A Brief History of Rent Control

We go back to the end of the WWI to begin a tale of a "temporary" rent control, that is now over 100 years old.  

Transcript

A Brief History of Rent Control

October 2024

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“Rent Control is the fastest way to destroy a city, other than bombing.” 

Assar Lindbeck

Tim loves to bake pies and they are very popular.  But because Tim makes each pie by hand, there is a limited number available. Because of the high level of quality, he has to charge a certain amount of money for each of them. Tim can make about twenty pies each week and charges over $40.00 per pie.  He has determined this price through the market.  If he charges more than $40.00 customers drop out.  If less than let’s say $30.00, he will not be able to meet his costs.  

However, the local government is not happy about this. They feel that Forty dollars is a lot and why should only wealthy people get to eat his pies?  They should be enjoyed by everybody. Pies are a right!  So out of the twenty pies, the government has mandated that five of them can only be sold for $10.00 apiece, and only enjoyed by those the local government deems appropriate.  Surprisingly, some wealthy folks, who happen to be well connected with local government officials, also get some pies at the $10.00 price so not all go to poor people.  And the remaining fifteen pies?  Because there are fewer of them, and because Tim’s five $10.00 pies are below his cost, he not only needs to charge more for the remainder, but because the available inventory at the normal price has been greatly reduced, means prices well above $50.00. Now only the really wealthy can get them and yet Tim is still struggling to meet his costs. 

Tim thinks this is not right, and he conceives of a way to make more money, and please more people, by bringing in a machine to help make more pies.  But the local government is very concerned about an environmental impact of this machine, so tells Tim no, he is limited to the twenty pies per month.  And of these a quarter are losing him money.  So he concludes that he has to lower the quality of his pies so he does not go out of business.  And other pie makers are also scared off by this governmental intervention.  Pies is simply a bad business.  

So a small group of poor people are happy.  The well connected who get cheap pies are happy, and the politicians who think they are making a difference, and getting the largesse of the aforementioned well connected are happy.  But the vast majority of the pie consumers, and the rest of the poor people, are not happy because the pies are crappy and yet they have to pay more for worse pies.  Tim is obviously not happy either.  

And thus we have rent control.  

Obviously, the pies are available properties and Tim is a landlord and owner of the units.  Landlords have to incur the costs of ownership in terms of building, maintenance and property taxes.  Because of massive zoning restrictions and environmental lobbying, very few net new housing is being built.  

So why did I labor with a pie analogy when simply explaining rent control would do?  I will provide a primer below but thinking most everyone has eaten pie, but many people, fortunately, are not subject to the rules of rent control.  Even in places like New York the understanding of rent control is limited so thought I would do something better known.  

If rent control is rare, why even write about it?  Because it is one of those concepts of which I fear will slowly, subtlety, make its way into general policy.  We once lived in a world where pro union presidents like FDR frowned on public unions, including for teachers.  Today public teacher’s unions control our schools.  Years ago there were zany proposals for the government telling you what car you can drive, what stove upon which you can cook, or the food you can eat.  These all started out as wacky ideas before (surprise!) they became policy.  And Kamala Harris is proposing to tell grocery stores, wholesalers and food producers what they can charge for their wares, just like New York City telling landlords how much rent they can assess.  Like so many bad ideas related to government, it starts as rarity and ends as commonplace.  

But let me allow Walter Block, writing for Econolib, to explain this better, “Rent control, like all other government-mandated price controls, is a law placing a maximum price, or a “rent ceiling,” on what landlords may charge tenants. If it is to have any effect, the rent level must be set at a rate below that which would otherwise have prevailed. (An enactment prohibiting apartment rents from exceeding, say, $100,000 per month would have no effect since no one would pay that amount in any case.) But if rents are established at less than their equilibrium levels, the quantity demanded will necessarily exceed the amount supplied, and rent control will lead to a shortage of dwelling spaces.” And I would add to Block’s explanation about what happens when something experiences shortages, that they become more scarce?  Their value, and thus their prices, increases.  

In a piece entitled Rent Control by Prasanna Rajasekaran, Mark Treskon, and Solomon Greene, written for the Urban Institute in 2019, the authors noted, “The first local rent-control laws in the US were adopted in the 1920s, and they gained prominence over the next few decades.” 

Adrian Enright writing in the Pioneer Institute comments, “As urban industrialization swept the nation in the early 20th century and an acute housing shortage was brought on by World War I, many in Massachusetts felt something had to be done to make housing more affordable and available. As a result, in 1919 the General Court ordered a new commission to study the circumstances affecting changes in rent.  By 1920, a new law was enacted making “unjust and unreasonable rents” for dwelling purposes, excluding hotels, unenforceable. To define unjust and unreasonable rents, the statute capped year over year rent increases at 25 percent, except in cases where unusual repairs or alterations had been made.”

Adds the Urban Institute, “The World War II economy spurred dynamic labor market growth in several cities, forcing rents to increase. In response, local policymakers, most notably in New York City, implemented price ceilings and rent freezes. The federal government called for rent control in 1942, called the War Emergency Tenant Protection Act, to address shortages and the economic crisis. About 80% of rental housing was put under rent control. However, landlords sold their units instead of renting them out, which decreased the number of rental units and increased home ownership.”

During the postwar 1950s housing boom, most cities abandoned this strict version of rent control, commonly known as first-generation rent control but many such as New York kept them in place. 

And so for the 2nd time, “Military necessity” was used during a war as a reason for introducing numerous compulsions and restrictions into the American economy. Most supporters of rent control still justify its continuance merely as a temporary “emergency” measure. The war supposedly restricted residential building, while population continued to increase, with a consequent temporary “housing shortage.” We also saw the use of the COVID pandemic to also freeze rent increases in certain localities as a temporary expediency to help those impacted by the also government mandated shutdowns.  Thus landlords who might have incurred greater costs had to suck it up OR take PPP loans as a third, temporary measure imposed by government.  

So government shuts down businesses throwing people of out of work.  Then freezes rents to help those out of work.  Then gives loans to the landlords who are out of pocket.  If your head is not spinning you must have a neck of iron.  

The reason that nothing is temporary in terms of government is that once in place, every policy and program gains constituents and advocates.  I used the example of well-connected figures in terms of pies.  There are renters in New York who maintain low-cost housing in spite of being wealthy.  In some cases there is even a correlation.  These form a very powerful and loud constituency.  Later we will meet a law firm whose sole practice is advocacy for poor in rent-controlled dwellings.  If rent control went away, so would the livelihoods of all these lawyers.  And of course there is the ubiquitous race card.  Writing in Shelterforce, another activist group that makes its money from rent control advocacy, writes, “Expanding and strengthening rent control is necessary for advancing racial justice, precisely because of who it reaches: a broad swath of low-income renters of color, including many who are excluded from other forms of assistance.” 

After the 1950s the rent control mania ebbed but a few decades later it reared its head in a new form. “New efforts to enact rent control took off in the 1970s. But these second-generation polices were more moderate, more sneaky than the previous efforts. Unlike first-generation rent control, newer policies that allowed periodic rent increases tended to apply only to certain building types rather than to all tenant occupied housing within a city,” adds the Urban Institute.  

This new wave of rent control was often called "rent stabilization." These laws were more moderate than the first generation, allowing for periodic rent increases. They also applied to certain building types, rather than all tenant-occupied housing.  Rent control generally refers to hard rent caps, limiting the amount a landlord can charge for a protected unit. Rent stabilization allows for yearly rent increases, usually a small percentage of the previous year’s rent. Yet either way, it is government telling the owner what to charge.  

The goal of rent control, like so many government programs, seems to be straightforward: keep housing affordable, prevent tenant displacement, and restrict landlords' ability to increase rents. It is the unintended consequences of which planners give short shrift. Opponents of rent control contend it reduces incentives for landlords to maintain properties, construct new housing and shrink the supply of available rental units. 

Iin the minds of progressives, here is where my pie analogy breaks down. Paul E Fallon, in his The Awkward Pose argues, “By definition, those evaluations ignored the fundamental premise of rent control: that housing is a right, and we all benefit when everyone enjoys stable, secure places to live.” I would contest that housing is not necessarily a right along that of those enumerated in our declaration and constitution but even assuming that is correct, rent control is a failure.  By making the remaining rental properties much scarcer, rent control puts housing out of reach for those who not under its aegis, creating greater instability.  So then why not go full socialist and put all of rental housing under one low price?  

So an apartment in Chesea would be charged the same as one on the Upper West Side, or the Upper East Side of Manhattan? How does this compare to the Bronx or Brooklyn? What about age of the building or alternations and enhancements? How would different amenities such as door people or a gym affect that?  This begs the question of who decides what prices are to be charged and where and how are they maintained?  In a bit we will meet a board in New York that oversees rent control and their problems are already so numerous that the socialistic approach would even worse than standard rent control.  

Some states where rent control is allowed include: California, New York, New Jersey, Maryland, and District of Columbia. If you see a pattern here you are not alone. 

Rent control in New York City began a hundred years ago as an emergency measure. Then it was overturned. Then it was brought back as part of price controls established during World War II, because there was an emergency. But 80 years later, New York City still has rent control. The almost century long maintenance of the policy is illustrative of how emergencies, real or not, can spawn interventions that long outlast the emergency. The endlessly beguiling temptation of trying to fix or democratize prices is once again dancing in front of politicians eager to please during COVID-19 response.

In a piece written by Annie Myers, the author writes from 2020, “If you're living in a rent-stabilized apartment in New York City and renew your lease on or after October 1st, 2020, your landlord won't be able to raise your rent for the coming year.  The Rent Guidelines Board voted Wednesday to hold the line on rents on one-year leases that start between October 2020 and the end of September next year. For two-year leases, a 1 percent increase was approved for the second year of the lease. The board votes every year on the percentage increase in rents for the city's one million rent-stabilized apartments, a decision that affects around 2.3 million of the city's renters.”

And if you were, like me, wondering what the heck is a Rent Guidelines Board well here is their description: “The NYC Rent Guidelines Board (RGB) is mandated to establish rent adjustments for the approximately one million dwelling units subject to the Rent Stabilization Law in New York City. The Board holds an annual series of public meetings and hearings to consider research from staff, and testimony from owners, tenants, advocacy groups and industry experts. 

The RGB consists of nine members, all of whom are appointed by the Mayor. Two members are appointed to represent tenant interests. Two members are appointed to represent owner interests.” 

So two out nine are landlords. In other words the owners of the buildings, the ones taking all the risk. Yet even these are subject to the appointment vagaries of the likes of Eric Adams, or once worse, far worse, Bill DeBlasio.  That the board is comprised primarily of lawyers, professors and politicians all with leftist leanings, was not exactly shocking. 

I dug a little further and learned of a sordid tale involving the board.  One of the landlord advocates, Christina Smyth wrote that “Serving as one of two Landlord representatives on the RGB is at times discouraging. Rent adjustments have not outpaced inflation since 2013. Yet Robert Ehrlich and I push on for you, our respected RE owners, operators, colleagues. Team effort, tax reform, and the ability to reset rents on vacancy: we might just get there in the next decade.” And as of this writing Symth is getting sued by those who feel that her legal work has disadvantaged renters. “However, the suit only identified four such cases in the past few years out of the many hundreds Smyth has brought in that period. Last year alone she filed 200 cases seeking rent.” The renters’ lawyers, called Legal Services New York City “believes there are likely more.” 

Smyth represents landlords not only on the board but in private practice as well, where she occasionally goes after tenants for being short on rent when they have paid their share in full, according to a May lawsuit by Legal Services NYC.”  And what exactly is Legal Services NYC? Their mission is to fight poverty and seek racial, social, and economic justice for low-income New Yorkers.”  So one of the two landlord advocates on the rent control board is being pursued, personally and professionally, by a group that is highly progressive in nature, for a tiny fraction of their cases.  When Tom Wolfe wrote Bonfire of the Vanities his mistake was not too much cynicism, but too little.  By all studies, and like so many other government programs for the poor, it hurts the very people it was intended to help, something lost on LSNYC and Shelterforce.  But again, not about rent control, African Americans or poor people, rather activist and lawyer jobs.  

Vince Ginn, a colleague of mine at the Freemen Newsletter, and former associate director for economic policy of the White House’s Office of Management and Budget, writes of rent Control, “The economic consensus against rent control is overwhelming. Nobel laureate economist Milton Friedman famously argued that price controls, including rent control, are among the surest ways to create shortages. In the case of housing, this policy leaves cities like New York with fewer affordable units and an overall decline in the quality of available housing.” 

As with many of the ills of which we are now dealing, including inflation, and a deterioration of educational standards, all due to measures imposed by COVID, we are now being asked to remain, among them, rent control.  

Christian Britschgi, writing for Reason magazine in 2023 notes the progressive calls for Rent Control.  “Chief among them is a demand that the Federal Housing Finance Agency (FHFA), the independent regulator and conservator of Fannie Mae and Freddie Mac, impose anti-price gouging protections (aka rent control) and "just cause eviction standards" on properties with government-backed mortgages.”

It is not just politicians handing out rent control who benefit, “In cities like New York and San Francisco, people who can easily afford market rates stay in these units for years, while low-income families face fierce competition for a limited number of affordable apartments.” Adds Ginn.  

Adds Block, “Economists are virtually unanimous in the conclusion that rent controls are destructive. In a late-seventies poll of 211 economists published in the May 1979 issue of American Economic Review, slightly more than 98 percent of U.S. respondents agreed that "a ceiling on rents reduces the quantity and quality of housing available."

All the way back in1946, Milton Friedman, along with George Stigler, wrote a paper titled “Roofs or Ceilings: The Current Housing Problem” that criticized rent control and its effects on the housing market. “Rent control is a law that supposedly is passed to help the people who are in housing. And it does help those who are in current housing. But the effect of rent control is to create scarcity, and to make it difficult for other people to get housing.”

The great Friedman concludes, “The ultimate solution of the housing shortage must come through new construction. Much of this new construction will be for owner-occupancy. But many persons prefer to or must live in rental properties. Increase or improvement of housing for such persons depends in large part on the construction of new properties to rent. It is an odd way to encourage new rental construction (that is, becoming a landlord) by grudging enterprising builders an attractive return!”

Friedman is advocating for this crazy thing called the market.  Such madness.