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February 2017

Is rent control the answer to escalating rents?

Recent news stories about increasing rents in the greater Seattle area have some housing advocates asking for solutions, including the use of rent control.  But does rent control actually moderate prices for most consumers?  The evidence and many economists suggest it does not.

Washington state law currently prohibits local governments from regulating rental rates on private property.   In 1981, the Washington Legislature adopted RCW 35.21.830 and 36.01.130. Under this law, no Washington city can create laws limiting rent for a private rental property, and rent can increase any amount at any time, provided landlords give 30-days notice (60 days for an increase of 10 percent or more). This prohibition on rent control is consistent with those in most states. 

In November 1980, Seattle voters had considered Initiative 24, which would have rolled rents back in the city to their July 1979 levels and then allowed an increase tied to inflation.  The measure was resoundingly defeated by a margin of 2 to 1 (163,140 NO votes to 80,587 YES votes).  The legislature acted the next year to prohibit similar rent control attempts by cities in future. 

There is a growing consensus among economists that placing "a ceiling on rents generally reduces the quantity and quality of housing available." (American Economic Review)

Under rent control, landlords and property owners have little if any incentive to create new housing units that fall under rent control because they won't be able to maximize their investment. Rent control actually drives up the price of most rents by restricting the supply of new units on the market. While some renters may get a bargain, most people never get access to rent-controlled flats.

In a 2015 survey of economists by Zillow, nearly two-thirds of respondents (62.9 percent) indicated that rent controls create more problems than they solve and only 2.1 percent of respondents indicated that rent controls are usually effective.

In 2012, the Initiative on Global Markets at the University of Chicago Booth School of Business surveyed a panel of academic economists. In that survey, 34.2 percent of respondents strongly disagreed and 55.3 percent of respondents disagreed with the following statement: Local ordinances that limit rent increases have had a positive impact on the amount and quality of affordable rental housing.

In 2016, the Washington Research Council identified some of the following consequences of rent control in a city:

  • Discourages construction of new rental housing
  • Discourages maintenance of existing rental housing
  • Reduces the city's property tax base
  • Shifts the burden of city property taxes away from rental housing and onto owner-occupied housing
  • Shifts the burden of regional and state-wide property taxes onto property owners outside the city

Rent control can also reduce the value of nearby houses that are not subject to rent control. Because rent controls reduce the incentive for landlords to maintain and improve their properties, it reduces the attractiveness of neighborhoods with large numbers of rent controlled housing and the market values of uncontrolled houses in these neighborhoods.

A primary goal of the state's Growth Management Act is to concentrate growth in existing urban areas and to allow people to live close to where they work. Rent controls would discourage the construction of new rental housing, and thus work against this goal while also making the affordability problem worse in the longer term. Policies that make housing options more available and that meet the actual market demand for housing represent much more effective solutions than rent control.

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes nearly 26,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in Washington state.