Oregon, taking a bold page out of the progressive playbook, recently became the first state to enact mandatory rent control. Unfortunately, the measure does nothing to address the underlying cause of the state’s housing crisis.
Even worse, the law is likely to make housing in Oregon even more unaffordable — not only to low-income renters but also to potential middle-class homeowners. Why? Simple: rent control discourages investment in moderately priced housing.
Oregon’s new law limits annual rent increases to 7 percent plus inflation — for a total of 10.3 percent in 2019 — though it applies only to buildings more than 15 years old with more than five rental units. The law also prohibits evictions “without cause,” which could occur when a building is converted into condominiums, for example. The law also allows eviction of tenants if a building requires major renovation or is to be demolished, in which case the landlord must pay a month’s rent to the tenants to defray relocation costs.
Yes, the law shields incumbent renters from the shock of double-digit rent increases, but it does nothing to increase the housing supply. In fact, the law will almost certainly reduce the stock of affordable housing, as has happened in rent-controlled cities across the nation.
A report on the growing homeless population in the four-county Portland region by ECONorthwest succinctly states the problem: “The region created seven new housing units for every 10 additional households formed during 2010-2016.”
Oregon’s housing crisis isn’t confined to the Portland area. It is a problem in all of Oregon’s most populous areas, says economist Randall Pozdena, a former research vice president at the Federal Reserve Bank of San Francisco.
“All eight of Oregon’s MSA [Metropolitan Statistical Area] housing markets failed the test of affordability and adequacy of supply,” Pozdena wrote in a Cascade Policy Institute report. “The estimated total shortfall in supply equals approximately 18 percent of the existing stock — virtually identical to that found for Oregon using state-level data.”
Remarkably, this figure is almost identical to a recent estimate of the effect of rent control on the housing supply in San Francisco by economists at Stanford University. Based on data from an expansion of rent control in 1994, the economists found, “Landlords treated by rent control reduce rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings.”
What makes the Oregon law the most far-reaching of its kind is that there is no flexibility for cities to choose whether they will participate in the rent control program. In several other states with rent control laws, cities can simply opt out. Oregon’s law prohibits this.
“Homelessness and affordability have no boundaries,” declared Rep. Mark Meek (D-Gladstone) during debate on the bill, reports the Associated Press. Sadly, Meek and many other Oregon lawmakers seem unaware that the housing crisis in Oregon (and many other places) exists because of government intervention in the housing market.
In the 1970s, Oregon imposed limits on the expansion of cities, to prevent suburban sprawl. Beyond “urban growth boundaries” established around every major city, housing development is restricted.
As a result of these restrictions on developable acreage, median home prices in Portland, which “were around the national average of $63,000” in 1979, doubled between 1990 and 2000, “and they have continued increasing to $358,000, 90% above the national average,” noted Scott Beyer, founder of The Market Urbanism Report, in 2017.
The urban growth boundaries have been expanded by regional planners many times, and the populations of Portland and other Oregon cities have continued to grow. But the acreage added has not kept up with population growth. As Beyer wrote, Portland’s “total land area… has grown by only 14%, while population has jumped 61%.”
As the housing shortage in Oregon causes rent and home prices to soar, higher-income tenants and homeowners will displace middle- and lower-income people in urban areas. Thus, the housing choices for lower-income people will be increasingly limited to government subsidized apartments, the homeless population will rise, and middle-income earners will be squeezed.
This has happened in San Francisco, where Bloomberg reports the median home price in 2018 reached $1.6 million, and residents voted in November to spend an additional $300 million a year on the homeless. Perhaps states and cities will soon realize that “affordable housing” policies such as rent control are part of the problem, not the solution.
Joe Barnett (email@example.com) is a research fellow with The Heartland Institute.