Proponents of rent control often tout its progressive effects. By effectively capping what “wealthy” landlords can charge, rent control redistributes income to “low-income” renters. — albeit indirectly.
But what if that was not entirely the case?
Rent control is not means-targeted. So, it lacks the mechanism to exclude high-income renters from benefiting from lower rents. As a result, studies have found that, in some cases, rent control benefits high-income renters almost exclusively. At the same time, less wealthy landlords see their property values fall significantly more than those of wealthier landlords.
Thus, contrary to its intended effect, rent control acts as a regressive tax on landlords, while enriching high-income renters. In a study published last June in the Journal of Urban Economics, researchers analyzed the impact of rent control on property values in St. Paul, validating these earlier findings.
Specifically, the authors found that, as expected,
…the introduction of rent control caused an economically and statistically significant decline of 4.0% to 5.5% in the value of real estate in St. Paul over the nine months after the law was enacted, compared to adjacent areas.
Rental properties were more affected.
rental properties experienced an additional 7%–9% decline in value compared to similar owner-occupied properties. Apartment buildings with at least eight units experienced losses of more than 13% in value.
Compared to larger, typically high-income landlords, low-income landlords saw a larger decline in property values.
Small landlords with incomes less than $90,000 lost 7.5% of value compared to a loss of 6.9% for large landlords of multi-unit properties. Normalizing by income,…. landlords with lower incomes lost more wealth per dollar of income than landlords with higher incomes, consistent with a regressive tax burden.
Among renters, higher-income renters gained more than low-income renters.
- Those with incomes between $47,500 and $90,000 received the most benefits, averaging $14,822 in rent savings.
- Lowest-income renters (those with incomes under $25,000) received an average of $5,800 in rent savings.
Simply put, St. Paul’s rent control policy did not distribute wealth from richer to poorer. Higher-income renters benefited the most, potentially at the expense of smaller, poorer landlords.
