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The Case for Ending Rent Control 

Wednesday, Aug 9 2000

Page 4 of 6

These dramatic price increases and supply shortages are precisely what economists would predict, given San Francisco's combination of strict rent control and strict limits on the construction of new housing.

According to studies conducted by liberal and conservative institutions alike, non-rent-controlled cities around the country are not experiencing the extreme concentration of high rents -- and dearth of moderate and low rents -- that afflicts San Francisco.

Rent control proponents argue that San Francisco's inherent desirability creates an "infinite" demand to live here that renders the economic law of supply and demand moot. Infinite demand, these proponents contend, means that attempts to reduce or stabilize housing prices by building more housing are futile; no matter how many housing units are built, there will always be more people looking to move into them.

Short of conducting a worldwide scientific poll, of course, the infinite demand theory cannot be tested.

But other cities have experienced boom and bust cycles. Other cities are generally conceived of as extremely desirable places to live. Other cities are dense and have geographical limits to expansion.

San Francisco does not need to meet an infinite demand to stabilize housing prices -- it needs to meet the demand that already exists.

No U.S. city with a history of rent control closely parallels San Francisco in terms of land area (small), demand (high), zoning (restrictive), and controls (stringent). But it is clear from the experience of many jurisdictions that a public policy that moves away from strong rent controls has advantages over a policy that proposes to keep them intact, or to strengthen them. Even New York City's rent controls are being systematically weakened, in hopes of rationalizing the only housing market that rivals San Francisco's for high rental prices and low vacancy rates.

Two years ago, the city of Cambridge, Mass., reported on the effect of abolishing rent control -- almost overnight -- in 1995. Loosened rents on previously rent-controlled units initially rose by an average of 54 percent.

Currently, average rent-controlled rents in San Francisco are less than half of what is paid on the open market (or on a shadow market that consists of thousands of live-work lofts and illegal in-law apartments). Economic theory predicts that if San Francisco decontrolled residential rents, the price of formerly controlled units would rise, but to a level nowhere near as high as rents currently being charged.

In other words, if rent control were suddenly lifted, some 180,000 rent-controlled units would be thrown into the open market, inevitably lowering overall market rents. To be sure, many tenants with rent-controlled apartments would find their rents greatly increased, and such increases would fall most heavily on those with low or fixed incomes.

But even if San Francisco's rent control laws were simply loosened, so that half of currently rent-controlled units were safeguarded with protective subsidies for elderly, fixed-income, and very low-income people, 90,000 units would flood the rental market immediately, and 90,000 more would follow over time.

This does not mean that 90,000 or 180,000 units would become empty. It does mean rents would probably go up and, then, gradually fall to a market equilibrium. It does mean that some people could no longer afford to live in their apartments, depending upon their relationships with their landlords. But, for tenants as a group, rents would eventually stabilize -- as supply met demand -- at significantly lower market rates than those that prevail today.

Housing experts generally agree that abolishing rent control without encouraging housing starts by other methods would be an act of futility, and that abolishing rent control suddenly would produce unwarranted suffering. Decontrol of rent will work to lower overall rents, they say, but the decontrol should probably be phased in as a significant undersupply of available housing is addressed.

Because of its small land mass, San Francisco is indeed the second most dense city in the country, after New York City. But the notion that there is nowhere to build housing that would meet existing demand again appears to be more a matter of local folklore than empirical fact.

In 1950, the population of San Francisco was 775,000, almost what it is today. And government studies indicate that there is room for expansion of housing stock to fit current demand.

With the defeat of rent control in Cambridge, San Francisco, New York City, Santa Monica, and Berkeley became the last strongholds of stringent rent control in America. In city after city, unbridled rent control has been moderated, toned down, and even eliminated, not because it was accomplishing its purportedly central goal of keeping housing affordable to low-income populations, but because the price controls were ruining housing markets and raising rents for tenants as a whole, most especially for the poor. To be sure, landlords pushed for decontrol. Just as surely, stringent rent control has been the bane of, rather than a boon to, the poor.

This fall, however, San Francisco voters will be considering two electoral initiatives that would make rent control even stricter than it already is. The city's political establishment, meanwhile, is busily not commenting, apparently afraid of electrocution by San Francisco's third political rail, otherwise known as rent control.

The Mayor's Office of Housing recognizes a need for, at least, 20,000 to 30,000 new rental units in San Francisco. Housing officials have a tentative multiyear plan to subsidize nonprofit developers to build 3,500 units of moderately priced housing, mostly in Mission Bay.

Beyond that, however, the city government has no apparent plan for solving the housing crunch. When contacted over the last several weeks, city housing officials were universally reluctant to take a position for or against continuing rent control and land use restrictions that limit housing construction. Mayor Willie Brown's press spokesperson, for example, commented only that, "The mayor supports the idea of rent control."

About The Author

Peter Byrne


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