ent Control and Vacancy Rates

There can be no doubt that rent control creates housing shortages.  For almost 20 years, national vacancy rates have been at or above seven percent – a figure generally considered normal.  Cities such as Dallas, Houston and Phoenix, where development is welcomed, have often had vacancy rates above 15 percent.  In these areas of the country, there usually is a surplus of housing rather than a shortage.  Landlords commonly advertise “move-in specials,” where rent is reduced for the first month or even where they pay moving expenses.

In rent-controlled cities, on the other hand, vacancy rates have been uniformly fellow normal. New York City has not had a vacancy rate above five percent since World War II.  (The state’s rent control law, supposedly temporary, would automatically expire if it did.)  Before giving up rent control, Boston’s vacancy rate was below four percent.  (There are no figures as of yet on the rate since rent control ended.)  In rent-controlled San Francisco, the vacancy rate is generally around two percent and inSan Jose, the rate is one percent – the nation’s lowest.  Meanwhile, comparable non-rent-controlled cities such as Chicago, Philadelphia, San Diego and Seattle have normal vacancy rates at or above seven percent.

Rent-controlled cities absorb these shortages in a variety of ways.  Higher rates of homelessness are a manifestation of rent control. Another is the traditional difficulty individuals have in finding a new apartment in these cities.  An article in New York magazine entitled “Finding an Apartment (Seriously)”, recommended such techniques as “joining a church or synagogue” as a useful technique in meeting people who might provide good leads on an apartment. Young people who migrate toNew York or San Francisco usually must settle for paying $600 a month – [1997 prices], to share a two-bedroom apartment with several other people or commuting from a nearby city.  Crowding is a manifestation of rent control.

Excluding Outsiders

The exclusion of newcomers may even emerge as the main purpose of rent control, particularly in small, self-identified cities.  Many of the smallNew Jersey municipalities with rent control are close-knit ethnic communities that do not particularly welcome newcomers.  One of their major fears is apartment complexes that will bring in large numbers of outsiders and “change the character” of the community.  Rent control has proved an effective tool for making sure that small, exclusionary-minded communities do not have to undergo change.

Santa Monica is a beach community near Los Angeles that was discovered by urban professionals after the construction of the Santa Monica Freeway in 1972.  These newcomers, many originally fromNew York, immediately set about trying to limit new construction, pulling up the ladder to keep out those that would follow them.  In particular, they opposed a series of high-rise apartments proposed for the beachfront.  The newcomers soon discovered that imposing rent control not only guaranteed themselves cheap apartments, but hampered further development as well.

The result has been a virtually closed community.  It is almost impossible for newcomers to find apartments in Santa Monica.  As Mark Kann, a Los Angeles newspaper columnist reported in Middle Class Radicalism in Santa Monica, a book that celebrated rent control, “I knew one professional woman who tried to get a Santa Monica apartment for more than a year without success, but she broke into the city, finally, by marrying someone who already had an apartment there.” The city is also famous for its homeless population and is often called “The Homeless Capital of the West”.

Generational Subsidies

Berkeley, California and Cambridge, Massachusetts have similar housing markets.  Small college communities, they originally adopted rent control with the help of large student-voter populations that felt a town-gown rivalry with their landlords.  But like many socialist programs, rent control turned out to be a one-generation wonder.  Students who were in place when rent control was adopted often remained their apartments through their professional lives.  Ken Reeves, the mayor of Cambridge until 1994, who used to advertise his rent-controlled status on his campaign literature, was still living in the apartment he rented as a Harvard law student in 1974.  He finally bought a home when rent control was abolished.

In Berkeley, Floyd and Eva Floystrup are a carpenter and his wife, and also landlords, who were once forced to pay $70,000 to their tenants in “back rent” because they had refused to register with the rent control board.  “We believe in free enterprise,” they explained.  They noted that their low-paying tenants are all high-salaried professionals who arrived as students in the 1970s.  “I always haveBerkeleystudents come up to me on the street and say, “How come I can’t find a place to live in this city?” said Eva Floystrup.  “I tell them, ‘Look, we’re still taking care of the Class of 1979.    As soon as they leave, we’ll have room for you.”

Studies in both cities showed that rent-controlled apartments have tended to fall into the hands of middle-class professionals.  A 1994 study of Cambridge by housing consultant Rolfe Goetze showed that rent-controlled apartments were concentrated among highly educated professionals, while the poor, the elderly and students were generally excluded. Michael St. John, a Berkeley sociologist, found similar results in California.  “Rent control has actually accelerated gentrification inBerkeleyandSanta Monica,” saidSt. John.  “Poor and working class people have been forced out of those communities faster than in surrounding municipalities.”

In small cities, such as Cambridge, Berkeley and Santa Monica, the housing shortages created by rent control can be pushed onto neighboring communities.  MostBerkeleystudents now search for housing inOaklandandRichmond, significantly increasing their commuting time.

William Tucker is the author of The Excluded Americans: Homelessness and Housing Policies –(Regnery), and Zoning, Rent Control, and Affordable Housing – (Cato). Reprinted with permission of The Cato Institute, a public policy research organization — a think tank – dedicated to the principles of individual liberty, limited government, free markets and peace. Its scholars and analysts conduct independent, nonpartisan research on a wide range of policy issues. For more information, visit www.cato.org.