Rent control would be a bad idea for Seattle

A Seattle Magazine article asks, “Is it Time to Bring Back Rent Control in Seattle?

Socialist candidate Jess Spear thinks not, and has made ending the statewide rent control ban [RCW 35.21.830] a central tenet in her campaign against Frank Chopp for the 43rd Legislative District spot this year. . . .

The ’60s and ’70s saw a resurgence of rent controls—including in Seattle—that are called second-generation, or rent-stabilization, laws. These allow for gradual increases based on inflation rates; in most cities still maintaining these laws, they apply to buildings built only before the law took effect (generally the late ’70s), which means the supply of rent-controlled properties is often slim.

What Spear means by rent control is the second-generation version tied to inflation and market rates. But she argues that in order for rent control to work in Seattle, it must apply to all new buildings. For many, this is a key factor in avoiding the shortage of rent-controlled units as seen in places like San Francisco. And it’s also where resistance stiffens.

The main opposition to rent control comes from those, including economists and developers, who argue it drives away development.

Stephen H. O’Connor, director of the Runstad Center for Real Estate Studies at the University of Washington, says that the academic study of rent control and price controls is long and deep, and shows that it’s bad public policy. “The private real estate market will not assume a level of risk that doesn’t provide a commensurate level of return,” O’Connor says.

Meanwhile, from a story about housing in San Francisco (which has rent control):

But while it’s true that rents in technology hubs have risen faster than in the rest of the country, it doesn’t quite mean that the technology sector is to blame for San Francisco’s problem.

Jed Kolko, chief economist of residential real estate site Trulia, says tech is an important part of housing demand in San Francisco both on the rental market and the for sale market. The key difference between a tech hub like San Francisco compared to Seattle, Austin, and Raleigh — the first of which has a greater share of its economy rooted in tech — is housing supply. Other tech hubs around the country build more, which alleviates demand. San Francisco is one of the most regulated cities in America when it comes to urban development, which heavily restricts how much can be built.

“It would take an enormous increase in construction sustained over many years to make the city more affordable,” Kolko says. “It’s hard to say how much more would be needed, though. Does the city need to build twice as much? Five times as much? Ten times as much?”

A professor of economics at the University of California, Berkeley, Enrico Moretti, also points to the shortage of supply as the main cause of rising prices, saying that tech booms don’t necessarily mean sky-high rents.

“The problem with high rents is not Google buses or tech jobs. The problem with high rent is the very, very constrained supply of housing, and the housing supply is so constrained because we made it so constrained. The city did it.”

Moretti’s research into housing affordability found that tech growth in cities like Seattle has been the same to San Francisco relative to its size, but the rise in the cost of living is less than a third of that experienced in San Francisco. This is largely attributed to the city building more housing to meet demand. In a city like San Francisco, the restricted supply means that more people with more money are trying to move into existing housing units, giving landlords and real estate speculators the incentive to increase the cost of existing stock, even evicting tenants.

The solution, it would seem, is to simply build more. The city’s stringent regulations make it an enormous challenge, though.

Yesterday PubliCola mentioned a Seattle development fight. The relevant part for this post is this:

The developers argued that decreasing supply would both raise housing costs and thus force people to live outside the city which would undermine regional transportation; i.e. there’d be more people driving in from out of town to their jobs causing gridlock and congestion.

As Edward Glaeser and Joseph Gyourko have written about housing, “The only path towards widespread affordability is to build more . . . .” Rent control leads to reduced supply because developers are less likely to build, which then leads to people bidding up the prices of non-controlled units. Another possible consequence of lower supply in urban areas is more transportation problems. Which, as Dick wrote yesterday, are already serious here. Let’s not try to be more like San Francisco.