Why Rent Control Won’t Make Housing More Affordable

Photo (cc) by The All-Nite Images

Rent prices are insane. A quarter of Americans are spending more than half of their income on rent, The Atlantic reported recently.

Personal finance experts like Money Talks News founder Stacy Johnson typically advise spending no more than about 30 percent of your income on housing.

The wage-rent gap

But renters in many cities are finding that guidance impossible to follow. Inflation is rising, and the single biggest factor is rent increases, Bloomberg says.

Housing expert Peter Dreier at Occidental College in Los Angeles, tells USA Today:

Rents are higher than they’ve ever been. Wages are declining. There’s a huge, huge gap between wages and housing costs.

In 13 states and the District of Columbia, for one example, a renter must earn more than $20 an hour to afford rent on a two-bedroom apartment. The federal minimum wage, however, is $7.25 an hour. (See the states with the highest and lowest rents.)

Calls for a solution

Some city governments are feeling the heat as strapped renters demand that elected officials do something. In Richmond, California, recently, the city council approved a plan to limit out-of-control rent increases. There, rental prices have risen roughly 30 percent in four years, according to USA Today.

Rent controls, a term for local laws limiting how much landlords can raise rents on existing tenants, are in place in various forms in a number of cities in four states: California, Maryland, New Jersey and New York, according to Landlord.com’s state-by-state rent control guide.

New rules in Richmond

San Francisco Business Times describes Richmond’s new rules. They kick in Dec. 1, covering about 9,900 of the city’s nearly 34,000 rental units:

The Richmond City Council approved a measure that will limit landlords to an annual rent increase equal to the rise in the Consumer Price Index for the San Francisco-Oakland-San Jose region. The CPI for the area rose 2.3 percent in the last year, according to the Bureau of Labor Statistics. So if a renter paid $1,000 per month last year, under the new ordinance, the landlord could charge up to $1,023 this year, for example.

Richmond’s plan will be funded by a fee of $55 to $100 per rental unit, to be paid by landlords.

History

Rent control harkens back to at least the World War I era. It was used to control fast-rising rents during a postwar housing shortage when some landlords doubled rent prices, USA Today says. Another shortage, after World War II, prompted New York’s current rent-control system, described in this fact sheet from the state’s office of Homes and Community Renewal.

Predictably, landlords and tenants disagree on how well rent controls work to keep prices low. But economists, even those typically at opposite poles of the political spectrum, mostly agree that rent controls are a dead-end street.

Economists in agreement

In fact, rent controls can make a shortage worse, discouraging landlords from buying or building more rental housing. On this point, liberal Paul Krugman, Nobel Prize-winning economist and New York Times columnist, and Mark A. Calabria, director of financial regulation studies at the libertarian Cato Institute see eye to eye.

“There’s probably no topic that economists agree more on than rent control,” Calabria said, in an email interview.

Rent control can offer some individual renters a degree of security, says economist Dean Baker, co-director of the Center for Economic and Policy Research. “It is not an effective way in the long run to preserve affordable housing in an area in which demand is rapidly rising,” however, he wrote in an email.

Housing shortage

Behind the crisis is a housing shortage. At least in much of the country, too few homes are available for rent. The competition pushes up prices.

Renters can’t solve their problems by purchasing a home because too few are up for sale. The National Association of Realtors reports a five-month supply of homes for sale in June. A six- or seven-month supply is considered balanced, meaning homes sell well but prices aren’t pushed too high by buyers bidding against each other.

Villain: Negative equity

The bad guy in all this — or one of them, at least — is that relic of the housing crash, negative home equity. Growing numbers of homeowners enjoy improved equity from rising home values but negative equity is still a force. Also blamed: rising interest rates, too-conservative lenders and a lack of new construction at affordable price points.

“One in three homeowners either has negative equity or very little equity in their homes,” Zillow’s chief economist, Stan Humphries told The Wall Street Journal. That puts a crimp in the housing supply, economists recently told the Journal, because it prevents homeowners from selling their homes.

“In the long run, it really is best just to build more affordable housing,” says Baker.

“We need to reduce the barriers to increasing supply,” Calabria says. “Sure that’s hard, but anything else is at best a distraction.
What’s going on with rental prices and homeownership in your area? Share with us in comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
How to Save Up to 70% on 7 Everyday Purchases
How to Save Up to 70% on 7 Everyday Purchases

Stop getting sucked into paying a premium when good alternatives are available at huge savings.

5 Reasons You Should Work for as Long as You Live
5 Reasons You Should Work for as Long as You Live

These benefits might make you think twice about retirement.

8 Things I Always Buy at Target
8 Things I Always Buy at Target

I grew up shopping at the original Target store and am a lifelong fan. Here are my favorite purchases.

10 Things You Should Never Buy on Amazon
10 Things You Should Never Buy on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

How to Prepare Your Finances for Retirement in 7 Steps
How to Prepare Your Finances for Retirement in 7 Steps

Here is how to get your finances in shape for your golden years, one step at a time.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

15 Products You Need — Even If You Didn’t Know It
15 Products You Need — Even If You Didn’t Know It

Discover some must-have products on Amazon that you didn’t even know you were missing.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

10 Things You Should Never Do With Bleach
10 Things You Should Never Do With Bleach

Does the pandemic have you reaching for bleach more than ever before? Learn the ins and outs of using this powerful disinfectant.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.