Stanford paper says rent control is driving up cost of housing in San Francisco

Just as California voters might overturn the state’s heavy-handed restrictions on new rent-control units, Stanford economists Rebecca Diamond and Tim McQuade presented a paper in October making the provocative argument that San Francisco rent control ultimately drove rents up citywide since 1995.

But the conclusion from their findings is not necessarily that rent control is bad. Instead, the findings are a bit more complex.

In the paper, snappily titled “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco,” Diamond and McQuade used public and private data to look at how often people moved out of rent-control units, how often landlords converted those units to new types of housing not covered under rent control, and how median rents changed since the 1990s.

The pair singled out SF specifically to “exploit a unique rent control expansion in San Francisco in 1994 that suddenly provided rent control protections for small multifamily housing built prior to 1980” so that renters in post-1980 homes form a natural control group with which to compare.

Here are some of their conclusions:

• Rent controlled tenants are of course more likely to stay in their current homes. “Rent control increased the probability a renter stayed at their address by close to 20 percent,” note Diamond and McQuade, with younger renters more likely to leave the roost anyway than older ones.
• And that in turn prevents flight from San Francisco itself. “We find that absent rent control essentially all of those incentivized to stay in their apartments would have otherwise moved out of San Francisco,” note the economists. Yikes.

• However, in some the priciest neighborhoods, tenant turnover in rent-controlled apartments was actually higher. “This evidence suggests that landlords actively try to remove their tenants in those areas where the reward for resetting to market rents is greatest,” either by gamely buying out long term tenants or just evicting them.
• Landlords of rent-controlled homes were more likely to convert them to the types of buildings not covered by the provisions. “Landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15 percent.”
• Particularly via the old TIC trick. “Rent-controlled buildings were almost 10 percent more likely to convert to a condo or a Tenancy in Common (TIC) than buildings in the control group, representing a substantial reduction in the supply of rental housing.”
• Even so, rent control is definitely good for the tenants who get it, even with the added risk of landlord shenanigans. “Rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2,300 and $6,600 per person each year, with aggregate benefits totaling over $390 million annually.”
• But the loss of housing might drive up rents elsewhere. “We find that six percent decrease in housing supply led to seven percent increase in rental prices. These caused an aggregate welfare loss to renters of $5 Billion. This is almost as large as the benefits accrued by the lucky beneficiaries of rent control.”

What does it all mean? First, bear in mind that just because two economists say so doesn’t make it true. But even if we take Diamond and McQuade’s findings as fact, different parties will draw different conclusions.

Photo by Justin Sullivan/Getty Images

For example, the paper says that the cost to general renters was “almost” as high as the benefit to those in rent-controlled homes, but not quite. Is that trade off worth it? That may boil down to a judgment call.

Some also may respond to the findings by simply suggesting further regulation.

Jennifer Fieber, director of the San Francisco Tenants Union, told the San Jose Mercury News that the city or state should just make it harder for landlords to shimmy out of rent-control arrangements via TIC conversion, for example.

On the other hand, those who have griped about rent-control laws all along will point to this research as vindication.

According to the urban design think tank SPUR, about 45 percent of SF’s housing stock—roughly 172,000 units in 2014—are presently rent controlled, although the city itself keeps no official tally.

• Ballot Could Expand Rent Control [Curbed SF]
• Effects of Rent Control [Stanford]
• Rent Control Fueled Gentrification [SJ Mercury]