A recent letter from 32 economists purported to show empirical evidence that rent control is a net positive. These economists come from a variety of disciplines, including political economists and labor economists, but the majority appear to have limited to no experience as housing economists.
We wholeheartedly agree with the letter signatories that millions of households in this country face a housing affordability crisis, but cannot let disinformation feed false narratives about decades of fact-based evidence of the negative policy consequences of rent regulations. Setting the record straight, here are complete conclusions from the very articles cited by the economists that they claim support rent regulations:
- Diamond, McQuade & Qian (2019):
“Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.”
- Munch & Svarer (2002):
“Therefore, it is concluded that rent control has a very unfortunate effect on household mobility and that the efficiency of the housing market is seriously hampered. A perhaps even more serious consequence of reduced mobility in the housing market is the spillover to the labor market.”
- Ambrosius et al (2015):
“The intended impacts of New Jersey rent control ordinances over a 40-year period seem minimal when compared to cities without regulations. Housing activists and policymakers need to look at additional kinds of approaches to address the post-crash rental housing affordability crisis.”
- Autor, Palmer & Pathak (2014):
“… we conclude that decontrol led to changes in the attributes of Cambridge residents and the production of other localized amenities that made Cambridge a more desirable place to live.”
- To help combat the country’s housing affordability challenges, what do the academics cited by the authors propose? From Diamond, McQuade & Qian (2019):
“These results highlight that forcing landlords to provide insurance against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of government subsidies or tax credits. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire.”
It’s unfortunate to see fear and ignorance driving counter-productive policies like rent regulations when there are proven solutions to solving the affordability crisis. Read more about real solutions here. Read the annotated letter below and the actual literature yourself.
Federal Housing Finance Agency
400 7th St. SW, Washington, D.C. 20024
Re: Tenant Protections for Enterprise-Backed Multifamily Properties Request for Input
Date: July 28, 2023
Thank you to the Federal Housing Finance Agency (FHFA) for issuing a Request for Information (RFI) on tenant protections in properties with federally-backed mortgages. We, the undersigned Economists, are writing to provide information we hope will be helpful in your deliberations.
Over the last few years, we have seen the devastating impact of a poorly regulated housing market on people’s livelihoods, as already unaffordable rental prices outpace wage growth. i Incomes for many households have actually been declining in real terms, as noted by Harvard's 2023 State of the Nation's Housing (p. 38). It is natural that rents would increase in a situation where demand is outpacing supply. Nationally, median rent has surpassed $2,000 for the first time, and there is not a single state where a worker earning a full-time minimum wage salary can afford a modest two-bedroom apartment.1 i We agree, and have long argued that we have a housing affordability crisis in this country, as wages have not kept pace with the cost of housing. We have seen corporate landlords—who own a larger share of the rental market than ever before— use inflation as an excuse to hike rents and reap excess profits beyond what should be considered fair and reasonable.2,3 i Inflation has impacted housing providers just as it has impacted consumers overall. Cost increases for state and local taxes and insurance, two of the biggest components of rent (which are largely not controlled by housing providers), have risen dramatically in recent years. Renters are struggling as a result. i The 2023 State of the Nation's Housing clearly explains that demand for apartments has outpaced supply, particularly at the low and middle-income levels (see Chapter 5- Rental Housing)
High rents and a lack of tenant protections negatively impact tenants and their families, as well as the larger economy. At the household level, high rents lead to housing insecurity, homelessness, health challenges, and economic precarity for already-struggling renters.4,5,6 i There should be adequate assistance available for struggling households, but according to the National Alliance to End Homelessness, only 1 in 4 households eligible to receive federal rental assistance actually receives it, meaning that for most rent burdened households, the odds are against them to actually receive help. At the regional level, as rents rise, tenants with lower paying jobs are displaced and cannot live within commuting distances of employment, which hurts economic growth and perpetuates job dislocation. i We agree with this statement. Our recent "Opening Doors of Opportunity" publication provides alternative solutions for housing providers, local governments and local communities to work together to prevent this phenomenon. At the national level, rent makes up about one-third of the Consumer Price Index, i Rent does make up about one-third of CPI and rent increases have played a major role in the recent uptick in the overall CPI number, but there are a variety of factors, many exogenous to housing providers, that have played a role in these rent increases. and rent increases have played a major role in the recent uptick in inflation and run the risk of posing long-term threats to the nation’s economy.7 i These burdens existed before the increases in inflation, and are a symptom of our supply shortage, which is cited in the testimony (but not in this letter). As the testimony states, "Our housing affordability crisis long predates today's inflation."
Fannie Mae and Freddie Mac mortgages on the secondary market support nearly half of rental units in the U.S.8 With this large of a market share, Government Sponsored Entities (GSEs) have the influence needed to meaningfully change the trajectory of the housing crisis. i The GSEs have allowed for continued liquidity in uncertain financial conditions such as in the aftermath of the 2008 Recession. Both Fannie Mae and Freddie Mac currently have programs which incentivize the building of more affordable units. These programs should be expanded to make them more impactful. We discuss this in our "Opening Doors of Opportunity" publication
1 National Low Income Housing Coalition. March 2023. “The Gap: A Shortage of Affordable Rental Homes.”
2 Mitchell, Michael. December 2022. “Boom and Bust: The Need for Bold Investments in Fair and AffordableHousing to Combat Inflation.” Congressional Testimony for House Committee on Financial Services.
3 Conley, Julia. April 2023. “Corporate landlords reap big profits as rents in many U.S. cities soar by double digits.” Salon.
4 Kim, H., S.A. Burgard. August 2022. “Housing Instability and mental health among renters in the Michigan recession and recovery study.” Public Health (Vol. 209, p. 30-35)
5 U.S. Government Accountability Office. July 2020. “Homelessness: Better HUD Oversight of Data Collection Could Improve Estimates of Homeless Population.” Report to the Chairwoman, Committee on Financial Services, House of Representatives.
6 Bhattarai, Abha, and R. Siegel. July 2022. “Inflation is making homelessness worse.” Washington Post.
7 Mitchell, Michael. December 2022. “Boom and Bust: The Need for Bold Investments in Fair and Affordable Housing to Combat Inflation.” Congressional Testimony for House Committee on Financial Services.
8 Analysis of Board of Governors of the Federal Reserve System (US), All Sectors; Multifamily Residential Mortgages; Asset, Level [ASMRMA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ASMRMA, May 30, 2023.
We believe that implementing rent regulations as a condition on federally-backed mortgages will protect tenants, stabilize neighborhoods, promote income diversity in regional economies, and improve the long-term outlook for housing affordability. i While there are some mixed views, the large preponderance of the literature has found that rent regulation may help some individual renters, but overall, it exacerbates housing shortages and drives up rents. A 2016 literature review by the Urban Institute states "Although rent control has generally been found to have positive effects for residents in controlled units, these benefits may be offset by negative effects on the uncontrolled sector, which may see increased rents cause by constrained supply." We encourage the FHFA to pursue this policy alongside other forms of tenant protections and efforts to increase the supply of truly affordable housing.
II. The Economics of Rent Regulations and Empirical Research to Date (Questions A-1, A-2, and A-4)
Among economists, the debate around the merits and drawbacks of rent regulation is in a similar situation as the minimum wage was in the late 20th Century. Neoclassical economists traditionally have understood rent regulation to be a misguided policy based on a simple abstract model, which is essentially the same model that incorrectly led economists to understand minimum wage as a policy that would lead to widespread job loss. But the past twenty years of empirical research analyzing the minimum wage have indeed found that minimum wage increases are effective at increasing living standards for low-wage workers with little to no impact on job loss.9 As a result, economists have now embraced minimum wage increases as a crucial policy to reduce inequality and ensure people are paid a fair wage.
Similarly to the minimum wage debate, the economics 101 model that predicts rent regulations will have negative effects on the housing sector is being proven wrong by empirical studies that better analyze real world dynamics. i There are many new empirical studies that have been conducted that better analyze real world dynamics, but those studies have shown the limited benefits to rent regulation to some renters are at the cost of many. Numerous literature reviews, including NMHC's The Impacts of Rent Control: A Research Review and Synthesis and Urban Institute's Rent Control What Does the Research Tell Us about the Effectiveness of Local Action? synthesize this. For example, empirical research on local rent control for households living in regulated units.10 i While the literature review cited here identifies some benefits to households in rent regulated units, it also concludes, "Rent regulation is not a silver bullet and is a somewhat blunt policy tool that generally favors less advantaged populations but does not always target those who need it most...California also needs broader policies to increase affordable housing production targeted to those most in need (including families) and labor market interventions to ensure that wages keep up with the cost of living." Nowhere in this letter are those other, large elements cited. In Cambridge, MA, empirical research showed that the repeal of rent stabilization laws resulted in an average rent increase of $131 for tenants (approximately $200 in current USD).11 Evidence from San Francisco shows that rent control helps stem tenant displacement in a high-cost market.12 i The full quote from this piece's abstract: "Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental supply likely drove up market rents in the long run, ultimately undermining the goals of the law." International research on national rent control policies like that of Denmark similarly show that rent regulation is associated with a reduction in tenant mobility.13 i The authors do not note mobility as a completely positive outcome. From the same study, "A perhaps even more serious consequence of reduced mobility in the housing market is the spillover to the labor market."
9 Cengiz, Doruk, Arindrajit Dube, Attila Lindner, and Ben Zipperer. 2019. “The Effect of Minimum Wages on Low-Wage Jobs.” Quarterly Journal of Economics, 134 (3): 1405-1454.
10 Pastor, Manuel, V. Carter, and M. Abood. October 2018. “Rent Matters: What are the Impacts of Rent Stabilization Measures?” USC Dornsife Equity Research Institute
11 Autor, David, C. Palmer, and Parag Pathak. June 2014. “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts.” Journal of Political Economy, 122 (3).
12 Diamond, Rebecca, Tim McQuade, and Franklin Qian. 2019. "The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco." American Economic Review, 109 (9): 3365-94.
13 Munch, Jakob Roland, and Michael Svarer. 2002. “Rent control and tenancy duration.” Journal of Urban Economics, 52 (3): 542-560.
Rent regulations support those who need it most, including those who are not being adequately and safely served by the current set of regulations that provide landlords substantial market power in the housing market. In New York City, for example, tenants who live in rent-stabilized units are disproportionately low-income.14 Studies have also found that rent regulations primarily help older households and renters of color.15 i Authors at the Urban Institute note, "Studies have found that even as rent control has overrepresented African-American and Puerto Rican people, its benefits are more concentrated among wealthier, white households, who tend to live in neighborhoods with relatively higher unassisted rents".
There is substantial empirical evidence that rent regulation policies do not limit new construction, nor the overall supply of housing. i There are many articles and other pieces that dispute this finding. See Barker (2018) as well as Sims (2007) and Diamond, McQuade & Qian (2019). This claim was also clearly debunked with the advent of rent control in St. Paul. A 2007 study of rent control analyzed 76 cities in New Jersey with varying rent stabilization laws, controlling for population, demographics, income, and renter-occupied units, finding little to no statistically significant effect of moderate rent controls on new construction.16 i Not only did this article not find an impact on new construction, this article found that impacts from rent control were insignificant overall. From the article cited here, "We find the intended impacts of New Jersey rent control over a 30-year period seem minimal when you compare cities with and without regulations. Housing activists and policymakers need to look at new kinds of approaches to address rental affordability problems." Other studies have found similar results. When rent control was repealed in Massachusetts, there was no corresponding increase in housing supply, highlighting again a lack of causal relationship between rent regulations and housing supply. i From the authors cited here - include this contradictory point "An event-study of the direct impact of decontrol on permitting activity shows a sharp, significantly differential rise in permitting activity and investments at decontrolled relative to never-decontrolled properties during the first 5 years following decontrol." Importantly, there are studies that show that rent control laws can cause landlords to search for loopholes, such as condo conversions, that impact the supply of rental housing; however this simply highlights the need for policy design to eliminate loopholes.18
Additionally, rent regulations can benefit the economy as a whole, helping people stay housed closer to their jobs and communities, and making it easier for employers to find qualified job seekers locally. Rent regulations can also be a powerful tool to reduce inequality and promote economic diversity. i Diamond, McQuade & Qian (2019): actually found that rent control widened income inequality. Tenant mobility was reduced due to rent control but rent control also drew in more high-income people. In addition, unlike most assistance programs, rent regulations do not require significant public resources to administer. Absent rent regulations, we see rising homeless rates leading to increased public expenditures on emergency rooms, jails, prisons, and the courts system.19 i We were unable to locate this claim in the cited literature. But Autor, Palmer & Pathak (2017) found "robust evidence that rent decontrol caused overall crime to fall by 16 percent" and federal assistance should be available for those at risk of experiencing homelessness, which would help alleviate any social service expenditures. Not only are these expenditures harmful to individuals and families experiencing housing insecurity, but they come with a macroeconomic and public cost.
III. The impact of conditioning GSE-backed loans on a set of rent regulations
We believe that the FHFA can pursue bold rent regulations and tenant protections while continuing to provide liquidity and stability in the housing market for rental properties. Further, incorporating tenant protections and rent control regulations will ensure that benefits from the FHFA are shared more broadly, including with tenants, through the promotion of rental affordability and stability. i The GSEs are already undertaking efforts to improve rental affordability and stability, as profiled in our "Opening Doors of Opportunity" Guide. As discussed elsewhere previously, rent control regulations actually narrow the benefits accrued to a limit group of people, often at the expense of future residents (see Diamond, McQuade, and Qian, for example).
First, given the generous and enticing loan terms offered by the federal government, there is a strong argument that GSEs will maintain their market share even with conditioning loan financing on a set of tenant protections. Fannie Mae and Freddie Mac offer more attractive terms
14 Oksana Mironova, “A Guide to Rent Regulation in New York City: How It Works, What Went Wrong, and How to Fix It” (Community Service Society, January 2019).
15 Clark, W.A.V, and Allan Heskin. February 1982. “The Impact of Rent Control on Tenure Discounts and Residential Mobility.” Land Economics: 58 (1), 109-117; Ambrousius, Joshua, J. Gilderbloom, W. Steele, W. Meares, D. Keating. December 2015. “Forty years of rent control: Reexamining New Jersey’s moderate local policies after the great recession.” Cities: 49, 121-133.
16 Gilderbloom, John I., and Lin Ye. April 2007. “Thirty Years of Rent Control: A Survey of New Jersey Cities." Journal of Urban Affairs: 29 (2), 207-220.
17 Autor, David, C. Palmer, and Parag Pathak. June 2014. “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts.” Journal of Political Economy: 122 (3).
18 Diamond, Rebecca, Tim McQuade, and Franklin Qian. 2019. "The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco." American Economic Review, 109 (9): 3365-94.
19 Dennis P. Culhane. "The Cost of Homelessness: A Perspective from the United States" European Journal of Homelessness. 2.1 (2008): 97-114.
than many regional banks, including interest-only periods and high loan-to-value ratios. Moreover, the GSEs have a particular advantage in the current moment of interest-rate instability, where their lending model and implicit government guarantee means that they can price long-duration financing that balance sheet lenders cannot. Second, GSE-backed properties comprise approximately half of the multi-family rental market nationwide. With that market share, the FHFA has significant leverage, especially in the case of larger loans nearing maturity in the coming years that will need to be refinanced. Third, federal rent regulation policies can be designed to maintain landlords’ ability to make a fair and reasonable profit. i "Anti-gouging" regulations are frequently designed to attempt to create this scenario. Research suggests this is not actually possible.
At its core, rent regulations are aimed at rebalancing the power dynamics between tenants and landlords, which disproportionately favor landlords. i This argument of "rebalancing" focuses on improving tenant outcomes at the cost of landlords, instead of finding a way to improve the residents' income, and does so based on the premise that a tool that has been identified as flawed may somehow work in the future. Through well crafted policies, rent regulations can be designed in a manner that protects the general health and well-being of renters, i Research has shown that rent regulation negatively impacts the physical condition of rental units. From Sims (2006): "Rent control also led to deterioration in the quality of rental units, but these effects appear to have been concentrated in smaller items of physical damage." Rental units must be maintained to insure the safety, stability, and well-being of renters. promotes affordability, i While rent control may promote affordability for a small group of renters, it has not been shown to improve conditions for all, and hurts those who cannot access the rental market, especially low and moderate income households. As Pastor, Carter, & Abood (2018) state, "Rent regulations are not efficient at targeting those who need them most." mitigates future inflationary episodes, i Diamond, McQuade & Qian (2019): found that "while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run." and maintains landlords’ ability to receive a fair and reasonable return on their investment. We welcome any further conversation about this topic and would be glad for the opportunity to lend our expertise to the FHFA, if of interest.
Mark Paul, Rutgers University
James K. Galbraith, The University of Texas at Austin
Isabella Weber, University of Massachusetts Amherst
Janelle Jones, Chief Economist and Policy Director, SEIU
J. W. Mason, John Jay College CUNY, and the Roosevelt Institute
devin michelle bunten, Massachusetts Institute of Technology
David Stein, University of California Santa Barbara
Carolina Alves, Cambridge University
Randy Albelda, University of Massachusetts Boston
Ignacio González, American University
Justin Bloesch, Columbia University and the Roosevelt Institute
Nathan Tankus, Research Director, Modern Monetary Network
Pavlina Tcherneva, Bard College
Stephanie Seguino, University of Vermont
Paul Williams, Executive Director, Center for Public Enterprise
Jacqueline Sternio, Norwich University
Chris Becker, Groundwork Collaborative
David Fields, Utah Department of Workforce Services
Anders Fremstad, Colorado State University
Alex Williams, Employ America
Lauren Melodia, Deputy Director, Center for NYC Affairs, The New School
Charalampos Konstantinidis, University of Massachusetts Boston
James K Boyce, University of Massachusetts Amherst
Marco Ranaldi, University College London
Michael Ash, University of Massachusetts Amherst
Leila Davis, University of Massachusetts Boston
Mark Joseph Stelzner, Connecticut College
Ian J. Seda-Irizarry, John Jay College CUNY
Geert Dhondt, John Jay College CUNY Osman Keshawarz, Trinity College
Ira Regmi, Roosevelt Institute
Zhun Xu, City University of New York
- NMHC-NAA Statement for Senate Banking Hearing on Property Insurance Market Challenges
- Monthly Inflation Shows Further Signs of Cooling in July
- Real Estate Industry Letter on Rent Control to FHFA Director Sandra Thompson
- Housing Affordability Coalition Comment Letter to FHFA on Tenant Protections RFI
- NMHC-NAA Comment Letter to FHFA on Tenant Protections RFI