NEW YORK – As both the cost of living and the wealth gap continues to rise in cities, traditional affordable housing policies are receiving renewed attention across the country as an option for policymakers to help residents cope with the high cost of housing.
According to a new study by Columbia Business School Professor Stijn Van Nieuwerburgh, the expansion of rent control can be a valuable policy tool and increase the welfare of a city. It also reduces housing inequality, benefitting low-income households especially. The study also finds that there are large welfare benefits from relaxing zoning restrictions in the city center.
The findings come as policymakers in urban centers are under increased pressure to find affordable housing solutions as the rise in average rents continues to outpace inflation and incomes. In California, residents voted down a 2018 state ballot initiative that would have opened up cities and towns to institute new rent guidelines by repealing a statewide ban on rent control policies.
That effort followed New York City Mayor Bill de Blasio’s two-year moratorium on rent increases for the city’s rent-stabilized apartments – which lasted until 2017. These efforts are occurring simultaneously as rapid urbanization is making housing unaffordable.
“In a world with rising urbanization, the high cost of housing in cities has surfaced as a daunting policy challenge in cities around the country and the world,” said Professor Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore Professor of Real Estate. “Households of different ages, incomes, and wealth are affected differently by changes in policy, but our study finds that as policymakers continue to try to expand affordable housing, rent control policies can be a useful tool and a bulwark for residents struggling with the cost of living in the face of rising income risk.”
The new research debunks conventional economic wisdom, finding evidence that rent control does not lead to an overall decline in the quantity of housing. The research also finds that the overall positive impact of rent control – reducing inequality and providing a source of stability for households who face a decline in income – more than compensates for any loss in market efficiency – due to higher housing and labor market distortions. Van Nieuwerburgh and his co-authors University of British Columbia Assistant Professor Jack Favilukis, and New York University doctoral candidate Pierre Mabille, define rent control as any government-provided or regulated housing.
Rent stabilization and rent control apply to a small number of states around the country and although it is permitted in 37 states, it has an outsized impact in Los Angeles, New York City, San Francisco, and Washington, D.C. The study focused on New York City and looked at rent-controlled housing units, public housing, Mitchell Lama housing, and all other government-assisted or regulated housing. It divided the city into two zones between Manhattan and the rest of the metropolitan area and conducted experiments on major policy tools including rent control, zoning policies, housing voucher programs and tax credits for developers.
Additional findings also found positive effects from an expansion of the housing voucher program and from relaxing zoning constraints. How these programs are financed is an important factor. For example, raising revenues for these programs through higher income taxes discourages labor supply and may depress housing demand. For this reason, the study finds that expanding tax credits may not increase housing supply nor welfare.
“Economists typically have taken a narrow view towards rent control, preferring other options like vouchers for low-income and rent-burdened residents because they cause less distortion to the housing market. But we’ve found that expansion of rent control in major cities provides real benefits,” said Van Nieuwerburgh. “Better targeting of rent controlled housing units towards the lowest-income households can amplify these benefits.”
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