As I mentioned, Kshama Sawant has come out for rent control, which is a bad idea (I am, however, very appreciative of Sawant for bringing low-income and poverty issues to the front of the debate). I would now like to turn my attention to Sawant’s arguments for rent control, talk about why they are weak, and show why her method of defending her position is a cause for concern. STB asked the Sawant campaign to clarify her position on rent control after the debate last week, and I’ve quoted a few parts of that response.
According to Federal standards, housing qualifies as affordable if its total cost does not exceed 30% of the household’s gross income. By this standard, a single parent working full-time, year-round at Washington’s minimum wage of $9.19/hr can afford no more than $477.88/month in rent. At $15/hour, the minimum wage we are demanding in our campaign, this threshold of affordability jumps to $780/month. Even this is a far cry from $2100/month, the figure that represents the median rent of a two-bedroom apartment in Capitol Hill.
A single-parent who works full time at minimum wage qualifies as “extremely low-income” and would move to the top of the waiting list for low-income housing in the city. They would also receive a housing voucher worth a non-trivial amount, some cases as much as rent. So hopefully this person would not try to find an apartment on Capitol Hill on their own without subsidy. Hopefully this person can also improve their finances by getting EBT. I don’t believe this system is perfect or that we have enough low-income housing or resources for all involved, but I believe this is the way to attack the problem of low-incomes using existing programmes and has nothing to do with rent control. A great way to get more money for these programmes is to increase the property tax base by allowing more construction, as the local funds for these programmes largely come from property-tax levies.
It’s worth noting that the data suggest that rent control benefits the well-connected much better than it benefits the very poor.
In response to the fact that the vast majority economists are against price control, Sawant’s answer is this:
Unfortunately, economics as a discipline tends to provide academic cover for policies that mainly benefit corporations and the wealthy and hurt the majority of working people. For example, many economists are critical of even the existence of a minimum wage. Most oppose public health care systems, in spite of enormous historical evidence that single-payer healthcare is more cost effective and creates decisively better outcomes. As unbelievable as it may sound, several also oppose restrictions against child labor.
Economics and economists have their share of quirks and silly ideas, but in general, basic microeconomics is one area that has shown to be solid, and price controls are something tackled in Micro-econ 101. I mean, the jury’s still out on string theory, but we all agree about the Earth revolves around the Sun, right? And surely no one things physics is one great big load of twattle. Imagine if a candidate had said that human-caused climate change was suspicious because not all Earth and Climate scientists agreed that it was largely caused by humans, and that earth and climate scientists tend to provide academic cover for polices that mainly hurt corporations and the wealthy. I think we’d all agree that position was idiotic. Rent control is even less controversial among economists than climate change appears to be among climatologists, more than 95% of economists agree rent controls are bad policy.
The well-known Swedish leftist economist Assar Lindbeck, said in his book, The Political Economy of the New Left “next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities”. Paul Krugman, the famous liberal New York times columnist and Nobel laureate has said “In uncontrolled housing markets, landlords don’t want grovelling. They would rather have money.” Here’s liberal blogger and UC Berkeley econ professor Brad DeLong on rent control. Gunnar Myrdal, the architect of the Swedish welfare state said “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” That’s what left-wing economists say about rent control. None of these people is for child labour, against public health schemes (Lindbeck and Myrdal helped build one of the most generous in the world), or against a minimum wage. This is just changing the subject, because it’s so hard to defend rent control, it’s easier to attack the people who oppose it.
The Sawant campaign continues:
A commonly made argument against rent control is that it would take away incentives and development would slow or halt. In reality, in cities where rent control has been implemented there has been no such stagnation of development. Real estate development will not cease to be viable because of the creation of a cap on rental rates, any more than the creation of a minimum wage or an eight hour day devastated overall economic development, as was once predicted.
Again, this is changing the topic from rent control. I’m sure some people predicted a minimum wage would cause economic problems, and it should be obvious that setting a $1 billion an hour minimum wage would cause mass unemployment. However, there’s a huge difference between a theoretical policy, and one that has been proven to cause problems in reality. Real estate development didn’t cease in San Francisco – the Sawant campaign’s idea of a rent control success story, but San Francisco has added a significantly lower than number of units than Seattle has over the past decades, and Seattle had a much smaller base to begin with, so as a percentage, the increase is even lower. San Francisco also had much larger increases in rent over the same period. If you need more data, peruse this review of literature around rent control. You can find interesting data on the effects of rent controls on uncontrolled rents (it raises them), the effects of rent controls on the the supply of units (it lowers overall supply, though some units are converted to condos), who gets the benefits of rent-control (not the usually the poorest or most disadvantaged), among many others. There is also a lot of literature around how to improve the supply of affordable housing (this is a good start, but as is this).
I think nearly everyone wished climate change wasn’t a real thing. It’d be great if we could just burn all the fossil fuels in the world for as long as we wanted with no consequences. Similarly, it’d be wonderful if solving affordable housing was as simple as implementing rent controls, the world would be a much simpler place. Sadly, rent controls don’t work, and the data show that the Sawant campaign’s answer to how to deal with the affordable housing problems is misguided, likely to do more harm than good, and based on poor reasoning. The Sawant campaign’s entire response below the fold.
1. Why do we need rent control in Seattle (if possible, why do we need it in Capitol Hill?)According to Federal standards, housing qualifies as affordable if its total cost does not exceed 30% of the household’s gross income. By this standard, a single parent working full-time, year-round at Washington’s minimum wage of $9.19/hr can afford no more than $477.88/month in rent.At $15/hour, the minimum wage we are demanding in our campaign, this threshold of affordability jumps to $780/month. Even this is a far cry from $2100/month, the figure that represents the median rent of a two-bedroom apartment in Capitol Hill.In the second quarter of 2013, Seattle area rent grew at an annualized pace of 6%, more than twice the national average of 2.6%, and among the highest of any metropolitan area in the nation.The National Low Income Housing Coalition released a report titled Out of Reach in March 2013. According to the report, there were only 27 affordable units available for every 100 extremely low-income households in Washington. This figure places Washington below the national average.The minimum wage in Washington, $9.19 per hour, is less than half of what a renter needs tobe able to afford a two-bedroom apartment.In Washington, a renter must earn an hourly wage of $18.58 in order to spend no more than 30 percent of his or her income on housing, based on housing available. In Seattle’s city center, that goes up to over $21/hour. At the current minimum wage, a Seattle worker would have to work a roughly 92 hours a week to afford rent in the city center.For decades now, the city has seen a two-tier development program from the government wherein working people are steadily losing out and the wealthiest benefit. Market rate housing is becoming increasingly expensive, in keeping with a minority of higher-salary people moving into the city. Low-income and middle-income people are being forced to move out into the farther reaches of the city or outside city limits, and have to commute long distances for their city jobs. People are further burdened by expensive bus fares and cuts to transit services.Policymaking on the City Council is deeply skewed to the interests of real estate and other corporations. The land giveaway in the South Lake Union rezoning, with my opponent Richard Conlin leading the opposition against modest costs to be imposed on developers to finance affordable housing, is a recent clear example.Many who oppose rent control say that the real problem in Seattle is inadequate supply, and that the solution is to give real estate developers free rein to build everywhere so that housing stock is increased.While no doubt supply needs to be addressed, the primary question is not supply per se, but supply of units that are prices at an affordable rate for the majority of households. In fact, Seattle lags behind many cities in the amount of affordable housing built as a percentage of total building permits issued annually.Increased building has not guaranteed increase in affordable housing units. In fact, despite thousands of new units being built, affordable housing stock is being lost at the rate of 700 to a 1,000 units annually. Real estate developers have every incentive to mainly cater to high-salaried renters. A public mandate such as rent control, to ensure that rents are affordable to the majority, is necessary in addition to building new units.2. Can you offer some specifics on what you would like a rent control policy to look like in Seattle?Rent control does not eliminate rental cost increases, but it limits the rate of increase in rents so that it is in proportion with the overall cost of living (CPI), and at an amount that is affordable to tenants. In a rent control program, the percent increase in rent would be determined by economic analysis that would include variables such as cost of living, mortgage expenses, prevailing interest rates, borrowing costs, and maintenance costs. Because of this model, rent control would still enable unit owners to keep pace with inflation and maintain housing. What it would prevent is the astronomical rate of returns to big real estate companies (something that small owners rarely receive anyway).What rent control would do is provide housing security for tenants, who are at present continually forced to move due to rent increases demanded by price-gouging real estate companies. It would also address the serious income and race segregation in Seattle housing and enable low-income people, people of color, and immigrant communities to not be red-lined out of the city. Tenant stability also helps small owners.Many of the problems with the way rent control has been implemented in some cities stem from rent control applying only to a certain number of units. This is problematic, because it makes rent controlled units accessible only to a small number of tenants who were incidentally lucky enough to live in them. That way of implementing it also does not eliminate the main problem, which is of speculative, price-gouging real estate investors.Rent control is a price ceiling, just like a minimum wage is a price floor. It needs to be applied broadly to housing in Seattle.3. Apparently many economists agree that rent control does more harm than good. What is your primary critique of your fellow colleagues on this issue?Unfortunately, economics as a discipline tends to provide academic cover for policies that mainly benefit corporations and the wealthy and hurt the majority of working people. For example, many economists are critical of even the existence of a minimum wage. Most oppose public health care systems, in spite of enormous historical evidence that single-payer healthcare is more cost effective and creates decisively better outcomes. As unbelievable as it may sound, several also oppose restrictions against child labor.Among more progressive economists, however, there are many who agree that rent control is an important and effective policy.A commonly made argument against rent control is that it would take away incentives and development would slow or halt. In reality, in cities where rent control has been implemented there has been no such stagnation of development. Real estate development will not cease to be viable because of the creation of a cap on rental rates, any more than the creation of a minimum wage or an eight hour day devastated overall economic development, as was once predicted.Another common reason people oppose rent control is the idea that it would lead to lack of maintenance. In fact, whether or not units are maintained is primarily a reflection of tenants’ rights. In the absence of consistently enforced legal protections, units inhabited by low-income people tend to be poorly maintained, because low-income people are less able to relocate or to access the legal system when their rights are abused by a landlord. Effective rent control legislation can and should also empower tenants to secure regular maintenance of units. Our campaign is also calling for a tenant’s hotline with established timelines and substantial penalties for landlords failing to maintain residences or respect tenant rights.Another claim is that rent control causes homelessness. There is zero evidence for this. The reality is that homelessness is increasing because of unemployment, lack of healthcare, cuts to social programs, and the rapidly rising cost of housing. Homelessness and urban blight are consequences of the way the capitalist economy functions when in crisis. During periods of economic crisis, corporations and the wealthy act to cut labor costs and limit investment – creating unemployment and even greater inequalities, while seeking to lay the burden of recession on working families and the poor.In fact, the claim that rent control leads to homelessness is actually based mainly on one study by William Tucker. Tucker’s study has been roundly discredited due to its flawed methodology and statistical analysis.In fact there are many successful examples of rent control, including San Francisco. Contrary to the popular myth, rent control in San Francisco is a veritable lifeline for tenants who would otherwise be completely priced out of the city. The problem is that it is not broadly applied, and therefore many tenants aren’t able to obtain rent controlled units. While the way rent control was implemented in San Francisco has not eliminated high rents there, it has still played a major role in keeping rents lower than they would otherwise be. The example of Boston illustrates this all too well. When its rent control laws were eliminated in 1997, apartment rates nearly doubled within the months that followed.