Rent Control Will Make the Housing Shortage Worse

No matter which way they lean politically, Puget Sound voters loudly agree that housing, homelessness, and safety are the most significant problems in our state. This should come as no surprise. People experiencing homelessness in Washington state reached 28,036 in January 2023, up 18% since 2020 despite an eviction moratorium during the pandemic. Murder has spiked 51% since 2019 to hit an all-time high in 2022, all during a suspension of misdemeanor laws, no police pursuit laws, and a general movement to defund the police. Puget Sound voters haven’t been this afraid in decades.

The Washington State Department of Commerce researched the causes of homelessness and identified rising rents as the most significant factor that contributes to homelessness. This almost seems like political advocacy—if rising rents are to blame for homelessness, why don’t we just pass rent control to keep rents from going up? This blog post is a strong warning against rent control, which we believe will have the exact opposite effect than what is intended: rent control would increase rent prices and increase homelessness.

Rent Control Vs. Housing Supply

According to Washington’s Department of Commerce, rent increases primarily because of a housing supply shortage of 140K housing units to 225K housing units. The Department of Commerce reported that Washington state needs to build 1.1 million new housing units by 2043 to keep pace with demand, population growth, and immigration. If we want high-earning tech workers to move to Washington, we should expect an increase in demand. When more people compete to rent or buy the same units, prices go up. The highest earners will offer more for the rental and price everyone else out. That’s Economics 101.

We desperately need to increase the housing supply to avoid excessive rent increases and provide affordable housing to those in need! How do we increase the housing supply?

1. Housing providers must be incentivized to maintain existing units.
2. Owners of vacant homes must be incentivized to put them on the market.
3. Homeowners should be incentivized to add new units to existing property.
4. Developers must be incentivized to build new housing units. 
5. Banks will only lend to developers if they can be paid back with interest.

The housing supply will start to decline if we don’t encourage people to build or maintain properties. Without proper market-rate rents, housing providers will have less funds to maintain older units, leading to their disrepair and eventual removal from the housing supply. If a refrigerator breaks and the housing provider doesn’t have the budget to buy a new one, they are forced to cannibalize a fridge from a vacant unit, taking that unit off the market. 

Apart from the profit motive, rising rents are also driven by many factors that housing providers can’t control. Inflation increases the cost of appliances and repairs (major appliance prices are up over 20% since March 2020). Rising wages increase the cost of maintenance. Home insurance prices rose 21% year-over-year in May 2023 and 35% over 2 years. Changing interest rates influence the cost of credit and operating capital. Regulation adds $141,783 per property when building an average single-family home in Washington state. If housing providers can’t keep up with their costs, they shut down and take their rentals off the market. Everyone loses.

Without the expectation of profit, no developer or bank will risk millions to fund the construction of new housing units. Not a single person in this market is building housing out of the kindness of their own heart. Banks make lending decisions based on analyzing the business behind the loan. If the business behind the loan won’t generate the money to pay back the loan with interest, the loan will never be made. Human beings must be incentivized to take action. Without humans building new housing units and maintaining existing ones, the housing supply will drop, leading to higher rent prices and more people experiencing homelessness.

On January 31st, 2024, Washington State Senator Annette Cleveland (D – Vancouver) chose to withhold support for SB 5961, a state Senate bill that would introduce rent “stabilization” (another name for rent control). Senator Cleveland published a well-articulated statement detailing why she couldn’t support the bill. Her reasoning included the following points:

• “In a white paper on rent control in San Francisco in 2019, Stanford economists found that rent control ‘reduced the available rental housing by 15 percent and that the policy likely drove up citywide rents, damaging housing affordability for future renters.‘
• “Meanwhile, an examination by the Urban Institute reports that ‘Black and Hispanic residents are underrepresented in rent-controlled units’ and that rent control’s benefits ‘are concentrated among wealthier, whiter households.’
• “This conclusion is reinforced by numerous studies showing that ‘rent discounts are not progressively distributed’ once rent control is adopted and that ‘people with lower incomes do not get larger rent discounts. And many with high incomes get very sizable discounts.’
• “ ‘While rent control appears to help current tenants in the short run,’ the Brookings Institute reports in a study of rent control in Cambridge, Mass., and San Francisco, ‘in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.’
• “In one alarming study, economists found that rent control ‘created a powerful incentive for landlords either to convert rental units into condominiums or to demolish old buildings and build new ones. Either course forced existing tenants — especially younger renters — to move. Landlords affected by the new 1995 policy tended to reduce rental-unit supply by 15 percent.’

Policy Ideas to Help Grow Housing Supply

Apart from market forces, housing costs in Washington state have also risen due to high property taxes, insurance costs, and regulation. If we want to tackle the rising rent problem, we need policies that incentivize developers to build and make it easier for housing providers to keep existing rentals on the market. Property owners that have vacant or unused housing units should be incentivized to bring older housing supply back onto the market.

Check out our list of policy ideas targeted toward motivating Washington’s developers, investors, banks, property owners, and property managers to increase the housing supply.

Further Reading

“What Are the Long-run Trade-offs of Rent-Control Policies?” (Federal Reserve Bank of St. Louis)

“Rent Control Won’t Fix the Housing Crisis” (Vox)

“What Does Economic Evidence Tell Us About the Effects of Rent Control?” (Brooking Institute)

“Rent Control, FAQs and Myths” (City of Seattle)

“Why Rent Control Won’t Solve the Issue of High Rents in the US” (CNBC)

“Rent Control is a Bad Idea That Doesn’t Cut Housing Costs” (Bloomberg)

“The One Issue Every Economist Can Agree is Bad: Rent Control” (Washington Post)

“Rent Control and Stabilization Policies: 4 Studies to Know” (Journalist Resource)

“Examining the Unintended Consequences of Rent Control” (National Apartment Association)

“Washington State’s Housing Affordability Crisis” (Office of Lieutenant Governor Denny Heck – 2021)

“Housing Shortage Tracker” (National Association of Realtors)

“Impacts of Statewide Rent Control” (Portland State University)