Shocker! Rent Control Makes Housing Scarcer and More Expensive
San Francisco rent control reduced affected rental housing by 15 percent while boosting citywide rents by 5 percent.
A new study by some Stanford economists finds that rental housing availability has gone down and rents have gone up since San Francisco adopted rent control in 1994.
Tenants in rent-controlled apartments benefited by $2.9 billion by paying lower-than-market rents. But the owners of housing subject to rent control responded, the economists write, "by substituting to other types of real estate, in particular by converting to condos and redeveloping buildings so as to exempt them from rent control." Rent control ended up reducing the rental housing supply by 15 percent, causing a 5 percent citywide rent increase. Ultimately, rent control led to a 25 percent reduction in the number of renters living in rent-controlled units, relative to 1994 levels.
The researchers further observe that this "substitution toward owner occupied and high-end new construction rental housing likely fueled the gentrification of San Francisco, as these types of properties cater to higher income individuals. Indeed, the combination of more gentrification and helping rent controlled tenants remain in San Francisco has led to a higher level of income inequality in the city overall."
This new finding accords with a 2009 review of scores of studies of rent control, which concluded that the "literature on the whole may be fairly said to show that rent control is bad."
San Francisco's ridiculous housing policies have a significant effect on the larger economy too. As I reported in January,
By keeping workers out of high-productivity regions, local restrictions on housing have lowered U.S. GDP by 13.5 percent of what it would otherwise be, according to a 2015 study by the Berkeley economist Enrico Moretti and the University of Chicago economist Chang-Tai Hseih. In fact, they find that "most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%."
When will people learn that trying to repeal the law of supply and demand never works?