Why San Francisco’s Rent Control Doesn’t Actually Work

Many of the residential tenants in San Francisco are covered by rent control, a system that caps rent increases and limits evictions for “just causes.” On the surface, rent control seems like a smart way to ensure that landlords don’t take advantage of tenants. But from an economist’s standpoint, rent control actually puts the very people it’s intended to help at a serious disadvantage. Here’s why San Francisco’s rent control doesn’t actually work.

Rent Control 101

Among economists, the ineffectiveness of rent control is pretty much a given. It’s one of the most well understood issues in the field of economics, and they’re all in agreement that the practice restricts the supply of new units in the market, driving up prices that aren’t controlled. What’s more, the very people who are supposed to benefit from rent-controlled spaces are rarely the ones with the access to them – they don’t know someone who knows someone who has the right connection. It’s also next to impossible to get people to move outonce they’ve moved into a rent controlled space, because it’s so comparatively cheap, even if that means they’re staying longer than they would otherwise. Landlords also have less incentive to keep their rentals updated and appealing, since the element of competing for great tenants is eliminated. On the building side, landlords and property owners actually avoid creating new housing units that would fall under rent control, because they can’t maximize their investment.And if there’s no money to be made creating affordable housing, you end up with developers focusing solely on the high-end market. Demand for affordable housing doesn’t fluctuate, however, and the limited supply naturally drives up prices everywhere else.

Living Proof

But don’t take all those economists’ word for it. Just look at local history itself. A great article in the San Francisco Chronicle dove into the meaty topic of rent control – and why it can’t save California’s housing crisis. In 1994, according to the article, San Francisco expanded rent control to a number of smaller, multi-family buildings. The upshot? Affected renters saved some $3 billion through 2012. The downside? It cost the city’s other tenants about the same. But the cherry on top was that it spurred landlords to take their rental units off the market in droves, which reduced the housing supply by 15 percent.

The Takeaway

The idea behind rent control seems appealing on the surface, but even a shallow dive makes it clear that it’s not the solution to a housing shortage. This is a great podcastthat addresses the issue on multiple levels. If you’re a rent control proponent, it’s worth a listen.

CalBRE #01224570

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