Rent Control Is an Anti-Displacement Policy, Not an Affordability Policy

Another November, another local election cycle (in many cities), which means that rent control is a hot topic of discussion again. In many cities suffering from punishing housing costs, a candidate’s stance on this topic is a salient and maybe decisive election issue. A growing number of places have well-organized activist campaigns pushing for the direct regulation of market rents.

It’s not hard to find takes on the subject online, some of them well-informed and detailed, others more cursory. I’m not going to do a deep dive into all the subtleties of the issue or the politics here. And I’m not going to get into the empirical pro-con evidence. Rather, I want to raise a particular point that I think gets under-emphasized in the public debate about rent control: we often don’t specify what we actually want rent control to do.

Rent control gets held up as a sort of generic answer to high housing costs, particularly by those who are either explicitly anti-capitalist or otherwise don’t think the market on its own is capable of solving the problem of unaffordable rents for working-class people.

But neither rent control’s defenders nor its detractors are often clear about what problem, exactly, they believe the policy is intended to solve. This is important because how you define the problem ought to affect how you think about rent control.

Let me put my analysis simply:

Rent control is defensible and likely effective as an anti-displacement policy.

Rent control is not only ineffective but deeply counterproductive as an affordability policy.

By anti-displacement, I mean, “Does a household currently living in a home have some assurance that they will be able to stay there if they want to?”

By affordability, I mean, “Will the city as a whole contain an adequate amount of housing that working-class / lower-income people can afford to live in?”

Rent Control as an Anti-Displacement Policy

Removing someone from their home against their will—including by raising the price of their housing to a level they can no longer pay—is one of the most disruptive things you can do to someone’s life. It should never be done lightly. A lot of research documents the cascading consequences of eviction for low-income people in particular, who are often living life with little margin of error. It affects physical and mental health, educational outcomes, the ability to hold down a job and to achieve any other sort of life stability.

There are, undeniably, landlords who impose huge rent increases of hundreds of dollars on tenants who can ill afford to pay them. The hope is usually that the tenant leaves, and the apartment can be rented anew to someone else who can pay the higher rent. This is particularly common in neighborhoods undergoing gentrification or otherwise a demographic transition. Where such rent increases are widespread, whole communities are destabilized, and people living close to the edge, financially, are further cut off from resources and support networks.

A landlord should be able to pay their operating expenses and keep up with rising costs, but in cities suffering a displacement crisis, it’s reasonable to impose some limitation to smooth the impact of rising rents and protect vulnerable tenants. After all, we give homeowners this kind of security through amortized mortgages—the catch being that you generally need to afford a large down payment up front to obtain one.

Here’s the thing, though. If rent control—maybe better labeled rent stabilization or anti-rent-gouging—is intended as an anti-displacement measure, then the policy should be limited to what will achieve that goal without greatly distorting price signals in the long term:

Cap annual rent increases at something modestly high, maybe 7% or 10%.
Index it to inflation, since we don’t know what that will look like in future years.
When a unit turns over to a new tenant, allow the rent to be reset at market rate. (This is called vacancy decontrol in policy circles.)
Exempt new construction from rent control for a number of years, to avoid threatening the ability to finance these buildings.

This means that rent control will not affect the average price of housing over time, which will continue to be determined by market forces. What it will do is give individual households a buffer of stability against enormous rent hikes that could force them to move with very little warning or preparation.

I’m not suggesting this policy is appropriate for every community, but I think it’s within the scope of reasonable ideas worthy of discussion.

Rent Control as a (Doomed) Affordability Policy

The rent control ordinances proposed or passed in some cities, on the other hand, suggest that their intent is to broadly keep housing costs down across a city (or preserve a substantial stock of lower-cost housing in that city) in the medium to long term.

My own city of St. Paul, Minnesota, passed such a policy in 2021. In its initial form (since altered), it featured a 3 percent annual cap on rent increases, with no ability to reset between tenants, and no exemption for new construction.

The new-construction issue drew most of the early attention, as a bunch of large St. Paul developers almost immediately put planned apartment projects on hold, blaming rent control for making their financing impossible. (Some critics, in return, accused these developers of colluding to carry out a “capital strike” in order to affect public policy. I’m not going to speculate or get into those weeds. Lots of other things, including interest rates, have affected the financing of apartment buildings since November 2021.)

What drew less attention, but the part of the policy I suspect to be even more damaging, was the strict vacancy control, with no ability to raise rents more than 3% even during tenant turnover. There were promises of an appeals process when a landlord could show that complying with the cap would deny them a “reasonable return on investment.”

In the months that the policy has been in effect, such exceptions have in fact been mostly granted when requested, much to the chagrin of tenants. One landlord of over 1,500 properties quoted by the Star Tribune attributes the need to raise rents to significant increases in utility costs, insurance costs, and property taxes.

And that’s the thing. Sure, individual landlords might lie about their costs or margins, taking advantage of an information imbalance. But those costs do exist, and they are significant. Ultimately, you can either allow rents to reflect these costs (as St. Paul tentatively appears to be doing), or you can suffer a bunch of really damaging distortions to your rental housing market.

Some landlords will exit that market entirely. Some rental housing will be converted to owner-occupied housing, reducing the supply of rental apartments. Other landlords will skimp on maintenance in order to make up the cost differential. The quality and quantity of housing will suffer. And those effects will only compound with time, as the divergence between the price of rent-controlled housing and the cost of profitably providing housing grows greater.

Either that, or the divergence doesn’t grow, and rents keep pace with costs, allowing landlords to earn about the same profit margin that they were earning all along. But if that’s the case, you didn’t need rent control to restrain rents in the first place!

Indeed, one of the arguments made by rent control proponents in St. Paul was that rents here have historically not averaged more than 3% increase per year. Thus, rent control wouldn’t lead to massive distortions because it wouldn’t depress housing prices below market rate. Which is fine if your goal is anti-displacement, but seems to defeat the purpose if what you’re promising is that rent control will actually make housing more affordable.

We know what it looks like when rent-controlled rents actually do diverge massively from rents the market can support. This has been the experience in some of the most expensive cities in America, like San Francisco and New York.

What rent control has done in these places is created a parallel stock of housing at far below market rate. Much of it is occupied by very long-term tenants who have a powerful incentive not to move, even if they are not the people most in need of housing support today. Typically it is very hard to legally displace such a tenant, and in a city like San Francisco, when rent-controlled units are vacated (for renovation or replacement of the building, for example) it is common to “buy them out” for tens of thousands of dollars in compensation.

Distortions. Perverse incentives. Only increasing over time.

The price of housing is a market signal. It exists in constant dialogue with a bunch of other market signals. The price of rent in nearby or comparable communities. Local wages. Supply and demand forces that determine how many cheaper or better options are available to a prospective tenant. Costs associated with providing housing, including taxes, insurance, and maintenance. Costs of new construction, including labor and materials. And so on.

In a complex system, these signals all influence each other, imperfectly harmonizing a large number of competing objectives.

Capping the price of housing by fiat is going to produce distortions and market failures. Either that, or it is going to be ultimately irrelevant because other economic forces don’t push the market price up against the cap.

Either way, the only ultimate long-term source of housing affordability is to have housing be in abundant supply. This can be achieved through the private or public sector or both. Subsidy can be involved. All of that is peripheral to this debate.

As far as rent control is concerned, it’s best viewed as a short-term protection against being priced out of one’s own home, not a scalable affordability policy or any kind of substitute for housing abundance.

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Daniel Herriges

Daniel Herriges has been a regular contributor to Strong Towns since 2015 and is a founding member of the Strong Towns movement. He is the co-author of Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis, with Charles Marohn. Daniel now works as the Policy Director at the Parking Reform Network, an organization which seeks to accelerate the reform of harmful parking policies by educating the public about these policies and serving as a connecting hub for advocates and policy makers. Daniel’s work reflects a lifelong fascination with cities and how they work. When he’s not perusing maps (for work or pleasure), he can be found exploring out-of-the-way neighborhoods on foot or bicycle. Daniel has lived in Northern California and Southwest Florida, and he now resides back in his hometown of St. Paul, Minnesota, along with his wife and two children. Daniel has a Masters in Urban and Regional Planning from the University of Minnesota.