Lubbock, Texas July 2024 Market Overview

The News Cycle: Rent Control
You may have seen headlines recently on rent control measures in the news. These stories typically talk about rent control measures on the East and West Coast, but recently, there have been talks about a national rent control measure. Yes, there have been talks from the White House on rent control legislation. The Biden-Harris Housing Plan aims to address housing affordability issues through the legislation proposal. Key proposals include:

• Legislation requiring corporate landlords to either cap rent increases on existing units at 5% or forfeit valuable federal tax breaks.
• Repurposing public land to build up to 15,000 additional affordable housing units in Nevada.
• Rehabilitating distressed housing and revitalizing neighborhoods, particularly in areas like Las Vegas.

While these proposals focus on increasing supply, the rent regulation that is making headlines can lead to unintended negative consequences. The plan explicitly targets corporate owners, defined as those owning 50 or more rental units. However, the likelihood of such legislation passing is slim, given the probable lack of congressional support. Nonetheless, vigilance is essential, as rent control policies can be enacted at the city level.

History and Concept
Rent control is not a new concept; it has existed since World War II. The initial purpose was to provide relief to families whose family members were fighting in the war, offering fairness in a time of crisis. While most cities discontinued rent control after the war, New York City maintained it, becoming a long-standing example of its complexities and limitations.

Why Rent Control Fails
Despite its noble intentions, rent control often produces the opposite effect. This is evident when you see that the most expensive housing markets in the country tend to have some form of rent control. Since 1946, economists have studied its impacts, agreeing that it is not fair or effective. Rent control can freeze a city’s housing development and hinder tenants’ upward mobility. It typically benefits only a small group of people.

The primary issue with rent control is that it functions as price control. Markets operate best when supply and demand reach a natural equilibrium, with price as the mediator. For rent control to work, rents would need regulation, as would the costs of repairs, insurance, and taxes. However, this is not feasible. Landlords face fixed income limits but must still deal with inflation and unregulated market prices for goods and services.

Studies show landlords often shift from long-term rental investments to developing condos and high-end properties in cities with rent control, reducing the affordable housing supply.

Addressing Housing Affordability
Solving the housing affordability crisis requires a multifaceted approach. Increasing supply is crucial, but reducing demand is not practical. Cities should encourage development, particularly in areas with growing populations. This doesn’t just mean new neighborhoods on the outskirts but also revitalizing urban areas. Developing multifamily and mixed-use buildings can increase density and tax bases without expanding the city’s footprint. Redevelopment can be cost-effective, leveraging existing infrastructure.

The “Not In My Backyard” (NIMBY) mindset poses a significant challenge to housing affordability. While respecting existing property owners’ concerns is important, city planning and zoning decisions should be based on solid data rather than anecdotal evidence. When they are not, we often end up with laws that, while well-intentioned, create paradoxical outcomes, complicating rather than solving issues. This phenomenon, amplified by social media algorithms, can lead to public misconceptions and misguided policies.