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The Definition of “Insanity”

Albert Einstein famously (and perhaps apocryphally) quipped that “insanity” is “doing the same thing over and over, expecting different results.”

In recent years, anamorphous cadre of Evergreen lawmakers united, at least, in their apparent economic analphabetism, have stress-tested the limits of Einstein’s proposition, continually pushing several statewide rent-control bills despite generations of economists telling us all otherwise. As with attempts to regulate the price of anything, someone, somewhere along the builder-vendor-consumer axis will pay.

In the rent-control context, the burden might start at landlords, but it most certainly does not end with them. Instead, every additional artificial imposition on a free rental-housing market inevitably counter-incentivizes investment into such ventures.

Translation: The harder government makes it to collect rents and turn profits, the increasingly less appealing landlordship becomes.

And fewer landlords means a smaller rental stock or, at best, one that is dominated by large developers who can afford to internalize hefty regulatory costs and, with far less competition, can more easily collude and monopolize to keep rents higher than they would be in a truly (mostly) free market—that is, notwithstanding the slate of local-and state-mandated limits. As vaunted Swedish economist Asser Lindbeck put it, “rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

Despite economists’ consensus—just 2% of those polled in 2012 agreed rent controls reduce housing costs—progressive politicians bent on scoring winning headlines instead of useful, durable policies have long made “rent control” a cause célèbre. Just another in a long string of pie-in-the-sky promises to defray consumer costs by overcharging providers. Schemes that inevitably end up costing consumers more—either in the form of artificial scarcity or ancillary price inflation. The adverse consequences of government overreach are particularly harrowing in the housing market which, among America’s economic sectors, is particularly overburdened and understocked as a result of decades of what can best be called mass regulatory improvisation. In a seminal article in the American Economic Journal: Macroeconomics,  the authors calculated (upon correction) that zoning rules alone(that is, not even accounting for controls on rent) have slashed America’s GDP potential by 36% since 1964.

That’s right, the U.S. economy may be one-third smaller due to just one facet of overregulation of the housing market!

This year’s turn, H.B. 1217, is materially nearly indistinguishable from last year’s iteration, with just a few alterations on the margins meant, ostensibly, to make it more palatable to those rightfully opposed. These marginal distinctions are not important—truly.

Here are the brass tacks, per staff’s summary:

  • Limits rent and fee increases to 7 percent during any 12-month period and prohibits rent and fee increases during the first 12 months of a tenancy for tenants subject to the Residential Landlord-Tenant Act and the Manufactured/Mobile HomeLandlord-Tenant Act, regardless of the length or type of lease, with certain exemptions.
  • Provides certain other protections for tenants, such as rent and fee increase notice requirements; tenant lease termination provisions; and limits on move-in fees, security deposits, and late fees.
  • Provides remedies and enforcement mechanisms for violations of the bill, including Attorney General enforcement under the Consumer Protection Act and a private cause of action for damages.
  • Requires the Department of Commerce to create an online landlord resource center and to contract with an independent third party to carry out a social vulnerability assessment of the impacts of rent stabilization.
  • Requires the Attorney General to publish model lease provisions.

But wait! There’s more!

There is also the “teensy” matter of the state and federal constitutions’ Takings Clauses, each of which prohibits governments—federal, state, or local—from seizing private property (including cash) for public use (for private use is always prohibited) without providing its owners “just compensation”—typically, fair market value.

Yet this is precisely what H.B. 1217 would do. It would force many owners to continue hosting erstwhile tenants far past the expiration or breach of their leases, or at rates far below what the market would permit—violations of what the Supreme Court recently reconfirmed is a fundamental right to exclude others from your property.

Government has at its disposal a wide array of tools to address any number of public-policy concerns. It can impose licensing requirements on professionals, levy a diversity of taxes (income, property, sales, etc.), and yes, it may even seize private property that stands in the way of a public use—provided it pays. Yet oftentimes—especially in the lattermost case—lawmakers and other officials will look for ways to achieve specific policy outcomes without suffering the electoral consequences of employing unpopular means, like raising taxes.

When it comes to rent controls, it is especially tempting to overburden owners. They are unfairly maligned to begin with and are never a large enough block to threaten an imposing officeholder’s incumbency. Yet this temptation is the precise purpose for constitutions. That is, to protect the fundamental rights (e.g., to ownership) of a minority of citizens from the outsized and often adversarial will of the majority. The Supreme Court has long held that the Takings Clause “was designed 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.”

Lawmakers’ repeated attempts to charge landlords for all of the misadventures of our housing sector—many, if not most, consequences of overregulation, are not just unjust. They are also “insane”: a complete waste of time.

Alki and Here We Go Again,

Sam Spiegelman