This week in Olympia, House Bill 2114 crashed and burned in quite cathartic fashion—at least for those of us who (1) believe almost every economist when they continually say rent control reduces the quality and quantity of housing for everyone, and (2) adhere to the Washington and Federal Constitutions’ prohibition against government’s seizure of private property (including any portion thereof) without “justly compensating” impacted owners first. H.B. 2114 died in committee this week, but not before its sponsors spent the last two months threatening to use it as a cudgel to completely upend Washington’s well-worn owner-tenant laws. For weeks on end we’ve read op-eds like this one or this one, imploring Olympia to pass a bill that is constitutionally suspect on its face. Specifically, it proposed a 7% per annum rent increase cap, whereas the U.S. Supreme Court held decades ago that 8% was barely enough to ensure rental owner’s a “reasonable rate of return.” This is why caps on increase increments typically track inflation or the Consumer Price Index. In a word, tacking rent increases to these or similar independent metrics is much more likely to strike a balance between owners’ and tenants’ distinct interests than would an arbitrary (indeed an almost pull-out-of-a-hat) figure devised by legislative fiat.
This past November, voters in Tacoma barely approved a rent-control bill called “Citizens’ Initiative Measure No. 1” (aka “2023 Landlord Fairness Code Initiative”) that, among other things, caps late fees in the city at $10 per month (you read that right) and limits per annum rate increases to a max of 5%—a shockingly low number for owners, especially in light of how quickly prices of nearly all goods and services in the United States have rocketed in recent years. H.B. 2114, which was sponsored by Tacoma’s Senator Yasmin Trudeau, borrowed liberally from Grit City’s initiative (yes, apparently Tacoma is nicknamed “Grit City”). Introducing H.B. 2114 (as Senate Bill 5961), Senator Trudeau emphasized that “rent increases cause families to reduce spending on essentials like food and other basic needs, leading to stress, trauma, and negative health outcomes.” Putting aside H.B. 2114’s legal and constitutional defects, from a policy standpoint it is more than a little incongruous to cite the oppressive market prices of non-housing “essentials” in order to justify only capping rental-housing prices. Why are landlords as suppliers singled out, while grocers, retailers, and energy providers get a pass? It is a question us property-rights advocates ask often, though we are yet to receive any answers, satisfactory or otherwise.
The truth is, there is no categorical distinction between those who provide housing on the one hand, and those who supply us with food, clothes, and electricity, on the other. In our estimation, life is as if not more intolerable when one is hungry, naked, and cold with a roof over their head than it is when one has all their basic needs met except for stable housing. It is the presence of all of these ailments, in the absence of all pertinent essentials, that made most of human history what Enlightenment thinker Thomas Hobbes described in his Leviathan as “solitary, poor, nasty, brutish and short.” (Centuries later humorist Woody Allen would add that “life is full of misery, loneliness, and suffering . . . and it’s over much too soon.”) This is absolutely not to minimize the travails of homelessness. It is a dire social problem that requires some top-down answers, and a personal tragedy for each and every individual experiencing it. But, again, placing the bulk of the pecuniary burden to fix it on the shoulders of housing providers (conveniently ignoring other staple goods and services) belies the very purpose for which the federal Takings Clause was designed. Per the U.S. Supreme Court, “to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”
Besides keeping the distribution of public costs “fair and just,” the constitutional prohibition against taking property without justly compensating its owners also assures a certain level of accountability among public officials. Imposing outsized burdens on a discrete group instead of on the “public as a whole”—especially considering how “landlords” have for so long been wrongly villainized as unreasonably greedy transactors—also permits lawmakers to raise revenues “off budget,” as Justice Antonin Scalia once admonished. “The politically attractive feature of regulation,” Scalia noted, “is not that it permits wealth transfers to be achieved that could not be achieved otherwise; but rather that it permits them to be achieved ‘off budget,’ with relative invisibility, and thus relative immunity from normal democratic processes.”
Aside from the peculiarity of singling out housing from among life’s many necessities as the panacea for all societal ills—made less peculiar, perhaps, in view of the “politically attractive feature” of “off-budget” wealth transfers—as a practical matter rent controls nearly always fail to improve the quality and quantity of housing wherever they are enacted. Indeed, rent controls nearly always makes both worse. Ask . . . nearly any lifelong student of economics. Mid-century Swedish economist Asser Lindbeck famously quipped that “rent control appears to be the most efficient technique presently known to destroy a city” besides carpet-bombing it. In this respect, then, it would not only be unfair to rental owners to overburden them with high public costs imposed by variegating market forces, including rising food, retail, and energy prices. It would, simply, reflect poor policymaking.
There is still much work to be done in the Evergreen to secure those property rights that proposals like H.B. 2114 appear chronically—almost Phoenix-like—to threaten. While there is no quick fix to all of Washington’s myriad housing problems, other states and municipalities beyond our borders offer some worthwhile and, importantly, piecemeal solutions—that is, policy prescriptions that do not in one fell swoop subject the entire residential rental market to a socio-economic experiment that owners and tenants together have a very good chance of losing. Indeed, it seems almost every year of late Olympia tinkers with pell-mell solutions to a housing crisis that in all its intricacies demands far greater deliberation than our Legislature has ever given it.
As a 501(c)(3), CADF cannot—nor do we wish—to urge specific reforms over others. With this year’s truncated legislative session nearly over, at this juncture it suffices to remind lawmakers for next year that rent controls fail in triplicate. First, they are bad policy, as we have already discussed. Second, we have also emphasized that many if not most iterations of rent control suffer serious—even fatal—constitutional defects. Third, it bears mentioning that with a comprehensive statewide owner-tenant law already on Washington’s books, local efforts at rent control—like Tacoma’s Measure No. 1—are almost certainly illegal under RCW 35.21.830, which explicitly “preempt[s]” “the imposition of controls on rent,” which “is of statewide” rather than local “significance.” This, in part, explains why Tacoma officials have announced they cannot enforce the law (though it can be enforced via private tenant action).
It is fortuitous for all Washingtonians that the Legislature ultimately killed the bill. For taxpayers, it means not having to pay for all of the litigation that inevitably follows such a broad mandate—as is now happening in Oregon and California, the only two states with a statewide rent-control regime. For owners, it preserves their prospect of reaping reasonable rates of return—in short, a preservation of the common-law right to profit from the use of one’s own property, among the other fundamental attributes of ownership protected under the state and federal Takings Clauses. Finally, for tenants, H.B. 2114’s failure keeps residential-rental prices far more competitive than they would be if the state had so drastically reduced housing providers’ incentives to even continue participating in the market. H.B. 2114’s defeat is a victory for Evergreeners everywhere. We can celebrate its demise while acknowledging there is stull much work to be done.
Alki,
Sam Spiegelman
Postscript: For more information on the legal and constitutional issues at play, see my recent article on the subject, here: https://ir.lawnet.fordham.edu/ulj/vol51/iss2/2/