Should Have Seen This Coming

Last November, voters in St. Paul approved a measure to impose rent control on housing producers. The law went into effect on May 1, and the results are precisely what should have been expected. In March, before the law was in effect, building permits for multi-family housing were down 80 percent from November 2021 to January 2022. (I was unable to locate more recent data.) Rent control advocates should have seen this coming.

Earlier this year, the city’s mayor said that new construction should be exempted from the rent control law. Margaret Kaplan, the president of the St. Paul-based Housing Justice Center, opposed any exemption:

This appears to be something that is kind of gutting a large part of the ordinance that was passed by the voters. I don’t understand what a backward-looking exemption, what kind of problem that’s trying to solve at all. It’s not that the developers are going to unbuild the buildings that they have.

Certainly, it is unlikely that developers will begin demolishing multi-family housing. But as the early results indicate, new units are going to be built at a very reduced rate. That will exacerbate the housing problem in St. Paul. But increasing the supply of housing isn’t Kaplan’s concern. She can simply advocate for more controls and restrictions on housing producers.

The housing crisis in St. Paul and elsewhere, is a supply problem—the demand exceeds the supply. By limiting the potential profit, rent control disincentivizes investment into rental housing. When housing producers can’t make a reasonable profit for producing housing, they will quit producing.

Kaplan illustrates an attitude that is common among those who want to regulate and control producers. They expect producers to continue producing, even when it makes no sense financially. And then they express dismay when production slows or stops.

Rent control is economically destructive. More importantly, it is morally repugnant.