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Planet Money

The Return of Rent Control

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AFP Contributor, Frederic J. Brown/AFP/Getty Images

NOTE: This is an excerpt of Planet Money's newsletter. You can sign up here.

Rent control is coming back. NPR's Sasha Ingber reported last week that Oregon Senate Bill 608, which aimed to cap rent increases around the state, "sailed through" the state legislature. Not long after, Governor Kate Brown signed it into law, making Oregon the first U.S. state to implement rent control. You might consider it rent-control lite, given the law gives landlords the leeway to increase rents up to seven percent plus inflation per year. Yet, for many economists, the growing popularity of rent control is like the sequel to the scariest movie they ever saw.

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In general, economists shudder at the thought of rent control. The Swedish economist Assar Lindbeck once called it "the most efficient technique presently known to destroy a city—except for bombing." But, with rent levels in cities like Portland, San Francisco, and New York making life increasingly unaffordable for many residents, lawmakers see rent control as a fix they can deliver immediately.

Yet, study after study has shown that over the long term, rent control only contributes to the problem. They've found that rent control reduces the quality and number of rentals on the market. Putting a cap on housing prices, most economists argue, makes building and improving a home less attractive. The government, by artificially lowering the return on renting, decreases the incentive of developers and landlords to get into the renting business, which means fewer and lower quality rentals.

Economists believe skyrocketing rents are a market's way of saying, "Guys, I'm sorry—but I can't fit you all here. We're gonna need more houses." By discouraging supply, rent control adds to this problem rather than solving it.

Instead, economists say the best solution is to simply build more, a solution Planet Money discusses more thoroughly in the "Yes In My Backyard" episode. But for a variety of reasons—zoning preeminently—many places (like San Francisco, as described in that episode) are not building enough new homes.

Existing homeowners don't want gigantic towers in their backyard or new housing developments in open spaces. And many cities are already crowded with little open space left. But giving up and leaving it to the market may or may not solve the problem. It's certainly more boring, so here are other ways to solve the housing mess.

Social Insurance. Bloomberg opinion columnist Noah Smith likes the idea of "a citywide system of government social insurance for renters. Households that see their rents go up could be eligible for tax credits or welfare payments to offset rent hikes, and vouchers to help pay the cost of moving. The money for the system would come from taxes on landlords, which would effectively spread the cost among all renters and landowners instead of laying the burden on the vulnerable few." (Read more here).

Better Transportation. The Bipartisan Policy Center stresses transportation is key to expanding housing options for people. Better transportation makes commuting easier from areas with more affordable rental options. (Read more here).

Build New Homes On Existing Roofs. The British property consultancy Knight Frank did a geospatial analysis of central London and found that as many as 41,000 new homes could be built on top of existing roofs. If you can't expand outward, expand upward! (Read more here).

Micro-Units. These tiny apartments, small enough to fit in a parking space, can be created by either adapting older buildings or constructing new complexes designed for greater density. There are many advocates of this idea, including Constantine Valhouli, the co-founder of a research firm called NeighborhoodX. He notes that, over the last few years, "thousands of micro-units have been built in cities such as Boston, Denver, Los Angeles, Seattle and New York City. Based on the number of applicants for the units, as well as the low vacancy rates, there seems to be a considerable demand for this new product." (Read more here).

Non-Profit Organizations For Affordable Housing. According to MIT economist Albert Saiz, in the Netherlands, "75 percent of that nation's 3 million rental units are provided by nonprofit housing associations. These associations purchase and develop apartments for rent. They compete with investors in the open real estate market." Maybe we could do more of that in the U.S. (Read more here).

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