently passed through the house and there is House Bill 23-1171, Just cause for eviction, that would prohibit substantially raising rents on renewal without giving tenants 90 days of free rent. There are countless others trying to achieve the elusive goal of rent stabilization.
What do economists believe about rent control?
There was a recent study done by Chicago’s Booth School of business where economists were polled across the political spectrum on whether rent control had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them. An overwhelming 98% responded that they disagree or strongly disagree that there was a positive impact.
The comments from the economists were even more stark; below are a few: (here is a link if you want to read the full survey)
- MIT: “Rent control discourages supply of rental units. Incumbent renters benefit from capped prices. New renters face reduced rental options.”
- Berkeley: “Rent control lowers incentives to invest and increases incentives to hold underoccupied rentals”
- University of Chicago: “Great if you are lucky enough to get one of those apartments! Bad for all others. The worst policies apply to new construction.”
- Chicago/Booth: This is my favorite response: “Next question: does the sun revolve around the earth.”
What has happened in real life.
New York has been the leader in rent control. We’ve all watched Friends 😊 in their rent controlled apartment so what has happened in real life. Has rent control reduced NY rents. Unfortunately the answer could not be clearer, just the opposite has occurred:
Net effective median rents rose from a year earlier for the 18th straight month in Manhattan as landlords grew less willing to grant concessions and renters desperate to find a home amid dwindling inventory engaged in bidding wars, according to Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.
Rents rose 10.7% year-over-year to $4,095 in February from $3,700 the same month a year earlier. Furthermore Brooklyn’s median rent rose 17.2% year-over-year to $3,400, and the growth doesn’t appear to be letting up anytime soon,
What happened in the Colorado legislature?
Both the land use bill and just cause for eviction did not pass in this session, but both were very close to getting over the finish line. I expect to see these same or similar bills emerge again next year.
Rent control will drive up prices higher.
The overwhelming majority of economists agree that rent control limits supply as the returns on new investment are lower under rent control. In the real world this has occurred in NY leading to considerably higher rental prices for non rent controlled units. Furthermore, this will drive up real estate prices for non rent controlled units while eliminating any substantial new construction.
It is an easy solution to paint landlords as the bad guy with rents soaring, but the reality is much different. Rents are soaring because direct input costs like property taxes increased 40%, insurance costs rising, labor costs rising, and cost of capital rising substantially. Couple the rising costs with increased demand and prices have gone up. Rent Stabilization/Rent control does nothing to address the underlying issues of higher rents along with limited supply and will do just the opposite by exacerbating the affordable housing issue.
98% of economists feel that rent control policies have not helped the housing situation and real world data more than backs up these theories. In NY, rents have soared faster than the rest of the nation even though they have some of the strictest rent controls in the nation. Unfortunately, the legislature is focusing on a short term band aide that will ultimately lead to higher prices and reduced supply.
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Written by Glen Weinberg, Owner Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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