Lately, I’ve been hearing a lot about the “inefficient” economics of rent control in response to bills being discussed by Connecticut’s Senate Housing Committee. I’m no economist, but I’ve studied the subject enough to know how absurd these inefficiency arguments are.
In fact, they’re so off base that I couldn’t help but write a quick explanation of just how backwards those anti-rent cap arguments are. My goal here is to make one thing plain: a bill that aggressively caps annual rent increases will not only stabilize rent in our state, but significantly improve our economy. Once I’ve demonstrated this, it will be clear that any and all arguments for allowing landlords limitless increases are as indefensible as they are morally reprehensible.
Let’s start with context: over the last two years, rents in Connecticut have increased 20% on average, and in many municipalities, they’ve skyrocketed even more. I have friends who’ve been given two weeks to start paying 75% more each month for apartments that they can’t get maintenance staff to visit for months on end. Meanwhile, wages remain stagnant, having been outpaced four times over by the rising cost of rental housing. This disparity is devastating, and not simply in moral terms. In a state where 52% of tenants already spend over 30% of their monthly income on rent, the unjust state of Connecticut’s housing market speaks for itself.
But the egregiously inefficient economics of Connecticut’s rampant rent gouging need elaboration. As we’re about to see, doing so is straightforward enough that as the anti-rent cap lobby likes to say, ‘it’s just basic math’.
Renters make up a third of Connecticut’s population, and over half of them are financially struggling to remain housed. Arbitrary and unjustified rent increases not only drive up eviction rates and homelessness — as families are forcibly displaced from their homes, communities, and even from the state —they also force the market to bear a rent price far surpassing the efficient market rate.
It’s a pet peeve of mine when folks use the logic of supply and demand curves to discuss the real-world prices folks face when struggling to keep food on their tables and roofs overhead, but even by that oversimplified logic the case for a rent cap is undeniably clear. According to Investopedia, “demand is an economic principle that describes consumer willingness to pay a price for a good or service,” while “supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumer.” Fair enough. In general, the price of a given commodity is that which motivates the seller to produce a supply sufficient to meet consumer demand.
This principle gets more complicated when it comes to inelastic goods. Investopedia defines these as “necessities” such as food, housing, or healthcare –goods for which demand remains constant regardless of price fluctuation because consumers require them to survive.
Take rental housing, for example. People need places to live. This fact never changes; demand for housing remains a constant function of population growth and migration. However, successful decades-long efforts to restrict affordable housing construction have artificially withheld supply, such that the constant and high demand for housing pushes prices far higher than they would be in an efficient market. In other words: if Connecticutr had a truly free and efficient housing market, contractors would build large swaths of affordable housing as incentivized by the mass of working class people who live in the state and hope to continue doing so without being charged more for rent then they bring in working full time.
Instead, Connecticut has a housing market in which the high cost of housing pushes working class renters out of the state, into poverty, or both, while investors and corporate landlords effectively block widespread affordable housing construction.
This dynamic is disgustingly inefficient. On the one hand, when people cannot afford to pay the listed price of an inelastic good, it becomes an economic burden on society. Those left unhoused by the insufficient supply of housing often require taxpayer funded assistance to get back on their feet; even then, having gone through the financial and physical and mental ordeal of displacement, they will in all likelihood remain unable to afford an artificially inflated market rate. Instead, they are forced to use subsidies like Section 8 to secure homes, which circumvents the market altogether by drawing on public funds, all so that the out-of-state investors who own the real estate can keep directing their management companies to raise rates on those who can still be squeezed.
Alternatively, people may leave their community or even the state in search of affordable housing, taking away not only their productivity as workers, but also their contributions to the local economy as consumers. On the supply side, contractors and construction workers miss out on major opportunities for lucrative economic production as they are preemptively prevented from building the affordable housing which renters demand, and small landlords are forced to take on unaffordable renovation costs as their neighborhoods gentrify.
Now, let’s paint a different picture. Let’s look at Connecticut of a hypothetical future–one in which SB-138 passed.
Annual rent increases, capped at 2.5%, now mirror wage growth; both track net productivity. In this hypothetical, let’s say we’ve yet to pass an affordable housing bill, so market supply is still artificially low. Even under those circumstances, the economy would be vastly better off with the rent stabilization bill than without. Evictions and homelessness would be reduced, decreasing displacement costs and subsidies, and allowing folks to focus on their lives rather than on where they’re going to sleep.
When people have stable homes, they embed themselves in their communities, expand their enterprises, and elevate their careers; they also attend local restaurants and theaters, shop at local stores, and engage in community groups and organizations. On top of that, without massive rent hikes eating up their disposable income, more is left over each month to spend on those other opportunities.
Before I’m accused of being anti-landlord, I’ll close by showing how this benefits local landlords as well. Currently, large scale corporate entities are allowed to drive rents however high they want, and they do so while gobbling up an ever greater market share. This tendency drives rent prices to a level that tenants cannot afford, and smaller landlords are left with a choice to either match an inefficiently high rate and risk leaving their units vacant—a prospect their corporate competitors can afford far more than they can—or to undercut the market by keeping their existing prices (and clientele) in the face of rising tax and renovation costs driven by the same gentrification.
As long as Connecticut goes without a rent cap law, our communities will continue to experience wave after crippling wave of rent inflation and renoviction, and local landlords will lose their lower income tenants.
A statewide rent control bill is necessary on economic terms as much as on ethical ones. Everyone–with the exception of hedge funds and slumlords–stands to gain.
Peter Fousek is an Organizer for the CT Tenants Union/New Haven.