Puget Sound residents agree that housing, homelessness, and safety are the most significant problems in our state in 2023. This should come as no surprise. People experiencing homelessness in Washington state reached 28,036 in January 2023, up 18% since 2020 despite an eviction moratorium during the pandemic. Murder has spiked 51% since 2019 to hit an all-time high in 2022, all during a suspension of misdemeanor laws, no police pursuit laws, and a general movement to defund the police.
The Washington State Department of Commerce researched the causes of homelessness and identified rising rents as the most significant factor that contributes to homelessness. This almost seems like political advocacy—if rising rents are to blame for homelessness, why don’t we just pass rent control to keep rents from going up? This blog post is a strong warning against rent control, which we believe will have the exact opposite effect than what is intended: rent control would increase rent prices and increase homelessness.
Rent Control Vs. Housing Supply
According to Washington’s Department of Commerce, rent increases primarily because of a housing supply shortage of 140K housing units to 225K housing units. The Department of Commerce reported that Washington state needs to build 1.1 million new housing units by 2043 to keep pace with demand, population growth, and immigration. If we want high-earning tech workers to move to Washington, we should expect an increase in demand. When more people compete to rent or buy the same units, prices go up. The highest earners will offer more for the rental and price everyone else out. That’s Economics 101.
We desperately need to increase the housing supply to avoid excessive rent increases and provide affordable housing to those in need! How do we increase the housing supply?
The housing supply will start to decline if we don’t encourage people to build or maintain properties. Without proper market-rate rents, housing providers will have less funds to maintain older units, leading to their disrepair and eventual removal from the housing supply. If a refrigerator breaks and the housing provider doesn’t have the budget to buy a new one, they are forced to cannibalize a fridge from a vacant unit, taking that unit off the market.
Apart from the profit motive, rising rents are also driven by many factors that housing providers can’t control. Inflation increases the cost of appliances and repairs (major appliance prices are up over 20% since March 2020). Rising wages increase the cost of maintenance. Changing interest rates influence the cost of credit and operating capital. If housing providers can’t keep up with their costs, they shut down and take their rentals off the market. Everyone loses.
Without the expectation of profit, no developer or bank will risk millions to fund the construction of new housing units. Not a single person in this market is building housing out of the kindness of their own heart. Banks make lending decisions based on analyzing the business behind the loan. If the business behind the loan won't generate the money to pay back the loan with interest, the loan will never be made. Human beings must be incentivized to take action. Without humans building new housing units and maintaining existing ones, the housing supply will drop, leading to higher rent prices and more people experiencing homelessness.
Policy Ideas to Help Grow Housing Supply
Apart from market forces, housing costs in Washington state have also risen due to high property taxes, insurance costs, and regulation. If we want to tackle the rising rent problem, we need policies that incentivize developers to build and make it easier for housing providers to keep existing rentals on the market. Property owners that have vacant or unused housing units should be incentivized to bring older housing supply back onto the market.
Policies that help incentivize housing supply growth include:
“What Does Economic Evidence Tell Us About the Effects of Rent Control?” (Brooking Institute)
“Rent Control, FAQs and Myths” (City of Seattle)
“The One Issue Every Economist Can Agree is Bad: Rent Control” (Washington Post)
“Rent Control and Stabilization Policies: 4 Studies to Know” (Journalist Resource)
“Examining the Unintended Consequences of Rent Control” (National Apartment Association)
“Washington State’s Housing Affordability Crisis” (Office of Lieutenant Governor Denny Heck - 2021)
“Housing Shortage Tracker” (National Association of Realtors)