Economists Are Right To Hate Rent Control
Progressives keep trying to rehabilitate the reputation of rent control, and often misuse existing research to make their case that it’s an effective policy with few, if any downsides.
The most recent example comes in the form of an essay for The American Prospect from Rutgers University economics professor Mark Paul, who argues “the neoliberal convention” that rent control is counterproductive policy is dead wrong.
“As recent empirical work has shown, the neoclassical account’s core assumptions—one, that rent control restricts the supply of new housing; and two, that it misallocates existing housing, thereby causing an irrecoverable collective loss—fail to hold when it comes to the real world,” he writes.
Given the lack of ill effects, rent control is basically free money, says Paul. Housing could be made more affordable and overall welfare enhanced by adopting nationwide rent caps of 4 or 5 percent of inflation, a policy he says is indistinguishable from the “rent control” provided by a 30-year mortgage.
Set aside for the moment whether Paul is right in his provocative claim that rent controlling someone else’s house is the same thing as borrowing money from the bank to buy your own. Instead, let’s start by asking whether he’s right in his core assertion: does the research show that rent control doesn’t reduce the housing supply? Judging by the studies Paul cites, it would be more accurate to say rent control doesn’t reduce the supply of housing exempt from rent control.
While he describes “abundant evidence” that rent control doesn’t negatively impact supply, Paul is relying on two studies that look at the effects of local rent control policies in New Jersey. He also cites one study that looks at the effects of a state-level repeal of local rent control policies in Massachusetts to argue that the repeal of rent control doesn’t increase the housing supply.
To take the latter first: Paul cites a 2007 paper by David Simms, who examined the effect of a 1994 Massachusetts ballot initiative that repealed local rent control laws in Boston, Cambridge, and Brookline. Simms did indeed find no statistically significant increase in new housing after controls were repealed. That could plausibly be explained by the fact that these cities’ repealed rent control laws didn’t apply to new construction. Developers always had the right (zoning code permitting) to put up a new block of rental housing and charge whatever the
Article from Reason.com