In Defense of Rent Control and Rent Caps (Part II of II)

 

Via Boston Globe

Yesterday, we posted the beginning of Duncan Kennedy’s testimony before the Massachusetts State Legislature’s Joint Committee on Housing. Below is the second half of the testimony.

Duncan Kennedy –

Claim 3: State provision of more section 8 certificates and subsidized affordable projects can resolve the housing crisis.

More section 8s and more rent-restricted affordable subsidized units could in theory have a major impact on the housing crisis. But there is no conceivable way that can happen in practice. Growing income inequality means upper income demand for housing grows much more quickly than lower income. Upper income buyers bid up prices in order to expand their share of the available stock. Exclusionary zoning closes both upper income and affordable units out of the suburbs (in spite of our ineffectual inclusionary regime). At the same time, it shifts upper income demand back toward the older inner ring city neighborhoods.

The crisis generates displacement and shelter impoverishment (skyrocketing rent/income ratios) through a downward squeeze. The rich expand their neighborhoods to adjacent less wealthy areas pushing residents into the next area down the chain. Or they jump into well located lower income inner city areas forcing residents to crowd into adjacent low rent areas. The crisis now affects the whole lower half of the income distribution.

To reverse the crisis, even just to stabilize the current disastrous situation, would require subsidies, section 8s and affordable construction, to the tune of hundreds of millions or even billions of tax-payer dollars directed at the middle and no longer just the lower end of the chain. Rent control, either caps or a full regulatory program, allows localities to defend themselves against these market forces. They can tailor their response to their local market conditions and in many situations turn them to their advantage. No new taxes required. The innovative legislation being considered in Massachusetts permits them to increase the supply of affordable housing targeted to their local conditions without calling for massive new subsidies from the state.

Claim 4: Income eligibility tests for rent controlled and capped units are a good idea.

Requiring proof of low income status for eligibility to have rent capped would be counterproductive because it would cause landlord discrimination against the very people the bills area trying to help. It is already documented that a large percentage of section 8 certificate holders, and disproportionally African Americans, experience discrimination from landlords who don’t want to rent to them at uncapped fair market value rents. In the midst of a crisis of escalating rents, a tenant who qualifies for the cap is obviously not as good a bet for the landlord as a tenant who does not.

In building-based rent control, an income eligibility requirement would mean more units available for income qualified applicants but it would also risk stigmatizing residents and whole buildings. The better response of H3924 is to authorize anti-displacement zoning so that localities can exclude upper income neighborhoods. The remaining reduction in units going to low income tenants serves the by the now universally recognized policy goal of mixing income groups rather than concentrating poverty.

Claim 5: Responding to the housing crisis is a private responsibility.

Opponents argue as though landlords have a natural right to unlimited windfall profit from the housing crisis when they increase rents without increased costs or capital improvements or neighborhood upgrading. They also deny that landlords and developers have any responsibility for displacement they cause when they raise rents to shift their properties to higher income use. Giant rent increases with no equivalent improvement in housing conditions, along with displacement, represent a gigantic forced transfer of wealth from middle and low income tenants to landlords and developers. Upper income home buyers benefit as displacement keeps down the price of land for their increased consumption. It is ironic to say the least for the industry to argue that the public should respond first by compensating their victims with subsidies and then by deregulating the industry so they can build more luxury units for the rich.

The new national mobilization for rent control is exciting, even if the arguments haven’t advanced much if at all since the last round during the 1980’s and early 90’s. The main failing of liberal sentiment, it seems to me, has been to focus too much on “the housing crisis,” which appears as something like earthquakes in the Caribbean, a disaster caused by natural forces (“demand” “supply”) against which the only hope is palliative gestures, like disaster relief. It makes more sense to me to see it as just one of the perennial phases of the class conflict between upper and lower income groups, with the middle siding first one way then the other. The industry interest is parasitic on the aggression of the top. Landlords and developers profit by arbitraging housing and neighborhood amenity into the hands of a specific upper social stratum that is the highest bidder. A housing crisis of inflation displaces and impoverishes the losers because the legal rules of the game, mainly controlled by the wealthy, permit or encourage it, sweetening the bitter pill with some subsidies and lots of bogus policy arguments. Full bore anti-gentrification rent control is more than a palliative, since it aims to create permanent enclaves of shelter security that can be bases for other kinds of left policy initiatives. The Boston towns that had rent control voted by massive majorities to retain it against the industry’s state- wide referendum campaign to ban it. I think there is hope that the new wave of more radical left analysis represented by LPE will give this kind of analysis a better chance of traction today than it has ever had before, in all the long history of rent control as hot button issue.

Duncan Kennedy, Harvard Law School, retired.