NEVADA VIEWS: The false promise of rent control

Rent control is the failed policy idea that just won’t die.

At a recent forum for candidates vying to become the next mayor of North Las Vegas, all mayoral hopefuls came out in support of rent control as a way to make housing more affordable in Nevada. But rent control has never worked anywhere it has been tried. By reducing supply, rent control ultimately leads to higher prices for all but the select few who are in a rent-controlled unit. This is why Assar Lindbeck, widely considered Sweden’s top economist until his death in 2020, famously described rent control as being “the best way to destroy a city, other than bombing.”

In a 2012 survey of top economists, 95 percent of respondents said that rent control fails to achieve its ostensible goal of making housing more affordable.

That rent control does more harm than good is one of the most consistent findings in the economics profession. Numerous studies have found that, by reducing the incentive to bring new units onto the market, rent control ultimately leads to higher prices for the public at large.

Those studies also show that rent control leads to lower-quality homes, as landlords have no incentive to do any kind of maintenance or upgrades beyond the bare minimum legally required. Consider the experience of the cities that have embraced rent control such as New York, San Francisco and Santa Monica. If rent control works, why are those areas all notoriously expensive places to live?

That rent control makes things worse merely reflects the fact that all price controls lead to shortages and lower quality options. Imagine a law that prevented steakhouses from charging more than $10 for steak. All decent steakhouses subject to the price control would be forced to close their doors, leaving Nevadans with fewer options. And the few that remained open would serve the lowest quality steak available, served on a paper plate, without napkins, to a wobbly table, to be eaten while you sat on an uncomfortable chair. That is to say, the business owner would be forced to reduce costs and quality elsewhere to stay in business. This same dynamic occurs with rent control, too.

The even bigger problem, however, is that rent control causes developers to stop building. Just as no one would want to build a new steakhouse if the government capped prices at $10 a steak, the same is true of developers considering whether to build new rental units. Many landlords in rent-controlled areas convert their existing rental properties into condominiums or other kinds of real estate not subject to rent control. In other words, rent control doesn’t just stop the creation of new homes, it encourages landlords to get rid of existing apartments. All of this leads to a reduction in supply, which means higher prices for the homes and rental units not subject to rent control.

If Nevada politicians really want to help, they should look to Reno Mayor Hillary Schieve for an example of a policy that will actually work. In Washoe County, rent and housing prices are inflated in large part because of government licensing and permitting fees that can add an additional $30,000 to $40,000 to the cost of building a new home. Mayor Schieve helped encourage new construction by spearheading a program that deferred those fees until after a developer completed the construction of a new home.

While that’s a good step, those kinds of fees, both here and up north, should be cut in half.

In addition to fees, however, local governments also impose an array of onerous compliance regulations that further increase costs. In fact, some developers report that simply complying with all the various levels of bureaucracy can delay the construction process by a full two years which, once again, means less supply and higher prices. Reducing or eliminating those barriers is the best way elected officials can help renters. Rent control will make things only worse — as it has everywhere else it has ever been tried.

Robert Fellner is vice president of the Nevada Policy Research Institute.