All Things in Moderation, Including Rent Control?

A California law seems to avoid worst side effects: rising condo conversions and a slowdown in new home construction

“Freeze the Rent” was a brilliant campaign slogan, one that propelled Zohran Mamdani into the New York City mayor’s office. In a place where an unregulated 1 bedroom runs over $4,500 a month, and rents rise inexorably, the policy offers tenants almost immediate relief: a hard freeze on rents for some 40% of the city’s housing stock, the portion already under less restrictive rent caps. If passed, there’s little doubt it will help the vast majority of the 2 million residents in those units now.

Yet inevitably, if the freeze is enacted some of those tenants will lose their homes, and some future tenants will not get a chance at renting. Landlords have a long, well-documented history of kicking out renters and converting buildings to condos when faced with new rent controls. 

What’s more, developers get squeamish about building new apartments under rent control policies. If new construction can’t keep pace with units lost to condo conversions, finding an affordable rental gets harder and harder. Newcomers seeking apartments, as well as those freshly ousted by conversions, pay the higher prices a tighter market brings. 

That long-term damage to housing supply — despite rent control being an essential lifeline for millions who get it — is why plenty of economists and housing policy experts don’t support it. 

There is, however, a way to apply rent caps without eroding efforts to expand rental housing stock, according to a working paper by UCLA Anderson’s Stuart A. Gabriel and Sayantani (who goes by a single name). The California Protection Act of 2019, a statewide rent control program commonly known as AB 1482, is a far, far cry from “Freeze the Rent.”

Rent Control Lite

AB 1482’s rent ceilings are so high, and eligibility provisions (which units are covered) so narrow, that critics refer to it as “anti-gouging regulation” instead of rent control. It limits rent increases to 5% plus local inflation, up to a hard cap of 10%. That level renders the law moot as a cap in most jurisdictions, most years. San Diego’s cap under the law today, for example, is 8.8%. Properties younger than 15 years are exempt. When a tenant moves out, the landlord can rent the unit at market rate and reset the rent caps from there. 

The law applies only in jurisdictions that don’t already have more stringent rent stabilization provisions. San Francisco and Los Angeles, for example, are exempt. San Diego, which had no prior rent controls, became the case study for Gabriel and Sayantani’s research. It also applies to dozens of other jurisdictions that previously rejected rent caps, including San Bernardino, Fresno, Huntington Beach, Mountain View and Sacramento.

For comparison, San Francisco’s cap rate now is 1.6%; Los Angeles, 3%. Washington, D.C., and cities in New Jersey run about 4%. Statewide caps in Oregon and Washington also top out at 10%. 

In an email exchange, Sayantani explains AB 1482 this way: “It can be thought of as striking a balance between protecting tenants in case of extreme increases while not disrupting rental supply when there is no crisis — specifically in places where the city has not deemed it necessary to have a blanket, strict rent control.” (At the end of this article, Sayantani answers some questions on broader forces around rent control.)

It’s precisely this innocuousness of AB 1482 that may give it importance beyond California, Sayantani suggests. Rent control is notorious for undermining more popular policy efforts aimed at adding more rental units, an approach experts agree is needed for resolving the affordability issue long term. This law’s effect on the number of rental units in San Diego appears to have been … nothing.

The study compares renovations, sales and delistings as rentals in San Diego apartment buildings ruled by the state law to a group of older apartments exempt from the law. It finds no significant differences in rates of conversions to condos. A small uptick in renovation permits that might signal a planned conversion also disappeared when a formula that accounts for the building’s age was introduced. Older buildings typically take on more permits for upkeep, with or without rent control. 

The authors refer to a famous rent control study out of Stanford that used similar methodology. After San Francisco’s 1994 rent control law went into effect, landlords were 7.9% more likely to convert their rentals to owner-occupied units, according to authors Rebecca Diamond, Tim McQuade and Franklin Qian. About 15% of regulated units were lost as a result, they found.

Winners and Losers

Rent control has always presented policymakers with a devil’s trade-off: Protect current tenants with price caps, or make future rents more affordable by maximizing home construction. Many cities try to do both, even as aggrieved landlords actively cut into supply levels and developers avoid new rental projects. Most of the country rejects rent control, but it’s rare to see a rent control plan that isn’t paired with incentives for expanding supply. 

Rigid rent control popular around the 1970s hit housing stocks particularly hard. Landlords often converted rentals or let them fall into squalor. Post-1980s versions often tried to avoid the paradox with flexible caps, such as factoring in local inflation rates. Exemptions for high vacancy rates and new construction also became common. 

But it’s hard to overstate the consistency of rent control’s undesirable effects in the research. The consensus held firm for decades: You could decrease the problematic results of rent control by watering it down, but you couldn’t avoid at least some damage to expansion efforts when rents were artificially capped. 

Notably, since the Reagan administration, the U.S. has all but stopped building public housing, while other wealthy nations lean on public and cooperative-owned housing to both build the supply of units and to moderate prices. Without that lever, the U.S. is dependent on private developers.

Sayantani and Gabriel call AB 1482 a “third generation” of policy that might help rescue the notion of rent control as a supply killer. Perhaps not enough to thaw a large opposition to it. Rather, Sayantani says, San Diego’s experience so far may “help convince cities that are strong advocates of heavy rent control to consider this lighter version instead, given the absence of supply distortions.” 

Harder to Measure the Upside of Rent Control 

Has a 10% cap on rent increase helped anyone? Six years on with AB 1482, no one really knows. California doesn’t track rate increases for tenants renewing leases. (Washington and Oregon’s statewide policies don’t either.) Average annual apartment rent price increases that government and industry report — they’re typically below 10% in even California cities — include price changes that occur when tenants leave and new renters come in, and they often exclude rent controlled units.

So maybe those state caps prevented higher rent hikes. Or maybe, some critics argue, landlords looked at the 10% ceiling and raised rents higher than they’d anticipated, but less than 10%.   

Among policymakers across the nation, attitudes around rent control today are all over the board. Boston hasn’t had it for 30 years, but there’s a strong push for a 5% cap. New Yorkers are clearly doubling down, and San Francisco continues to vigilantly hold landlords to extremely low caps. In July, a new formula for rent increases on older Los Angeles buildings will lower the cap to 4% from 8%.

St. Paul, Minnesota, enacted a strict, universal 3% annual cap in 2022. It later exempted thousands of units — everything built after 2004 — after housing construction dropped some 80%.

Elsewhere, more than 30 states outright ban even local rent control, and nine more simply don’t have any. A few boomtowns like Austin, Texas, and Raleigh, North Carolina, got famous for slowing the rise of rents through construction alone, and their stories have prompted far more interest in the housing supply expansion route. Los Angeles, like other cities with a housing shortage, makes matters worse with a lengthy construction approval process and, also, by giving local opponents to development a voice in approvals.

Understandably, households facing unaffordable rents right now — Harvard’s Joint Center for Housing Studies estimates there are more than 22 million of them — may find promises of stable prices years in the future wholly unsatisfying.

The data from San Diego suggests, surprisingly, that none of these cities have to accept that giving their tenants a little protection today will slow down their expansion plans for tomorrow. Would that innocuous level of protection be enough? Certainly not for everyone. But for many tenants caught between rent worries now and supply solutions years away, a holding pattern while construction plays out may be their best hope, for their futures as well.