Portland Mayor Wheeler’s message to landlords: Tough Luck

“Next to bombing, rent control is the most effective technique so far known for destroying cities.”   Assar Lindbeck, former Professor of Economics, Stockholm University

 

Portland Mayor Ted Wheeler has apparently decided that rental property owners are second-class citizens. 

At a Tuesday, Sept. 8 news conference, Wheeler announced a proposal to require landlords to pay tenants relocation money if they raise a tenant’s rent by any amount. That’s right — any amount. The proposal is expected to be considered by the Portland City Council on September 16. If approved, it would go into effect immediately and stay in effect at least until the end of 2020.

Under current rules, Portland landlords are required to pay $2,900 – $4,500 to assist tenants with moving expenses if their rent is raised by 10% or more over a 12-month period. 

There’s also a state law in place that limits rent increases on properties that are more than 15 years old to no more than 7 percent per year, plus the annual change in the consumer price index. Under Wheeler’s proposal, the state’s limit would be moot.

“Right now, with thousands of renters not able to pay their current rent, it’s likely that any rent increase would force renters to have to relocate,” Wheeler said. “While we’re in the middle of this pandemic, we need to do our part to protect renters from the tidal wave of evictions that we know is coming.”

As for protecting landlords, many of whom are small property owners, Wheeler seems to be making the assumption that all landlords have such deep pockets they can easily cover any escalation in their costs during a moratorium on rent increases. 

He appeared to understand the problem when he said on Tuesday he opposed proposals to cancel rent during the pandemic, saying that would just burden property owners, but his new proposal would clearly burden property owners as well. 

Landlords probably won’t garner much sympathy from the progressives who see  landlords as exploitative villains and are likely to enthusiastically back Wheeler’s proposal.  So it has a good chance of passing, continuing Portland’s slide down the slippery slope of rent control.

If it passes, it will be one more disincentive for investors to put their money in rental housing. As the National Apartment Association points out, that would further limit the availability of affordable rentals, increase the cost of all housing by forcing a growing Portland population to compete for fewer housing units, and reduce the quality of rental housing. In other words, it will harm the very community it purports to help by limiting accessibility and affordability.

Earlier this year, I wrote that Oregon real estate interests would rue the day state rent control became law because the pleas of tenant groups for even tougher rules would accelerate and progressive politicians would respond.

Point made.

Rent control: Kotek’s folly

On Sept. 12, Oregon House Speaker Tina Kotek (D-Portland) said she planned to push for an end to Oregon’s ban on rent-control laws, enabling local governments to move ahead with measures of their own.

Kotek said she also wants to ban all rent increases above a “reasonable” percentage and end to no-cause evictions.

tinakotek

Oregon House Speaker Tina Kotek

The problem is, no matter how much liberals embrace the concept, rent control doesn’t work. Any short-term benefits, including the applause of some constituents, are always overshadowed by the long-term problems rent control creates.

  • However you phrase it, under rent control, government dictates what private owners are allowed to charge for their private property. Yes, the free market has flaws, but it is far better than having bureaucrats running things.
  • Landlords who can’t raise the rent on their property to a market price are more likely to cut back on maintenance and less likely to invest in improvements. Not only will landlords have absolutely no economic incentive to invest more in their properties, they may not even have the funds because of limits on their rental income.
  • Rent control distorts the housing market by misallocating rental units to those who are already renting them. Whenever government prevents the charging of prices high enough to clear the market, shortages will occur.
  • The imposition of rent control can lead to a “demolition derby” where older controlled rental units are purposely torn down and replaced with higher priced units.
  • Rent control does not guarantee low rents because it doesn’t regulate the starting rent for a new tenant. When a tenant in a rent-controlled unit moves out, any savvy  landlord will set the rent in the new lease at the current market rent, which is likely to be much higher.
  • In a review of 140 economics studies on rent control in Economics Journal Watch, economists overwhelmingly agreed that, “A ceiling on rents reduces the quantity and quality of housing available.” From the abstract: “I find that the preponderance of the literature points toward the conclusion that rent control introduces inefficiencies in housing markets. Moreover, the literature on the whole does not sustain any plausible redemption in terms of redistribution.”
  • A broad survey of economists by the IGM (Initiative on Global Markets) Forum revealed a similar repudiation of rent control. The Forum is a program of the University of Chicago’s Booth School of Business. “Rent control discourages supply of rental units,” said Associate Head of the MIT Department of Economics, David Autor. “Incumbent renters benefit from capped prices. New renters face reduced rental options.”
  • Once rent control is imposed, it is extremely hard to get rid of, even where its futility is eventually recognized. That’s because rent control will have held rents far below the market rate, so removing them is likely to cause immediate and substantial rent increases, something few politicians (and even some rent control critics) will be willing to embrace in the face of a potential public outcry.

As Art Carden put it in The Unintended Consequences of Rent Control, “Suppose that you want to destroy a city. Should you bomb it, or would it be sufficient just to impose rent control?”