Criticism of rent control mounts with release of Beacon Economics study


Evidence that rent control is the wrong approach to solving California’s housing crisis continued to mount this week as CAA released a study by Beacon Economics.

The Beacon Economics report found that low-income tenants in cities with rent control are not likely to benefit from the policy as intended.

Christopher Thornberg, a founding partner of Beacon Economics, speaks at CAA’s Outlook 2016 in Palo Alto. Photo by daniel gaines PHOTOGRAPHY

Christopher Thornberg, a founding partner of Beacon Economics, speaks at CAA’s Outlook 2016 in Palo Alto. Photo by daniel gaines PHOTOGRAPHY

Its release comes a week after California’s nonpartisan Legislative Analyst’s Office published a study that points to flaws with rent control.

The Beacon Economics report found that rent control helps a select few — those lucky enough to live in a rent-controlled unit when the law takes effect. Once benefiting from rent control, however, many individuals stay put to keep reaping the benefits — even if they don’t need the assistance.

“The data suggests that this is particularly true of higher-income households who have a propensity to move less frequently,” the study says. “In cities like Santa Monica or San Francisco, where rents are very high, this means that wealthier individuals, who might otherwise move to more expensive housing, stay in their lower-cost apartments.”

Christopher Thornberg, a founding partner of Beacon Economics, said this restricts the available supply of local affordable housing. He offered some brief comments on the study last month during CAA’s Outlook 2016 in Palo Alto.

“You encourage middle-income households to stay in older stock, which typically is made available for low-income families in normal markets, and by doing that, you end up reducing the supply available for low-income families,” Thornberg said at Outlook. “So not only is this policy not effective — it actually hurts the people we’re trying to help.”

The Legislative Analyst’s Office also cited problems with tenants living for extended periods in rent-controlled housing — a problem termed the “lock-in effect.”

“Households residing in affordable housing (built via subsidized construction or inclusionary housing) or rent–controlled housing typically pay rents well below market rates,” the study says. “Because of this, households may be discouraged from moving from their existing unit to market–rate housing even when it may otherwise benefit them — for example, if the market–rate housing would be closer to a new job. This lock–in effect can cause households to stay longer in a particular location than is otherwise optimal for them.” Read CAA’s story about the Legislative Analyst’s Office report here.

The Beacon report, commissioned by the California Apartment Association,  cites rent control’s chilling effect on multifamily construction. This stifles supply and drives up prices for all those living in unregulated rentals, including a community’s most disadvantaged residents.

In its analysis, Beacon used demographic and housing data from the 2000 U.S. Census and the 2013 American Community Survey.

Both the Beacon and LAO reports come as a number of cities in California consider adopting rent control. Moreover, the city of San Jose is considering strengthening its current rent control ordinance.