New research casts doubt on rent control as a way to help the poor: “Renters who benefited most from rent control had higher incomes and were more likely to be white”

Rent controls should make housing more affordable for lower-income Americans. It turns out it might do the exact opposite.

Rent control efforts in St. Paul, Minnesota have benefited more white renters with higher incomes, a new study authored by and published by researchers at the University of Southern California National Office for Economic Research found.

For low-income homeowners who rent their homes, many of whom are ethnic minority, rent control was not exactly beneficial, the researchers said.

“The intent of the St. Paul rent cap is to reduce the housing cost burden for low-income renters,” the authors said, but the results “show that the winners and losers of the rent cap are the opposite of the intended goal.”

Rent control measures introduced in St. Paul caused real estate values ​​to fall significantly. Researchers estimated the total loss in real estate value in St. Paul at $1.6 billion.

“Winners and losers of the rental price brake are the opposite of the desired goal.”

“Although the costs the law imposes on property owners are significant, our results show that its benefits are poorly targeted,” the authors noted.

Her research revealed that wealth transfers via rent control did not work as intended.

“We find that the tenants who benefited the most from rent controls were higher-income and more likely to be white, while the owners who lost the most were lower-income and more likely to be minority,” the report noted .

Study by University of Southern California researchers on rent control in St. Paul

Instead of wealthy homeowners transferring wealth to poorer tenants, St. Paul’s wealth transfers were reversed — they were greatest when homeowners were poor and their tenants were rich. In addition, rent control benefited tenants who were less likely to be from an ethnic minority background and more likely to be highly educated.

Findings from the latest study echoed previous studies on the subject that rent control begins with the aim of helping low-income renters, but can work for generations against poorer residents looking for affordable housing.

When the rental price brake backfires

Given today’s market conditions, the impact is significant.

“Rental maintenance appears to improve affordability for current tenants in the short term, but decreases affordability in the long term, encourages gentrification and creates negative externalities for surrounding neighborhoods,” it said this report 2018 by the Brookings Institution, a think tank in Washington, DC “These results show that forcing landlords to insure tenants against rent increases can be counterproductive.”

“If society wants to offer Social Security against rent increases, it may be less distortive to offer that subsidy in the form of a government subsidy or tax credit,” she adds. “This would disincentivize landlords to downsize and could give households the insurance they want. A point of future research would be to design an optimal social security program to protect tenants against large rent increases.”

A analysis on the impact of rent control on housing as a means of reducing inequality was published the following year by the Urban Institute. It, too, found limitations in its effectiveness in promoting the transfer of wealth between generations. “When rent control is judged on its ability to promote stability for people in rent-controlled units, the body of evidence has generally been successful,” it said. “Research into the impact of rent control on the broader housing market (whether renting, construction or remodeling) has produced mixed results.”

“The evidence for the ability of rent controls to promote economic opportunity or reduce racial disparities is also mixed.”

— Municipal Institute

“However, the evidence is also mixed for the ability of rent controls to promote economic opportunity or reduce racial disparities,” she added. “Part of this stems from a trade-off: promoting stability over time can lead to a growing disparity between people who live in a rent-controlled unit and people who need one.”

Rental apartments are a big market. According to the US Census Bureau, 36% of residential units were occupied by renters in 2019. According to the researchers, the average household spent 35% of their income on rent.

Rents are rising at a rapid pace. Rents rose 13.1% year-on-year nationwide in February, setting a new record CoreLogic Single Family Rent Index.

The national median rent for the month of May is $1,343 — up 15% year over year apartment listwhich also records the monthly rents.

Due to rising rents – and the inflationary environment – cities like St. Paul Rental price brake introduced.

The city caps annual rental growth at 3% year-over-year, with no adjustments for inflation and no provisions allowing rental rates to reset to market rates when vacant, the researchers wrote, and all residential properties fall under the law with few exceptions. New research casts doubt on rent control as a way to help the poor: “Renters who benefited most from rent control had higher incomes and were more likely to be white”

Brian Lowry

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