It is no secret that housing affordability is a real crisis across the U.S., especially for booming cities such as Austin, Dallas/Fort Worth, Washington D.C., Atlanta, and Phoenix. We know that the increases in home and rental prices are directly correlated to the supply and demand of housing.
Whichever way you break down the issue, the solution to a shortage of supply is to simply create more supply. Most of the communities struggling with housing affordability need somewhere between 8,000 to 19,000 new units per year to meet the housing shortage needs as new households continuously form.
Yet, many lawmakers are still examining the band-aid legislation of rent control for their communities instead of considering legislation that will accelerate the production of new supply and inherently reduce rental rates for the long-term. But why is rent control such a detrimental approach to the housing affordability crisis?
On the surface, rent control may seem like a reasonable solution to the problem. By limiting the amount rent can increase each year, we will stem the tide of exorbitant housing cost increases and over time housing will become more affordable. However, recalling what caused housing costs to increase in the first place, there is simply too much demand for the limited supply. Rent control is treating the symptom instead of the problem. And in merely treating the symptom, it’s important to understand that this can have devastating ramifications for both the rental market and the communities rent control aims to assist.
One significant consequence is that regulating rents introduces risk for investors because the artificial cap on rent increases can and has in the past resulted in rents falling below market value. Investors have choices about where, when and what to invest in and will simply choose to avoid investing in housing in communities that have rent control. This results in fewer rental units being built in the communities with rent control over the long term, making the supply shortage even worse and leading to a decline in the overall quality of rental housing options.
Rent control would also inhibit mobility within rent-controlled communities, creating a barrier for upcoming renters seeking housing. Limited turnover in rental units can make it challenging for newcomers to find affordable accommodation, exacerbating housing shortages and increasing competition among prospective tenants.
There is also a socioeconomic disparity following rent control policies, which is often distributed in a way that favors higher-income and older residents. This unequal distribution can deepen social inequalities within communities, hindering socioeconomic mobility and perpetuating disparities in access to affordable housing.
Additionally, rent control can substantially reduce the value of both regulated and nearby unregulated rental properties. This reduction in property value diminishes real estate tax revenue for localities, impacting public services and infrastructure funded by these taxes.
And finally, despite its intentions, rent control often fails to effectively address eviction prevention, renter well-being, educational opportunities for renters, and neighborhood quality. In some cases, it may even exacerbate these issues by creating market distortions and eliminating any incentive property management companies would have for making necessary improvements to their properties.
All in all, rent control is often a band-aid solution made by lawmakers to effectively boost their political campaigns and voter support. However, the impact of these policies will likely devastate communities and cities well after those lawmakers have left office. It is in the best interest of all communities to be educated on the impact these rent control policies will have on their future households.
Where there is a crisis, many look for who to blame and the housing affordability crisis is no different. Here are some of the common scapegoats for the housing affordability, according to the Urban Institute:
Federal government – Some are convinced that the federal government's attempt at making mortgage prices more affordable and accessible has driven up home prices. However, it is noted that this has only slightly impacted the increase in home ownership over renting. The need for housing supply, homeowners and renters alike, is still prominent and ongoing.
Developers – Another accusation of accountability made is aimed at developers and their building of high-cost homes and apartments. However, high-end supply will always trickle down over time. Unfortunately, it will not trickle down fast enough for those needing affordable housing now.
Institutional Investors – Those investors who buy single-family homes are accused of driving up rent prices after purchase. However, investors buy homes where there is a renter who will live there, and investors do not necessarily influence the supply and demand that naturally drives up costs of living.
Local governments – Local governments are often accused of fueling the housing affordability crisis through their lack of attention toward altering zoning laws which would drive the build of more supply. However, the Urban Institute argues the federal government should find ways to motivate local governments with cost-effective ways of building new supply as well as incentives for removing or easing zoning restrictions in the process.
While it may seem like finding blame with some group is productive, it isn’t truly getting to the root of the problem: a lack of housing supply. Overall, these four groups do not have sole or complete responsibility for the lack of housing supply that cities are experiencing. This only further illustrates the point that the true solution to the “gaping wound” that is housing affordability is to build new supply.
Building new supply is not a straight and narrow approach, but there are creative ways to begin moving forward so this can happen. It would be beneficial if federal housing policies were put in place to create accountability or incentivize faster development in state and local communities. Regardless, new supply is the true solution for this crisis, and it is a prominent bipartisan issue to be considered as we head toward the 2024 elections.
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