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A Better Solution for High Rents – Rent Control Hurts Those It Meant to Help

Rent Control

In cities like Milwaukee, landlords are making inflation worse by jacking up rents. This is the charge leveled by Chris Krco, Community Land Trust founder and president of Housing for All. Mr. Krco went on to prescribe rent control as the remedy.

By why stop there? If rent control is a good idea, why not gas control and grocery control? Since Mr. Krco correctly attributed housing as a prime driver of inflation and since two thirds of all households live in a home they own, why not regulate and limit the sale prices of single-family homes? We are just a few laws aware from an affordable utopia!

Obviously, should such regulations be implemented, immediate shortages would result and homeowners would revolt. Instead of cheap gas and groceries, there would be no gas and groceries.

Mr. Krco claims without evidence that the negative effects of rent control are exaggerated and that jurisdictions with strict rent controls have extremely high-quality housing. Minimal common sense and even a cursory glance at the facts proves otherwise.

St. Paul voted rent control into existence last November, capping rent increases to 3% annually. Building permits plummeted 82% by January 2022 compared to the same period the prior year. In Minneapolis, where rent controls do not constrain development, building permits increased 68%.

Rapid inflation in rents is caused by demand outstripping supply of rental housing. Rent control makes an existing housing shortage worse. Further, it hurts the very populations it was intended to help. Landlords qualify tenants based on things like income and credit score. When market disruptors like rent control are introduced, tenant competition for what little housing remains heats up. Landlords can raise the standards for qualifying, resulting in less affluent income groups or individuals with lower credit scores being crowded out in favor of higher income applicants with higher credit scores.

There is a better way. Since rents increase in response to demand outpacing supply, increase the supply of rental housing. Here are three ways to do that.

  1. Nationalize the building codes. Imagine what it would cost to manufacture cars if every municipality had a say in their design and safety features, but this is how we regulate housing construction. Instead, establish national standards. Yes, there will have to be variations to account for differences in climate, but those solutions should be regional, not local.
  2. Turn the approval process upside down. Today, it can take longer to achieve permission to build than the time in construction. Turn this process around. If certain national, easily understood requirements are met, developers may proceed with construction. Local authorities will still have a say in what gets built in their communities, but they will have to be more creative. Local governments could grant tax incremental financing (TIF) subsidies to desired projects and withhold the same from those developments deemed not as desirable, placing them at a competitive disadvantage.
  3. Subsidize development. In addition to TIF subsidies, tax credits are already available for developers willing to construct income restricted rentals. Make existing credits more lucrative and extend the standard subsidy to market rate housing.

None of these subsidies will soak taxpayers. TIF subsidies are a forgiveness of future tax revenues that never would have materialized had there not been new development. Tax credits that spur more development are a sound investment. Nothing jump-starts economic activity like more construction. Increased economic activity will generate higher tax revenues. Once rents stabilize, the tax credit subsidies can be withdrawn.


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