In 2012 the IGM Forum polled some economists about rent control. Each economist was asked to agree or disagree that rent control promotes affordable housing, and to state the degree of confidence, on a scale of 1 to 10, he invested in his response. Weighted for confidence, 95 percent of the economists disagreed, four percent felt unsure, and one percent agreed. Support for rent control received one vote, with a confidence of 3.
Nobel laureate Angus Deaton, a dedicated analyst of the causes of poverty, voted “strongly disagree,” confidence 9. Richard Thaler, another Nobel Prize winner, likened rent control to geocentrism.
In 1995 California barred cities from imposing rent control on houses or new apartments. This November Californians will vote on Proposition 10, a repeal of that ban. California’s ruling party asked its executive board whether to endorse the measure. Ninety-five percent said yes.
The economists voted on what works, the party leaders on what feels good.
Like any price control, a rent cap crops supply. Investors aren’t stupid. They will not build rent-controlled housing if they can obtain a higher return doing something else. Landlords aren’t stupid either. If renting becomes less profitable, some of them will sell their units, as condominiums, to the well-heeled.
Other landlords will offset their loss of revenue by spending less on maintenance. The quality of housing will deteriorate, and a bureaucracy will be needed to police the increasingly bitter relationship between landlords and tenants.
Unable to rent to the highest bidders, landlords will rent to the applicants who seem most affluent and responsible. Younger applicants, who lack a credit history, will lose out. Meanwhile, older couples will remain in large but artificially cheap spaces even after their children leave. Young people, especially new families, will pay the price.
The young should abhor rent control. The political process empowers concentrated interests. Current tenants are concentrated; future tenants are diffuse. Rent control is today’s renters using their political power to grab wealth and opportunity from tomorrow’s renters—the young.
Homeownership is lower among the young, and higher among the old, than it was thirty years ago. Young adults’ student debt has tripled. The rate of return on their life savings is expected to fall by half. Social security will likely pay them less. Here is the group that would bear the wages of new rent control.
Activists do not address who gains most from rent caps (baby boomers and the upper middle class). Nor do they address who loses most (millennials and the poor). By and large they proceed by anecdote. They focus on this single mom, on that widow, burdened with high rent.
People indeed face awesome trials. But here as elsewhere, anecdotes can blinker reality. Single moms and widows don’t just pay rising rent; they also search for a roof to rent in the first place. Rent control privileges a few visible struggles over many remote ones.
Rent control in Los Angeles will not help the security guard who commutes from her parents’ house in Riverside. Zoning reform would help. Reform of the California Environmental Quality Act would help. Demanding rent control on the ground that housing is a human right—as if using the word “right” sprouts buildings—most assuredly will not.
Wanting rent caps doesn’t make rent caps helpful any more than dreading vaccines makes vaccines harmful. Sooner or later hopes and fears need logic and data. Otherwise they’re just noise.
Rent control is sold with talk of ensuring fairness and battling greed. Many people will no doubt vote for Proposition 10 to bask in rays of virtue or to scratch the itch of resentment. At best they’re robbing Peter to pay Paul.
Hard news, millennials. Peter is you.
Also published by Forbes.com on WLF’s contributor site.