Searching up arguments against Rent Control is a good way to get lost. When taking a look at Switzerland, where renting is the only possible situation, they have rent control. When asked why it’s so unaffordable, you get cop-out answers like “not enough space” rather than real answers which is NIMBYISM (i.e. opposition to building denser housing). Here are the reasons and logic I’ve compiled that rent control is a policy that benefits only those without children. If you want to have children or care about children, or care about people entering the work force, or care about new comers, you should not be for rent control.

The arguments are adapted from Bloomberg to illustrate the nuance of how good-willed restrictions and more regulations backfire.

Providing Welfare Instead

An alternative proposed is to tax everyone higher to provide insurance/welfare for those unable to afford rent increases. But of course, NIMBYs will push for rent control and not a higher tax burden.

Higher Incentive to Renovate

My tenant is paying half the rent that the market offers. We can’t up-charge them nor can we kick them out. The only way to get paid the higher rent is by renovating the apartment. I know what to do. If the building is old, I build rebuild a new one. If the unit is rental, I will make it a condo.

What happens when a building is renovated? That’s right, the tenant will not only pay a rent higher than if rent control didn’t exist, they might also be homeless.

But this is not enough of a reason to be against rent control. If I were for rent control, I’d propose two types of policies.

1. Not for cause evictions should result in the land lord giving the renter market rent or an alternative housing for the duration of the demolition
2. All renovation permits must be necessary
3. No conversion of rental-purpose to condominium

Regardless of all these policies, rent-control is dismissed when the law allows the land lord or family member to move in. If regulations are so strong and the market rent is high, and the land lord’s house is high, the only thing keeping the land lord or their child from moving into the place themselves are the artificially higher market rents in the city and the shelter costs outside of their city!

Reduce Rental Unit Supply

Oh so you thought rent control with demolition protections can withstand it, but guess what? Rent control policies and these eviction regulations have resulted in a reduction in rental-units! In San Francisco, rental-unit supply reduced by 15%. Oops.

But this is still not enough of a reason, because let’s just start taxing vacant properties, right? Vancouver, a city with less than half the population fo Toronto, implemented a the 3% Empty Homes tax in 2017. This policy was effective, and reduced vacant properties by 26%. 100% → 115% → 75%. Enforcement is pretty good as the province conducts random audits on all registered properties. That’s a win right? One issue is the self-assessed declaration form. So voluntary compliance.

Decrease in New Builds

And we finally arrive at the argument that cannot be rent controlled out of because rent control is linked with less rental-purpose housing being built. Already we find that many cities have high development fees on new housing when the populations of many places are on the up-trend.

This means that if young and new comers could afford to build their own housing units, they would pay a higher cost. The main problem is that there are so many municipal governments and what’s rare is to see a budget that shows that 100% of the developer fees go towards infrastructure needed for new housing. For now, let’s assume that the higher development fees are the result of infrastructure costs outpacing inflation.

So with rent control, the present value and lucrativeness of purchasing a rental property diminishes. Not only are the development fees high, but you need to budget your entire purchase according to the current market rent. If policy allows land lords to increase rents according to inflation, then is it really rent-control if the initial market rent was already high? I don’t think so. If we took numbers 1 and 1.3 and then limited them to 2% growth, then after 10 years, there is still a 30% gap! There is absolutely no information regarding how long it will take for market rents can come down, but what is known is that building more has a faster impact on market rents than building less. This is apparent in cities like Minneapolis.

If we look at St Paul, it’s clear what rent control policy resulted in:

where a rent stabilization policy approved by voters in 2021 was diluted by legislators after developers began withdrawing building permits in large numbers.

Rent control increases credit risk in land lording as well as erodes value. Credit risk would occur when a rogue renter decides not to pay anymore and the landlord tenant board is full. When rents are capped, the profit recovery is longer, whereas with market rent, the temporary losses are more tolerable. A good example is the pandemic where oil prices tanked. Imagine if there was a ceiling for oil. So when demand is temporarily halted, the business isn’t just losing money, but is at risk of defaulting on any debt it took, because when oil prices recover, their profits are capped at a level that might not even cover the debt incurred.

Even if you have trouble understanding how becoming a land lord is less lucrative when a city has rent control, the fact is that less people want to invest in new housing when rent control exists, and nothing is stopping them from investing in the stock market, which is simply the value of a company increasing rather than fresh capital being used to generate wealth.

When rent control reduces new housing, that just means that providing housing has become the responsibility of the constituents that voted for rent control. That means doing the work required to acquire land, demolish old buildings, and building not for profit co-ops during a time where interest rates are high. It is simply asking too much to leave housing crisis in the hands of people who if they had the skills to run a cooperative, they could afford rental units.

Why are Infrastructure Costs Going Up?

So even though I am convinced that rent control doesn’t work, primarily because new housing is reduced, which moves the responsibility to municipalities, who are comprised mostly of NIMBYs anyways, let’s try to reduce developer costs for all. For this section, I want to do some research on why infrastructure costs have outpaced inflation and what can be done about it from the government’s perspective.