With a national housing shortage quickly becoming a national housing crisis, lawmakers are desperate to find a solution. As with any industry, supply and demand have a direct effect on prices. When demand is high, so are prices and shortages lead to high demand. This means that not only is housing in short supply, but the price of available housing is also shooting through the roof. One of many potential solutions that gets frequently talked about is rent control. While many may view putting a cap on rental prices as being the simplest and most ideal solution, it isn’t actually all that it is cracked up to be. Here are five reasons why rent control is not actually the best solution to the current housing crisis.
1. Higher rents actually create more housing, which leads to lower rental prices
Rental properties are investments. The more money investors make off their investments, the more money they have to put into more investments. When you are making a great deal of money off of a specific type of investment, you are unlikely to suddenly switch gears and start pouring money into a different type of investment. The more money that real estate investors make from real estate, the more money they will pour into buying or developing new properties. This means the creation of more homes and rental properties, rather than fewer. The more money investors have to pour into creating or developing new properties, the more inventory there is, which in turn helps naturally lower rental prices.
2. High rents put pressure on employers to pay a living wage
Businesses need employees, plain and simple. If employees cannot afford housing in a given area, then businesses have no employees. Rental caps put pressure on landlords to lower or not raise rents rather than putting pressure on businesses to pay their employees a living wage. By implementing rental caps, you take away the incentive to employers to pay their employees a fair wage based on the needs of the area the business is located in. For instance, businesses in New York City can charge significantly more than the same business in a smaller town or city. There are few, if any, laws, however, that say they have to pay their employees more than any other city. If rental prices are controlled, then they still have no incentive to pay their employees more than any other city, even though the cost of living is so much higher. All rental caps do is increase the profit margins of more businesses rather than forcing them to use extra profits to pay their employees better.
3. Higher rental prices lead to better properties
It is a mistake to assume that higher rents simply mean higher profit margins for landlords, owners, and investors. Instead, higher rents force them to invest more in renovations, upgrades, and safety. People expect to get what they pay for. When rents are cheap, they don’t expect much, and they don’t get much. As rental prices soar, however, so do their expectations. This leads to properties that are safer, cleaner and more well-maintained. In addition, old out-of-date properties get torn down, and newer, more modern structures take their place. Overall, urban development depends on profit to move forward. This not only benefits the wealthy, but it also benefits the poor. As old, outdated structures are torn down and new ones built in their place, the wealthy move into the newer, modern buildings, but leave vacancies in the older buildings that are still a far sight better than the ones that were torn down.
4. Mixed development is better than rental caps
No one is unaware that the poor still need a place to live. When the poor have no place to live, they regularly become the problem of the government, which means the government has a vested interest in ensuring they have a place to live. Conversely, however, wealthy developers are often some of the biggest political donors, which can create something of a conflict of interest. Wealthy developers are not generally interested in creating housing for the poor, as there is very little profit in it. In addition, wealthy people don’t generally want to live around poor people, and even poor people don’t often want to live in wealthy neighborhoods.
The problem, however, is that many public services such as schools, libraries, and parks are funded by property taxes, so wealthy areas have the best services while poorer areas are left with none. The answer to this is mixed development. Rather than simply putting a universal cap on rents, a better solution is to create laws that create a sliding scale for rents. In other words, the owners or developers of an individual development must set aside a certain number of units for low-income residents, a certain amount for median-income residents and then they can offer the rest to high-income residents at appropriate prices. In this way, instead of having all the poor housed in one area with no services, they can be scattered among the wealthy to be able to take advantage of the services their higher property taxes pay for.
5. Rental caps actually decrease the number of available rentals
There is any number of ways that landlords and property owners can get around rental control laws when they are enacted. Two of the most popular ways are simply to convert existing apartment buildings to condos and sell them or to raze the building and build a new one simply. In either case, this harms the poor more than it helps them. While rent control may not decrease the amount of available housing, it changes the type of housing available and the demographic it is available too. Rental pricing caps are meant to help the poor, but in the end, will generally only end up doing them more harm than good. On the other hand, as rental prices skyrocket, so do property taxes. This means owners, developers, and landlords raking in higher profits are also paying higher taxes. The answer then is not to limit the amount they can charge in rent, but rather to take the increased taxes they are paying and use those monies to offer supplements or subsidies to lower-income renters.
There is any number of instances in which the way things work on paper is not the way things work in real life. There is any number of ideas that sound good in theory but entirely fall apart in practice. Rental caps are one of these things. There is no doubt that it looks like a brilliant idea in theory and seems like it would go far to help the poor. In reality, however, it only ends up further harming the very people that in theory, it would seem to protect. No matter how great of an idea it may seem, in truth, its flaws far outweigh its potential.