In an otherwise excellent article on NIMBYism and luxury housing, affordable housing consultant Rick Jacobus writes: “economist Anthony Downs reviewed the published studies and found that while ‘stringent’ rent control imposed over a very long time had reduced private apartment construction in the UK, there was ‘no persuasive evidence that temperate rent control ordinances inhibit the construction of new rental housing’.”
Since I am familiar enough with Downs’ work to know that he is not a flaming radical, I was a bit surprised to read this. So I looked at Downs’ paper. Downs is generally critical of rent control, writing that while rent control transfers resources from owners to tenants, “the total net amount of benefits received by the tenants is usually smaller than the total net amount of costs imposed upon the owners; hence, rent controls are not efficient.” (p. 26).
Downs adds that “the experience of the United Kingdom strikingly confirms that stringent rent controls reduce new construction of rental units in the long run…the share of all housing in the United Kingdom provided through privately owned rental units dropped by about 85 percent from 1950 to 1986.” (p. 18).
Then he discusses the U.S. experience, contrasting New York City’s stringent rent controls with the more moderate controls of Los Angeles. Downs cites a Rand Corporation study that “estimated that 1968 rents under New York City’s stringent ordinance averaged 57 percent below what they would have been without controls [while] 1990 rents under Los Angeles’ temperate ordinance would average only 3.5 percent below what they would have been without controls.” (p. 25). This small gap “helps explain why Los Angeles has not experienced many of the adverse effects generally associated with more stringent rent control ordinances.”
In other words, “temperate” rent control ordinances don’t do very much to restrict housing supply- but they also don’t control rents very much, so what’s the point?
It therefore seems to me that pro-rent control municipalities are caught in a no-win situation: if they adopt strict rent controls, they limit housing supply by making housing a less attractive investment. But if they adopt temperate rent controls, they don’t really control rents.