Call Rent Control What It Really Is: Theft

by
Gary Galles
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As reported by Reason, Colorado—one of thirty-one states that had banned its local governments from imposing rent control—is considering repealing that ban. Recent efforts to allow or impose similar controls have also taken place in New York, California, Massachusetts, Oregon, and Minnesota. However, there is a good reason that most states still ban the local imposition of rent control laws.

The key reason is that the primary advantage of local determination in a federal system—allowing people mistreated by one government body to better protect themselves by “voting with their feet” to less abusive jurisdictions—does not apply to rent control laws. That is because neither selling nor moving allows owners of rental property to escape the imposed burdens.

In many circumstances, voting with your feet favors local governance. It is generally less costly to leave a local government jurisdiction whose benefits are not worth the cost than it is to leave a similarly bad state government jurisdiction, which is less costly to leave than to leave the United States entirely. The enhanced exit option may better protect citizens’ rights against abuse. For instance, residents who view state sales and income taxes as not giving them their money’s worth in benefits can avoid those burdens by going to another state with lower tax rates or better services. However, the same is not true of rent control, whether imposed locally or at the state level.

Owners of rent-controlled properties can move away. However, if they maintain ownership of their property, they are still forced to bear the burden of reduced earnings caused by rent control. If they sell their property, they bear the burden of reduced rental income in the form of a lower sales price that capitalizes the lower revenues the property will generate. Consequently, even selling your property and leaving the jurisdiction provide no escape.

While landlords do not have a right to a specific amount of rent, their ownership should give them the right to accept what tenants would willingly offer for their units. Market conditions that lower rents are not theft because the landlords’ property rights are not violated. However, rent control, which forcibly lowers rents below what willing tenants would offer, takes away that right and much of the value of the landlords’ properties in the process. That is theft, enforced by government guns rather than robbers’ guns. Worse, rent control directly violates the central role of government—the protection of citizens’ existing property rights—as John Locke explained long ago, echoed by America’s founders.

There is no difference in results between the tenants robbing their landlords of $500 every month and tenants voting themselves $500 monthly rent reductions, except rent control takes the money before landlords get it. That does not transform what we would all recognize as theft into something legitimate unless someone is determined not to recognize their equivalence.

Such theft has also been abetted by the Supreme Court’s Fifth Amendment rulings. The amendment asserts that “nor shall private property be taken for public use, without just compensation.” While today, this still prevents the government from physically taking your property without payment, the courts have redefined takings to only occur when all of a property’s value is taken. This logic would imply that a mugger who left a victim with Uber fare home would not have robbed him. So, while the government occupation of half of someone’s apartments would require compensation, rent control that takes half of the value of each of the units and transfers it to current tenants may take just as much wealth involuntarily but does not require compensation.

That limitation on the owners’ ability to evade those imposed burdens also explains why majority-renter localities may want to impose or reimpose rent control.

In such cases, renters outnumber other local voters and greatly outnumber rental property owners, giving the renters the votes to dictate local policy. Those rental property owners who do not live in the jurisdiction cannot even vote. By stripping owners of much of their properties’ value by mandating lower rents, local majority voting power can provide existing renters with very large wealth transfers. Given that rent controls typically give residents virtual tenure for as long as they choose to stay, that wealth transfer can be massive for long-term renters, as illustrated by the fall in the value of rental properties when rent control is imposed, the large payments offered to get rent control tenants to leave, and the frequency with which such offers are rejected by current tenants.

So, imposing rent controls in majority-renter municipalities targets the property rights of owners who cannot protect themselves by voting with their feet, and it transfers very large monetary gains to those who are already renting in the jurisdiction when price controls are adopted. The current renters get to vote, but all prospective future tenants not yet there—who will be harmed by the reduced supply of available rental housing that will result—cannot. This is also true of renters in neighboring jurisdictions whose housing costs will rise due to the reduced regional supply of rental units caused by rent controls in particular municipalities.

In other words, rent control guarantees that current renters in a municipality can vote themselves huge benefits out of the outnumbered owners’ pockets. However, it does not benefit all renters; it benefits only those renters who were living in a municipality at the time rent control was enacted. In fact, there will be far more renters who are harmed than who are helped. That is because the far larger number of future prospective renters will be harmed by the consequent reduction in the supply of rental housing, which will result in higher future prices (often including under-the-table payments) for those who are able to find a rental as well as “no vacancy” signs rather than housing for many others. It is piracy by the local political “might makes right” plebiscite at the expense of both rental property owners and future prospective renters.

That is why, unlike many other areas of governance, state-level preemption of local rent control may protect citizens’ rights and well-being better than local determination. It is analogous to the Bill of Rights in the federal Constitution, which Hugo Black called the “Thou Shalt Nots” and protected citizens against unwarranted national government abuses. Additionally, in practical day-to-day government operations, such a preemption would allow those for whom rent control would harm—particularly current owners and future potential renters—greater likelihood to be able to vote and have more of a voice in the policy at the state level.

In other words, state-level restrictions on rent control allow rental property owners who face robbery to unite in opposition more effectively. Such opposition would also include “outsiders” who would be interested in building rental properties there if such construction did not get frozen by the disincentives of rent control. It is also true for those nonresidents who would be turned away from finding rentals once rent control is imposed. Even government officials outside the local municipality who face falling tax revenue from the reduced construction and income that results from rent control’s disincentives would get a voice, rather than being ignored under local determination in majority-renter areas.

The result is that citizens may be better served by state limits on the ability of local renters to form a political juggernaut in their jurisdiction that can steamroll others’ rights and well-being.

Note, however, that this is an argument for the state government to ban the local imposition of rent control. This is not an argument that they should impose statewide rent control laws because state governments can impose even broader damage than local municipalities.

Statewide bans or restrictions on local rent control are perfectly consistent with the essential job of government—to protect individuals and their property against force and fraud. That can be seen by analogy to grand theft auto. States don’t allow localities to legalize grand theft auto because that better protects all the state’s citizens from harm. Similarly, it makes sense for states to disallow localities from committing even grander theft against rental property owners, which is what rent control represents.