The Neoliberal Case for Rent Control

How I learned to stop worrying and love the bomb

I’m not going to argue that rent control is necessarily good or bad — rather, I want to convince you of its utility in achieving desirable political outcomes while pursuing effective policy reform, and that repealing rent control without solving the underlying issues will do nothing to move us in the direction of housing affordability.

As neoliberals, we are no strangers to government intervention in markets. Indeed, everything from carbon taxes to consumer finance protection & bank regulation to redistributive economic policy all fit within the neoliberal framework. Unlike laissez-faire free-marketers, we love what markets can do for people while recognizing that markets often fail. All markets are designed and must be maintained. So why, then, do so many neoliberals have such a strong aversion to rent control in dysfunctional housing markets with obscene costs?

Yes, there are some clear differences in these examples: for one, none of them feature direct price controls, which are almost always the worst way to solve any market inefficiency. But consider that the housing market in cities with rent control is suffering from a crippling shortage, and it's long-standing government policy to prevent price-gouging in shortages (e.g. gas shortages and post-natural-disaster water supplies). Any economist can tell you that laws restricting price gouging will not fix the shortage and result in hoarding, but any politician can tell you that if they let price gouging happen they'll lose their jobs. Economic policy doesn't happen in a bubble of rational thinking — it happens in the political arena.

Rent Control Is Neoliberal

Government intervention in private markets to achieve desirable public policy outcomes is neoliberal. Both rent control and inclusionary zoning (i.e. requiring some percent of new units subsidized at below-market rents) are neoliberal policy solutions to unaffordable housing — but they're both extremely bad at achieving their desired goals. Social housing, in my mind, is not neoliberal, but it would achieve the goal of affordable housing for poor people much better than either RC or IZ. Social housing is socialism at its best, rent control and inclusionary zoning are neoliberalism at its worst.

UBI or vouchers may be a better neoliberal solution, but I remain unconvinced that cash subsidies won't just be swallowed up by landlords. Assuming those subsidies do get eaten — is that better than rent control? Is it better than social housing? I'm honestly not sure.

What Rent Control Can't Do

Rent control will never result in wide-spread housing affordability. Anyone who says otherwise is lying, either to you or to themselves. Rent control can't lower the demand to live somewhere and can't incentivize the market to respond to demand (indeed, it seems to do the opposite!). It can't prevent evictions and it can't encourage policymakers to fix the fundamental problem of a housing shortage.

Rent control can't help new immigrants settle in your city, it can't help young people seeking opportunity and an affordable place to live, and it can't help families avoid overcrowding as they grow. Rent control can't help people who become disabled after living in their non-ADA-compliant home for a decade, it can't help people find a new place when leaving an abusive partner, and it can't help young adults move out of their parents' home while staying in their neighborhood.

What Rent Control Can Do

Rent control does one thing: it keeps existing residents in their current home. That's it. Empirically, it does this extremely well. So well, in fact, that it ends up locking people into homes that no longer fit their needs.

The big lie sold by rent control advocates is that it creates housing affordability. Economists and housing advocates are right to argue against that because it's clearly wrong. Rent control has failed to make cities affordable everywhere it's been tried. Instead, rent control is an anti-displacement policy with significant externalities borne by new residents: as rent control is made stronger and applies to more units, the supply of market rate housing drops and market prices rise. This protects incumbents at the expense of higher prices for new residents.

Rent control is, at its very best, a bandaid on top of decades of bad policy. But repealing it without first solving those policy failures achieves nothing good.

You Can't Repeal It

Eliminating rent control without changing any other policies in San Francisco would displace over 16,000 households, according to the Bay Area Council Economic Institute.

This number is informed by one of the very few municipalities that ended their rent control program: Cambridge, Massachusetts. In 1995, voters ended rent control, which applied to 16,000 units at the time (the fact that 16,000 appears in both places is a coincidence).  An MIT/NBER study found that, after repeal, 40% of rent controlled tenants moved out and the decontrolled rents jumped by more than 50% in the next three years¹. From the paper:

We measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in Cambridge, Massachusetts, in 1995. Pooling data on the universe of assessed values and transacted prices of Cambridge residential properties between 1988 and 2005, we find that rent decontrol generated substantial, robust price appreciation at decontrolled units and nearby never-controlled units, accounting for a quarter of the $7.8 billion in Cambridge residential property appreciation during this period. The majority of this contribution stems from induced appreciation of never-controlled properties. Residential investment explains only a small fraction of the total.

You may argue "that's just the market being allowed to function," to which I would respond "actually, that was massive human suffering which benefitted landlords and left behind a highly constrained housing market with a persistent and intentional shortage." The market is not allowed to function when the government still prohibits new construction, which Cambridge is famous for.

But you probably shouldn't expand it

If ending rent control is empirically bad for low-income renters, then expanding rent control must surely be good, right? Well… not really. It will be good for those few who are able to find a good deal, and never need to move, suffer a financial hardship or illness, or arrive too late. Not only does rent control only help a small portion of the population, it fosters political and economic dysfunction along the way.

But… there are some situations where expanding rent control can make sense:

The Case for Rent Control

Political coalitions around housing in high-priced American cities are bizarre. The Left/NIMBY alliance contains two disparate groups that oppose new market rate developments for different reasons. Leftists oppose market rate housing because they believe it causes rents to rise and displaces low-income tenants. This has been proven false, but the belief persists. NIMBYs oppose new market rate housing because they benefit from the shortage or they just like how their neighborhood looks and think nobody has a right to change it.

It's possible to peel off some NIMBYs that are more concerned about their economic prosperity than the character of their neighborhood, but that may not be enough to win. A winning coalition must include people with whom you disagree (and is why I have always been insistent that YIMBY remain a big-tent policy movement rather than a partisan one). This means that rent control should be used as a bargaining chip.

I believe that the only policy intervention that will lead our most dynamic cities toward affordable housing is upzoning paired with the abolition of exclusionary zoning and all design and density rules not related to safety or accessibility. In a world where these reforms are made, developers will flood the market with new units that will cause rents to stabilize and decline. In such a world, rent control has no effect because rents are already affordable (or on a trajectory to be so). That means I have no reason to oppose expanding rent control *if* it's paired with other policy reforms.

This unholy alliance was attempted in David Chiu's AB1482. His bill was pitched as anti-price-gouging but was actually rent control with a 15 year rolling window, indexed to CPI + 5%. It was introduced alongside a package of other housing production bills with the promise of mutual support. Unfortunately, support for production evaporated and we only got the rent control bill. This left us with yet another mostly-useless (or possibly moderately net-negative) band-aid on top of the world's strictest anti-development laws.

The lesson is that expanding rent control can only be used as a bargaining chip if the very same bill liberalizes zoning or processes to allow new market rate construction. Want to enact rent control on every new building? Ok, but you also have to remove all density and height limits. Want to enact vacancy control? Ok, but you have to abolish exclusionary zoning and make permits by-right.

These are extreme examples, but it's how housing advocates should be thinking about rent control. Abolishing exclusionary zoning, ending height and density limits, and making all permits by-right will unleash the biggest surge in housing construction America has seen since the post-WWII boom. It will create tens of thousands of jobs, produce a surplus of housing in our most in-demand cities, and unlock a trillion dollars in GDP. That's worth the trade.

---

Thank you to Cathy Reisenwitz for editing this. Subscribe to her substack.

1. Autor, David H., Palmer, Christopher J., and Pathak, Parag A. “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts.” Journal of Political Economy, vol. 122, no. 3 (2014).