Rent Control’s Revenge

Happy Tuesday, and welcome to another edition of Rent Free. This week, we have two stories on the revenge of rent control.

In the midst of San Francisco’s AI boom, Mayor Daniel Lurie and the Board of Supervisors are proposing a raft of new laws to tighten the city’s rent control policies and prevent evictions.

Meanwhile, in Providence, Rhode Island, incumbent Mayor Brett Smiley, who had vetoed a rent control ordinance earlier this year, lost the Democratic primary to pro–rent control state Rep. David Morales.

One could consider Lurie and Smiley as more moderate liberal mayors of very blue cities. 

It’s notable then that neither has proven capable of stopping the leftward drift of housing policies in their respective jurisdictions. 

In the midst of a cost crisis, Lurie is supporting even more price controls in a city that is already heavily rent-controlled. Smiley attempted to hold the line on good policy and vetoed a rent control ordinance. For his efforts, voters kicked him out of office. 

Other liberal municipal politicians who are undecided on whether to back the next rent control policy in their city may well take an unfortunate lesson away from these two examples. 

Better to play it safe and just support the price controls that most big-city voters say they want, even if it comes with terrible consequences for housing supply and quality. 

Headlines about San Francisco housing lately have focused on the upward pressure the city’s AI boom is putting on rents and home prices. Median rents are up 26 percent, reports the San Francisco Chronicle. Newly minted millionaires are having a hard time finding a mansion. 

In response, Lurie has declared a rent emergency and announced, along with members of the Board of Supervisors, a list of policies intended to limit evictions and sudden rent increases.  

“We have lived through booms before—this time, we have an opportunity to build a recovery that is broad-based and lasting, where San Franciscans can put down roots and participate in our city’s success,” said the mayor in a statement on Thursday when announcing his rent emergency reforms. 

On paper, San Francisco already has a lot of policies to suppress sudden rent hikes. 

An estimated 170,000 units (roughly 76 percent of the city’s rental housing stock) built before 1980 are covered by the city’s rent control law, which typically limits annual rent increases to around 2 percent per year. 

A state rent control policy that caps rents at 10 percent for units that are 15 years or older covers another roughly 33,000 units, or 15 percent of the rental housing stock. 

That leaves a little under 10 percent of rental units in San Francisco where tenants could see their rents rise as much as the market can bear. 

Additionally, in 2024, San Francisco became the first jurisdiction in the country to prohibit property owners from using algorithmic software when setting rents and occupancy limits on the theory that landlords were using this software to hoard vacant units and drive up prices. 

Apparently none of that has been enough to constrain prices during San Francisco’s latest economic boom. 

To further suppress rents, the mayor is supporting a long list of new policies. 

He’s backing legislation that would increase the relocation expenses tenants are owed when their landlord takes their unit off the rental market. For rent-controlled units, he’d also cap “banked” rent increases (that is the annual rent increases a landlord saves up to charge at a later date) at 10 percent per year. 

Additionally, Lurie is proposing to spend another $3 million on legal services for tenants facing eviction and supporting a proposal by socialist Supervisor Jackie Fielder to forbid nonpayment evictions when a tenant owes less than one month’s rent. 

All things considered, these are relatively marginal updates to the city’s long list of tenant protections and rental price controls. 

The fact that the tenant protections and rent control policies San Francisco already has in place are not adequately suppressing today’s rent spike would suggest that a marginal tightening of those policies won’t solve the problem either. 

In fact, it could make it worse. 

Traditional economic theory suggests that rent control will drive up the price of uncontrolled units by increasing demand to live in the city and encouraging tenants to hold onto their below-market-priced units. 

In San Francisco, the small 10 percent slice of non-rent-controlled units must absorb most of the upward pressure on rents being generated by the AI boom. 

That’s already resulted in double-digit increases in median rents. If Lurie’s proposed reforms succeed in limiting evictions that bring units back onto the market, reducing rent increases at already rent-controlled properties, or creating new market-rate condominiums, an even smaller share of units will have to absorb the AI-fueled increase in demand.

A more sustainable, long-term approach to housing affordability would be to eliminate regulatory barriers to new construction. Rising rents should, ideally, be a signal to builders to construct more units in the city. 

Under Lurie, San Francisco has adopted a handful of pro-supply reforms. It’s cut the number of affordable units new housing developments must include. The city also passed a citywide upzoning initiative. 

Even so, those deregulatory moves have done little to boost construction. The number of completed homes in the city is in the hundreds this year. 

Pro-supply housing activists have pressed Lurie to go further on supporting new home construction. Some have challenged his rezoning plan in court, alleging that it does not go far enough to satisfy state laws requiring cities to plan for housing. 

Certainly, one shouldn’t expect a few hundred additional units a year to moderate a rent spike driven by a major economic boom. Nor should one expect the list of proposals in the mayor’s rent emergency package to do much good either. 

When Smiley vetoed a 4 percent annual rent cap in Providence, Rhode Island, that the city council had approved, he did so on explicitly pro-supply grounds. 

The key to making Providence affordable was building more housing, not imposing more price controls, he argued. 

“Rent control doesn’t lower anybody’s rent,” said Smiley during an August debate against his pro–rent control Democratic primary challenger, Morales. “There are people struggling today. The root cause of that is a shortage of housing.” 

In that debate, Smiley invoked Saint Paul’s disastrous experiment with rent control. After voters approved a very strict rent control policy, developers walked away from projects, and building plummeted. Something similar could happen in Providence, he argued. 

That didn’t prove to be a winning message. On election night this past Tuesday, Morales captured over 52 percent of the vote. He’s vowed to revive the city council’s rent control proposal. 

Read my full take on the election and the dueling arguments it featured over rent control here.

• In New Hampshire, tenants of a federally funded low-income housing provider, Concord Housing and Redevelopment Authority, have sued to challenge the authority’s installation of technology that can monitor for cigarette smoke, noise, and even the number of people in a unit. 
• Mortgage rates rise to a two-year high of 7.17 percent. 
• Airbnb is investing in home construction now.
• Boston Mayor Michelle Wu is proposing tax abatements for already-approved developments whose construction has stalled. How many more projects are not being proposed because of those same taxes?
• A new study on the massive disparities in construction timelines between cities.