2019 Leg Session, Business/Economy, Gold Dome, Housing, Land Use, Original Report, Property rights, Scott Weiser, Uncategorized, Zoning

Rent control bill advances at statehouse; opponents warn of unintended consequences

Legislation to repeal Colorado’s 37-year-old prohibition on rent control passed out of the Senate State, Veterans and Military Affairs Committee Monday after a five-hour hearing. Senate Bill 19-225 would give local jurisdictions authority to impose any kind of “rent stabilization” regulations they see fit.

Committee Vice Chair Lois Court, D-Denver, testily insisted several times during the hearing saying, “This bill isn’t about rent control, it’s about local control. It’s about giving municipalities and counties tools in their toolboxes.”

But Sen. Paul Lundeen R-Monument, citing the language of the bill, pointed out that it is explicitly about rent control. “Rent stabilization is a euphemism for rent control,” Lundeen said.

“I think they have a sincere desire to address Colorado’s affordable housing crisis, but we disagree on the actual impact of rent control and the potential harm it can cause, especially to renters,” said Teo Nicolais, Harvard Extension School instructor specializing in real estate economics.

Colorado State Senate Chambers

“There are many tools that can be used to increase housing affordability, but rent control is really not a viable tool for doing so,” continued Nicolais. “Rent control is a policy that not only harms the city in which it is used but also residents in other jurisdictions as a result of its negative impact on property values and rental housing supply.”

Public speakers who supported the bill complained of the high costs of rent that either affected them personally or that they claimed were driving lower-income residents out of the cities where they work.

Those who opposed the bill, comprised mostly of rental property owners both large and small, lawyers, academics and representatives from various apartment owner and developer groups cited among other things the negative effects on the overall housing supply, its region-wide negative impact on tax revenues for schools, and its infringement on the rights of rental property owners.

Other concerns voiced by opponents of the bill included the threat of capital flight from Colorado that would impair not just affordable housing stocks but all housing development.

Rent control, say opponents, creates uncertainty in the construction finance industry, who fear they might not be able to profit from their investment. This, they say, would drive financing away to the 32 other states that prohibit rent control, making it more difficult to build enough housing of any kind to keep rents down.

The negative impacts on rental supply are exacerbated by the fact that contrary to the perception, most renters do not live in apartments, they live in single-family rental homes.

“Single family homes represent the largest number of rental units in Colorado,” said Nicolais. “There are far more people in Colorado living in rental homes than apartments.”

The import is that rent control strongly induces single-family rental home owners to take their property off the rental market by selling it to an owner-occupant. This caused major shortages in the San Francisco rental market when rent control was put in place, according to Nicolais.

“By the time the effects of rent control are felt, the damage has already been done. It’s very hard to reverse the negative consequences,” he continued.

Ryan McMaken, senior editor at the Mises Institute, interviewed by Complete Colorado in early April said, “This is an anti-poor person control that constricts the availability of housing. It’s simply the sort of thing that punishes the poor while claiming not to.

Sen. Lundeen, who was filling in for Sen. Jerry Sonnenberg, R-Sterling, on the committee said, “The reality [of rent control] is the counterintuitive effect [that] would in fact further restrict the availability of housing. That would drive up costs even further, based on the fundamental principles of supply and demand.

In a 2012 study from the Massachusetts Institute of Technology economists found rent control held down assessed value for rent-controlled properties 18% to 25% and held down assessed value of uncontrolled properties nearby by 12%.

A decrease in assessed value results directly in decreased property tax revenues, which affects school funding.

Opponents say that rent control in one city does not affect only the economy of that city. Rather, it deprives regional school districts of revenues. This is unfair to the residents of surrounding communities because they have no voice in the decision to impose rent control, but are affected by the diminished school funding, as well as funding for other regional services including law enforcement and health and human services.

At the end of the hearing Sen. Court said, “Maybe there is a compromise that could be reached to figure out what language in the existing statute is [that is] really the point of contention.”

Sen. Rhonda Fields, D-Centennial, said, “I think that some of the testimony that I heard sounded reasonable. I think there may be a better pathway moving forward.”

Sen. Vicki Marble, R-Fort Collins, said, “California [voted] 59 to 41 percent against rent control. 5 to 1 in Denver are against rent control. I’m with Denver. I can’t believe it. I’m with California, and that’s even harder for me to believe.”

The bill passed on a 3-2 party-line vote and was referred to the Committee of the Whole.

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