Rent control is a hotly contested topic and one that is fairly consistently opposed by economists. As with any price control, the goal is to redistribute surplus (in this case, to help renters), and there is a tradeoff between equity and efficiency (deadweight loss is created in order to try and make the market more fair). What that looks like in practice is that renters who are able to gain access to less-expensive housing are able to benefit; but some tenants are unable to find housing, and the total number of apartments rented is lower than it would have been at equilibrium. This is to be expected, because:

• As a price ceiling, rent control will lead to a shortage of housing
• As part of that shortage, there will be less housing units supplied - both in short-term (taking rentals off the market) and long-term (less construction)

Rent control is much more complex than a standard price ceiling. Typically, cities do not enact straight caps on rent (strict rent control), but instead cap the rates at which rents can be increased (known as "anti-gouging" policies), or the rates which landlords can increase rents for new tenants (known as vacancy control). Although we can't necessarily model this directly using our graphs, the broader economic concepts still apply.

If you think about housing in the simplified context of a supply and demand model, the two things that could potentially increase rent would be increases in demand or decreases in supply (imagine the graph and how those shifts increase price). California has experienced both of these, since many workers moved into the state over the past 20 years, and there has been destruction of housing in some areas due to wildfires.

Economists' argument against rent control tends to revolve around issues with the supply of housing - that if prices are rising due to either of the factors described above, putting a cap on rents is going to be a band-aid fix that doesn't tackle the core issue of lack of housing. If we think back to supply and demand, the changes that would bring about actual decreases in equilibrium price of housing would be decreases in demand (outmigration of people leaving California) or increases in supply (more housing construction).

Politicians are not going to support telling people to leave California, so they are most likely to support new housing construction. But that process takes time (and can create its own political issues), and they have been under pressure to help renters in the meantime.

Readings

After California housing prices skyrocketed, particularly from 2012-2018, policymakers began searching for ways to address the housing crisis. In 2019, after several other measures had failed, the state legislature passed a statewide rent control bill. Below is a recent podcast that discusses the economic arguments for and against rent control and an article about the CA policy:

• Podcast: Is it time to control rent?(The Indicator from Planet Money, 1/31/22)
  • Optional:I changed my mind on rent control (Vox, 12/2/21, author from the interview above)
• California Approves Statewide Rent Control to Ease Housing Crisis(NY Times, 9/11/19)

Prompt

After reading the articles above, post a short response (200-250 words) that answers the following questions:

1. What did you think of Jerusalem Demsas's arguments in the Planet Money podcast? Did you find them compelling?
2. Taking into account the various considerations raised above, do you think the statewide rent control bill which passed in 2019 was a good idea? Why or why not? (And if not, what would you propose as an alternative?)