As Scott Lincicome noted in this space last year, Cato scholars and the great majority of economists have opposed rent control policies, which tend to generate housing shortages while discouraging investment in new construction and maintenance, among other harmful effects. (They also interfere with free contract and property rights.) Amid bad news on the rent control front elsewhere, it’s welcome to read that Montgomery County in suburban Washington, D.C. has let its limitation on rent increases expire, though the county’s left‐wing county executive, Marc Elrich, has talked of reviving it.
Rent control of course has significant distributive effects, shifting wealth to some incumbent tenants at the expense of some landlords and other losing parties. A new paper by Kenneth R. Ahern and Marco Giacoletti sheds light on some of those effects:
We use the price effects caused by the passage of rent control in St. Paul, Minnesota in 2021, to study the transfer of wealth across income groups. First, we find that rent control caused property values to fall by 6–7%, for an aggregate loss of $1.6 billion. A calibrated model of house prices under rent control attributes a third of these losses to indirect, negative externalities. Second, leveraging administrative parcel‐level data, we find that the tenants who gained the most from rent control had higher incomes and were more likely to be white, while the owners who lost the most had lower incomes and were more likely to be minorities. For properties with high‐income owners and low‐income tenants, the transfer of wealth was close to zero. Thus, to the extent that rent control is intended to transfer wealth from high‐income to low‐income households, the realized impact of the law was the opposite of its intention.
There is nothing new in the observation that many apartment buildings are owned by families for whom a small rental operation can afford a shaky foothold in the middle class. More than forty years ago in what is now Cato Regulation magazine, Tom Bethell wrote:
One day I went to see Charles Isham, the executive vice‐president of the Los Angeles‐Western Cities Apartment Association. He owns two twelve‐unit apartment buildings, one in Los Angeles and one in Santa Monica. Isham told me that the typical apartment owner in the Los Angeles area is the smallest of small businessmen, usually a husband and wife who have sunk their life savings into one apartment building, in one unit of which they also live.
Many, Bethell noted, are members of racial minorities. Even then, Los Angeles and its neighboring governments were in the process of cutting off this particular route of upward mobility in a second way, through “no‐growth” policies that discouraged construction of dense multi‐family housing, especially when intended for rental rather than condominium use.
You have to wonder whether any lesson is ever truly learned.
