Study: Rent control would wipe out year’s worth of housing

Study: Rent control would wipe out year’s worth of housing
A new study by ECONorthwest has concluded that if rent control were imposed in Washington state it would wipe out a year’s supply of residential units within a 10-year period. Photo: talexey,freepik.com

In recent years, efforts at both the local and state levels have been made to restrict control of rental property by landlords. A proposal last year by some Seattle City Councilmembers called for rent control, noting that although it’s illegal under state law, the vote would “put immense pressure on the Democrats in Olympia to repeal the ban.” Some Olympia observers say it’s likely a rent control proposal will be introduced during the 2021 legislative session.

Now, a new study by ECONorthwest has found that rent control could reduce the amount of residential units built over the next decade by a year’s worth. Released this week, the study is based in part on the findings of a 2019 Stanford study on rent control in San Francisco, which found the rental housing supply was reduced by 15 percent as a result of the policy.

“The study was fascinating, because it is not fascinating at all,” Building Industry Association of Washington Government Affairs Director Jan Himebaugh said, adding that rent control is a “tried and true tale over, and over, and over again. Every city that has rent control has a really terrible rental supply available.”

According to the study, rent control could reduce housing built over the next decade by 15,000 units, with more than 75 percent of that loss in the central Puget Sound region. If that were to happen, it would compound an already undersupplied housing market that underproduced 225,000 homes between 2000-2015. The ECONorthwest study noted that the state will already need 10,000 new apartments annually through 2030 to keep up with rental demand as the population increases.

Himebaugh said those units won’t get built if the state were to effectively make it an impossibility to turn a profit. “Builders build to the market. If there’s not a market for people wanting to build rental units because they can only charge x amount for them, you respond to the market.”

Partnership for Affordable Housing argued in a blog post that rent control could also reduce state property tax revenue to the tune of $200 million and sales tax revenue by $301 million over a decade, writing: “We need to apply a holistic approach that begins to chip away at our affordability crisis. Legislators must refuse to fall for easy ‘fixes’ that could ultimately make Washington’s housing crisis and response to the pandemic even worse.”

The study also observes that “Washington State already has many policies that delay and influence the cost of development of new housing. Rent control would add another barrier, lowering operating income from new units and making new housing projects less feasible.”

ECONorthwest economist Morgan Shook told Lens that “housing is difficult to supply in the best of cases, and the regulatory environment can create a little friction.” One part of that regulatory structure is the state Growth Management Act (GMA) passed by the state legislature in the early 1990s with the purported goal of encouraging growth in urban areas and preventing sprawl. There have been efforts during recent legislative sessions to amend the state law due to what critics say are its outdated or counterproductive policies.

Shook said that one unintended consequence of GMA is creating artificial land scarcity in regions like central Puget Sound, which already has geographical constraints limiting available land.

“There isn’t really that low hanging fruit of easy, inexpensive, cheap land,” he said. “Developers are looking for a site that has something already on it. Rent control doesn’t make the situation any easier for the market to supply it. We’d all be better served if we thought more about how the issues are caused by the way we regulate land and the way we regulate housing in a lot of cases.”

Himebaugh noted that as a state “we never put a check or limit on the regulatory costs for building a unit. The energy code gets changed every three years, and it’s an additional $10-25,000 dollars per unit. If you have rent control, you can’t make that up.”

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