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Deforming Development

eye on the news

Deforming Development

Rent control won’t solve Portland’s housing “emergency.” March 5, 2019
Cities
Economy, finance, and budgets

Oregon’s elected officials are trumpeting the nation’s first statewide rent control law as a fix for the housing crisis—that is, rising rents—in the state’s largest city, Portland. They even think that they’ve reached a compromise to hold down rent increases while still encouraging development: new housing construction will be exempt from controls for 15 years, while rent restrictions will be capped at 7 percent annually.

“The bill is a critical tool for stabilizing the rental market throughout the state of Oregon,” said Governor Kate Brown, after signing the legislation. “It will provide immediate relief to Oregonians struggling to keep up with rising rents in a tight rental market. But it doesn’t work on its own. It’s going to take much more work to ensure every Oregonian . . . has access to housing choices that will ensure that they and their families can thrive.”

Brown is misguided about the virtues of rent control but not entirely wrong about how much more work lies ahead. Metropolitan Portland, in particular—ground zero for the backlash against rising rents—must undo decades of wrongheaded housing policy, which has constrained supply and increased costs for new construction. For more than 40 years, Portland has imposed an “urban growth boundary” aimed at reining in the proliferation of new, mostly single-family housing in its suburbs. This “sprawl” was deemed an environmental evil, one to be replaced by higher-density growth within the growth boundary’s limits (chiefly the City of Portland). Planners at a regional governing body called Metro have been confident that there’s enough room, and adequate zoning heights, for enough new construction to meet the growing demand for housing that’s given Portland some of the nation’s fastest-rising rents. The Metro planners have refused to extend the growth boundary to allow more suburban construction and take the pressure off Portland, even after Portland’s city council declared a housing “emergency” in 2015.

The planners overlook a crucial flaw. As an astute observer of the area’s housing market, Gerald Mildner of Portland State University, points out, permitting higher-rise construction (five stories or more) may satisfy anti-sprawl advocates, but it also entails higher construction costs—and higher rents. Taller buildings need costly steel frames; the single-family and low-rise garden apartments of the inner suburbs can use less costly wood-frame construction. Oregon is, after all, a timber-producing state.

Portland planners have created a perfect storm for housing non-affordability—and now have convinced themselves that further government intervention will solve the problem. It won’t. Rent control, they’ll find, distorts the housing market in ways that will make Portland less dynamic and ensure ongoing low-vacancy rates. As New York City—where a “housing emergency” has been in effect since World War II, when rent regulation was established—has found, price controls on rent lead to low housing turnover. Tenants are convinced, understandably, that because they have a good deal, they should stay put, even if they might otherwise move. Further, what developer will make the long-term investment that new construction requires, while knowing that, after just 15 years, prices and profits (if any) will be capped?

The combination of constrained supply, high-cost construction because of the requirement to “build up,” and rent controls will be bad news for the Portland economy. The city has emerged as an alternative high-tech hub to which firms can relocate or in which they can start up, knowing that housing costs for employees will be lower than those in Silicon Valley. Rent controls mean that prices will be low—but not many apartments will be available. “Our city will remain a nice place with amenities, but it won’t be a dynamic place where new employment and technology are developed,” Mildner writes.

Efforts to control supply and fix prices invariably deform markets. Letting developers build freely, according to the demands of renters and buyers, will open housing availability to everyone, at all price levels.

Photo: Ian Sane/ Flickr

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