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Rent control is not the answer to rising housing prices

Ron Aryel
Ron Aryel
Opinion
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Housing construction

The Nevada Independent recently published a poll that found 81 percent of Democratic respondents supported rent control and 53 percent of Republican respondents did. Establishing rent control would be a disaster for Northern Nevada, however, making our housing crisis worse, not better.  

It is a bad idea here because, in combination with large swaths of land restricted by single-family home zoning, it will benefit mostly white residents and harm less wealthy minority residents, reduce or eliminate investments in new housing (depending on how the law is written), and make it financially infeasible for landlords to properly maintain their rental properties. It will also lead to misallocated housing and seriously damage the tax base at a time when our region sorely needs new infrastructure.

Rents are rising in Northern Nevada, not because of a bubble or speculation by investors, but because of a sustained inflow of new residents. Competition for housing, which is in short supply, causes rents to rise. This shortage is made much worse by too much single-family home zoning, which prevents developers from erecting the multifamily buildings that are most needed in our region — the type generally most accessible to racial and ethnic minorities, and also the easiest to serve with public transportation. We encourage sprawl, and the construction of expensive single-family homes that affluent and mostly white families buy and that increase the use of automobiles. This damages our environment and accelerates climate change.

Studies that have looked at the effect of rent control have sometimes found a short-term benefit to local residents — but in the long run, rent control led to a reduction in available rental supply as well as a reduction in its quality. This is because many landlords converted their rental apartments to condominiums, which tended to attract affluent buyers, not people of moderate incomes, while landlords owning the remaining rental units spent less money repairing and maintaining them, leading to substandard living conditions for residents. 

These findings are especially important when we consider who owns most rental housing. According to iPropertyManagement.com, 58.8 percent of rental units are owned by corporations — but this means that a substantial proportion of rental housing, 41.2 percent, is owned by individuals, who operate one, or at most, a few properties. Seventy-nine percent of those individually owned units are owner-managed, and the rental income of most “mom and pop” landlords is already low enough that rent control could easily see them operating at a loss. This is not trivial; rental income is their livelihood.   

Diamond, McQuade and Qian found that when rent control was imposed in San Francisco in the 1990s, long term minority residents benefited initially, because they were the least mobile of residents in the city. However, landlords’ subsequent condo conversions led to a 15 percent decrease in available housing stock. In Reno, zoning restrictions and the high proportion of wealthier white people living in more desirable housing would result, essentially, in a gift to them while lower-income minorities would suffer.  

Rent control can often lead to misallocated housing, as well — that is, a family unit that is smaller because adult children have left or elderly members have died, will tend to retain control of a rent-controlled unit despite it no longer being appropriately sized for that family. Similarly, larger, growing families will tend to stay in rent-controlled units even if they become crowded. A study published in the American Economic Review in 2003 found that 21 percent of rent-controlled units in New York City were misallocated in this manner. Moreover, economic misallocation also occur: A family whose income rises substantially does not lose the right to live in a rent-controlled apartment. Why should a landlord be forced to offer a discount to a tenant who doesn’t need one?

Proponents of rent control say that, if new construction is exempted from rent caps, developers will still pursue additional housing. Studies have confirmed this to be true: Housing starts in areas with rent control continued, whereas housing starts were virtually eliminated in areas where rent control offered no such exemption. However, given that new housing is becoming more expensive to initiate, a rent control policy that exempts new construction gives a free pass to wealthy developers, the only entities capable of building substantial new housing units, while punishing existing property owners and accelerating the deterioration of current housing stock. It also creates an obvious ethical problem. 

If we restrict landlords’ ability to control what they charge for rent, should we not also impose price controls on the plumbers, carpenters, electricians, roofers, flooring suppliers and landscapers who landlords have to pay in order to properly maintain housing? And would the proponents of rent control entertain adding the equivalent of a “triple net” policy common to commercial office rental — that is, in return for a cap on rents, the tenants would be responsible for making all repairs on the properties they rent? And when the tenants inevitably fail to do that, how would they compensate their landlords for the loss of value of their properties, or compensate the county for the deterioration of the property tax base?

Imposing rent control while maintaining vast swaths of single-family home zoning panders primarily to the parochial interests and racial, social and socioeconomic prejudices of middle to upper middle class and wealthy residents, by far the majority white, living in single-family homes, while artificially suppressing the housing market for everyone else — especially people of color. If you don’t want to live next to Blacks or Latinos, or if you think of yourself as a higher form of life than “trailer trash” but still feel entitled to a discount where you live, rent control and zoning restrictions are perfect for you. 

Rent control in Northern Nevada will not help the poor or working class, and a substantial proportion of residents who would benefit are not the people who (theoretically) need it most. It would largely eliminate new multifamily housing construction and thus cause the loss of construction jobs and the loss of jobs in supporting industries. With inflation driving up the costs of maintenance and repair, many landlords would begin to defer maintenance, leading to dilapidated buildings and even dangerous living conditions. Landlords have no incentive to renovate apartments with 20 or 30 year old appliances and worn carpets if they have no hope of recouping their investments.

Because property taxes represent a greater proportion of government revenue in Nevada than, say, a state income tax, if it existed, the establishment of rent control in Nevada would severely reduce state revenue and essential government services. And as property taxes in Nevada cannot be raised above 3 percent, the killing off of new housing construction, combined with zoning restrictions, would impede the ability of county governments to keep tax collections in line with the growing population’s needs. Counties cannot easily turn to other sources of revenue to make up shortfalls; property taxes help pay for emergency services, schools and infrastructure. (In the absence of income taxes, property taxes and business taxes are a less regressive alternative to sales taxes, which hit our lower income residents more than wealthy residents.)

Rent control also will not prevent homelessness and its consequences. Despite the presence of rent control, the Los Angeles Times reported that Los Angeles County’s homeless residents are dying at record rates. Rather than arbitrarily declare the winner of a housing lottery to be a subgroup of existing residents who are happy to deny housing to others and at the same time pretend that they are somehow helping make the area affordable, may I suggest some real solutions:

  1. Eliminate single-family home zoning restrictions. Residents can participate in the process that decides what happens to their neighborhood, but to believe themselves entitled to dictate exactly what their neighborhood looks like, what they get to pay to live in it (or that no one else gets to live in it) and that public transportation cannot easily serve it is arrogant, racist, elitist and unethical. 
  2. According to Rocket Mortgage, Nevada is ranked the 9th lowest in property taxes in the nation.  Hence, modest increases in property taxes and the property sale transfer tax would not burden property owners and can be used to invest in needed infrastructure or to subsidize the construction of affordable (reduced rent) housing. It can be used to obtain federal matches to support public transportation. Baton Rouge, Louisiana recently passed a property tax increase to do just that.
  3. Rezone the broken-down trailer park areas of Washoe County exemplified by housing along Chocolate Drive, so that instead of dilapidated trailers, developers have an incentive to build multifamily housing in a dense pattern along major thoroughfares like Sun Valley Blvd.
  4. Require all new construction developments, whether multifamily or single family, to include at least a third affordable housing.  
  5. Provide rental assistance to tenants pegged to their income, including an expansion of Section 8 housing, rather than punishing landlords through rent control, and give landlords incentive to accept it. If it becomes absolutely necessary, the state can mandate that landlords accept some form of government assistance at some level. Opposing rent control need not equate to pretending that landlords have no responsibility here.

Once these measures are implanted, it is highly unlikely that rent control will be necessary art all, and its only value would be in validating racial prejudice, and the inappropriate sense of entitlement some residents feel about where they live. However, measuring the effects of these interventions is always appropriate, and if an honest assessment finds some residents still unable to afford housing, a very limited rent control policy can be formulated and applied judiciously, in specific circumstances and neighborhoods.  But it should only be considered as a last resort, once demand for housing approaches equilibrium with supply, so long as it makes allowances for critical repairs, upgrades and preventive maintenance.  

Our duty is to help as many people as we can to obtain safe housing, not to use rent control to cater to those with selfish parochial socioeconomic, political extremist, or racist interests or those whose poor social skills preclude their adapting to the changes that inevitably come to every city as it evolves. 

Dr. Ron Aryel, a resident of Reno, is a pediatrician who founded a real estate investment business in 2014 which owns both apartment buildings and single-family homes. He ran an award-winning pediatric practice for 11 years and has served on the City of Reno’s COVID Task Force. He and his wife Stacey, a retired pediatric neurologist, run the Albee Aryel Foundation, which supports students from disadvantaged backgrounds through university education. 

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