The cost of housing – not just in Denver, but statewide – continues to be one of the most pressing issues facing Colorado. On balance it is a case of both a scarcity of affordable housing for low‐income residents as well as ballooning housing costs for the middle class. The two problems are very much related. They are rooted in the common concern of the state’s population growth which is far outpacing existing housing supply.
According to March 2019 data from Zillow, four Colorado cities are among the top 30 U.S. markets with the highest monthly median rent: No. 4 Edwards at $3,500 per month; No. 7 Breckenridge at $3,225 per month; No. 23 Boulder at $2,200 per month; and No. 28 Denver at $2,100/month. Clearly, something needs to be done.
Lawmakers in Colorado are rightly seeking solutions, but they are wrongly focused on a concept that would only exacerbate housing costs: rent control. If passed, Senate Bill 225 would allow local governments to impose potentially draconian rent control price caps on private residential properties. While the concept of rent control may sound appealing, countless economic analyses over the years have demonstrated that it has not worked. Such controls have often had an effect counter to its stated intentions of aiding those in need of affordable housing.
In an oft‐cited New York Times column, writer and economist Paul Krugman summarized, “Almost every freshman‐level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand.”
Colorado can look east and west for case studies that expose the downsides of government‐imposed rent limits, that is, rent controls. In San Francisco and New York, two cities which
famously (or perhaps infamously) impose rent control, the consequences have been clear. Rent control has benefitted those fortunate enough to live in an apartment covered under the law.
The problem is that those residents are not necessarily the ones in greatest need of relief. They are merely the lucky ones that have found and rented a rent‐controlled unit. Given the low rent, they typically stay for years, if not decades, freezing the mobility that is necessary in a growing city. Truly low‐income residents will find it very difficult to find an affordable home.
In many instances, the existing occupant of a rent‐controlled unit undertakes “agreements” with others to sublease or contract for the favorably priced unit. This action is often
undertaken to improperly and illegally retain control over the below market, rental unit.
The larger issue with rent control is that builders and owners are unable to recoup their costs and a reasonable return. If their property is no longer profitable, they are forced to make changes. Those may include one of more of the following: they will be forced to increase rents for those not living in controlled apartments; they will convert rental units into condos; they will, financially, be unable and unwilling to make upgrades; and they will decide not to build new housing. In total, these outcomes translate into less housing supply and an even tighter housing market.
It is easy for economists to pick apart rent control laws, but we must also offer solutions. It’s not a mystery; we need new construction of all types of housing at a variety of price points. New single‐family homes, townhouses and apartments are part of the equation, as is the construction of affordable housing. To reach this goal for housing, state lawmakers should instead consider other measures, e.g., ease onerous or outdated zoning laws, increase permitting efficiency and incentivize construction near transit and job centers. These are just a few, sensible solutions to the housing crisis.
Economists are not politicians, yet they do often disagree with one another. They might be labeled either conservative or liberal. Regardless of their designation, most economists agree
that rent control does not work. Instead, economists turn to the age-old principles of supply versus demand. Creating balance between housing availability and housing needs is the simplest and most effective way to drive down costs for Coloradans. Rent controls have the opposite impact: They increase the cost of housing.
Mark Levine holds an endowed chair at the Burns School of Real Estate and Construction Management in the Daniels College of Business at the University of Denver. He also has worked as an attorney and real estate broker.
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