Analysis: HUD plan would raise rents for poor by 20 percent

In this May 14, 2018, photo, clothes dry on a clothesline outside of the Cooper River Court apartment complex in Charleston, S.C. A new data analysis by the Center for Budget and Policy Priorities shows that tenants in Charleston receiving housing assistance could see the second-highest average annual increase in the United States under a new proposal by HUD Secretary Ben Carson to raise rents for millions of low-income households. (AP Photo/Robert Ray)

There’s a discussion about to take place in the statehouse regarding Utah’s increasing housing costs.

The proposal will be pitched as banal and is likely to garner support among key groups, but its intent is to create an avenue for implementation — a slippery slope of potentially misguided policy decisions.

The bill, currently being drafted by Utah Rep. Jennifer Dailey-Provost, D-Salt Lake City, will be considered in the upcoming session of the Utah Legislature and proposes removing a statewide ban on municipalities and county governments from discussing rent control.

State law currently says no rent control can be implemented without approval from the state Legislature. “I just want to take that provision out so that cities and municipalities can make that decision for themselves,” Dailey-Provost said.

Let us first give some ground by admitting this is a reasonable perspective. Removing restrictions on the free discussion of ideas should be encouraged. If affordable housing and problems resulting from increased housing costs have entered crisis territory, a back-and-forth of all the possible solutions should be had.

Implementing rent control is another matter. This, we imagine, is the discussion Rep. Dailey-Provost actually wants.

Rent control, an idea long discouraged by the overwhelming majority of economists, found popularity once again after the states of Oregon, New York and California recently implemented their own version of the concept. Illinois is also considering rent control measures.

This well-intended policy proposal is seductive. Rent control typically proposes a cap on the annual increase in rents to prevent price gouging in high-demand markets and requires stronger regulations on landlord-tenant relations. It also typically requires the creation of state and local authorities to govern the decision-making process.

While wages are rising in the United States, they’re not keeping up with the cost of living in many areas of the country. The Utah Foundation’s Community Quality of Life Index, for instance, indicates that “Housing affordability is an issue of increasing concern for Utahns.”

Similarly, if renters in Utah want to make the jump from their dwellings into more permanent accommodations, they’re likely to find median home prices that have grown by 5.7% in the last 26 years, according to the Kem C. Gardner Policy Institute at the University of Utah.

These concerns ought to be taken seriously by policymakers. If the labor force in Utah — whether justified in the immediate or not — thinks they can get a better deal elsewhere, sooner or later, they will take it.

Utah County has an advantage compared to more rural areas of the state. Silicon Slopes in the northern section of the county was supplying enough jobs to make this area No. 2 in the country for jobs growth and No. 6 for wage increases in 2018.

But with a large influx of families moving to Utah County, the demand for housing is also relatively high. Through the first six months of 2019, median home prices were reported at $335,000, according to the Utah Association of Realtors. Likewise, a report in 2017 from Cushman & Wakefield, a real estate services firm, indicates that in the two years they’ve been observing Utah County, rental rates increased 7.9%.

This is cause for concern. It’s not, however, cause for alarm.

There’s a problem with the idea that rent control will fix any affordable rental housing issues in Utah. Without trying to sound flip, that issue can be found, and case studies will be cited, in most entry-level economics textbooks.

Setting an annual cap on rental price increases, or a price ceiling for those more familiar with the jargon, is likely to do two things in the long run: Create a rental housing shortage and diminish the quality of rental housing.

We can already imagine the new slogan; Utah: the west’s other San Francisco.

Sure, there’s an argument to be made that high-density housing, increased traffic and further growing Utah County’s population are undesirable. San Francisco is mentioned as an example because residents have long endured rent control, and the results are a cautionary tale.

A 2018 paper by the National Bureau of Economic Research studied San Francisco’s rent control expansion outcomes from the 1990s and found that while there were some benefits for neighborhood stability, in the long run the supply of rental housing was reduced and the policy may have accelerated gentrification.

It’s likely that disincentivizing the development of rental housing that wants to take place in Utah will create similar problems.

Consider life in Utah County without enough rental housing — the labor force commuting for greater distances, harming air quality and wearing on local infrastructure; smaller apartment units being constructed, existing units being converted to condos and poorer quality units attracting fewer high-quality residents.

There may be other negative externalities in this scenario, albeit on a smaller scale, such as an increased presence of homelessness. Retail and other businesses might also find it difficult to hire qualified individuals because they’re unable to find a place to rent locally.

Growth is expected to continue in Utah, and that’s especially true for Utah County. The least bad outcome for those interested in keeping this area clean, affordable and feeling community oriented is to allow that growth to take place responsibly and without unnecessary regulations.

Families and businesses are moving to Utah, and they’re moving specifically to Utah County. This is a good thing and they should be welcomed with the same advantages provided to long-term residents: clean, safe neighborhoods where affordable housing and quality jobs are available.

There will continue to be challenges as this growth takes place. Rent control is not the solution.