It is human nature to want to help the less fortunate, but history shows using the force of government to control prices is more apt to gentrify. In a 1997 paper, Cato scholar William Tucker summarized the problem. Rather than letting sellers and buyers agree on prices, government takes the immoral decision to give one or the other an unfair advantage. The rich can afford lawyers and accountants to create and identify loopholes, the poor can receive welfare, so the middle class usually carries a disproportionate share of the burden.
If government favors the consumers in the housing rental market, the suppliers don’t typically recover their losses by foregoing the purchase of a Learjet. More often than not, they jack the price up on their market-rate rentals or forego upkeep and improvements.
What’s more, subsidies for suppliers lead to surplus, whereas those for consumers induce scarcity. Developers will choose to build where they can realize greater profits. Worse than that, communities with a history of dabbling in rent control scare away developers, who have heard horror stories of rent controls being imposed retroactively. Sprawl not only causes city workers to carbon-footprint up and down the countryside, it spreads potential increases to municipal tax bases out-county.
Furthermore, regulation gives rise to alternative, shadow, and black markets; in addition to the consequences that are unintended by those who would rather hope than analyze data. People cling to their low-rent units, landlords try to fill vacancies with friends and relatives who can do favors in exchange for low rent, and apartments are converted to condominiums.
Data collected by Tucker showed Gaussian distributions for advertised rentals in large cities without rent controls that were skewed toward the cheap end. In cities with rent controls, advertized prices were shifted more heavily toward the upper end. The disparity between the overall median rental rate and advertised rental rates showed the cheap housing was being hoarded. Median advertised rents in some rent-control cities were two to three times higher than the overall median rents.
When Cambridge, Massachusetts repealed rent control, Tucker wrote, “Tenant activists had predicted huge rent increases, mass evictions, and a surge in the homeless population if the regulations were abandoned. None of this has occurred. Formerly regulated rents have risen, but construction of new apartments has also begun for the first time in 25 years.”
Loan officers at banks understand this. They and developers like Whalen and Bissette are motivated to take risks calculated to succeed. The good ones foresaw the housing crisis, but Asheville City Council remains bent on imposing for rent controls for ten years or in perpetuity. As a lesson that should be chalked up as learned, consider the surrealistic scene in Detroit where droves of once proud houses couldn’t sell for $1. Would a conscientious landlord upkeeping quality property consent to rent his nice apartments for 80 percent of the market’s median?
Whalen came before council to request $250,000 to help with the construction of 32 units of workforce housing downtown. Back in 2008, the city entered into a much celebrated public-private partnership with Whalen’s Public Interest Projects. Together, they would build a parking garage, a hotel, and housing at 51 Biltmore Avenue, with all sorts of public benefits for you and me and the tourists.
The deck was completed, but when it came time to start on the apartments, it was learned that OSHA forbade construction within 10 feet of the overhead utility wires. This was on top of the formidable squishing imposed by the city’s requirement for a 10-foot sidewalk. Burying the wires would cost $250,000, but that would kill any hopes for charging HUD’s definition of affordable or workforce rents.
Whalen lamented PIP had tried to work with contractors to realize their pricepoint, but “It can’t happen. . . . The numbers for this project don’t work.” Charging rents that couldn’t recoup the high price of construction would not attract conventional lenders.
Whalen pointed out that Asheville had a shortage of mid-priced rental units. He would supply some, and by increasing the supply he would provide downward pressure for pricing. Rather than appeasing council with their wish for rent controls, and risk having the project go belly-up; Whalen requested a chance to sit down with members of council to discuss the nuts and bolts of their Land Use Grant program using real numbers. “Frankly, a project can’t be done that way,” he said.
Whalen provided a greenwash and appealed to his history of completing quality, large projects in the city. But Councilman Cecil Bothwell was not buying it. He accused Whalen of trying to take the city to the bank a second time. He couldn’t believe Whalen didn’t know he couldn’t build near the wires when the project first ran through the city’s development review process.
During public comment, Claire Hanrahan spoke against HUD’s definitions of “affordable” and “workforce.” The names sound nice, but no Asheville service worker is going to afford the $800 workforce rates Whalen expects to offer. Jason Hughes then placed an artificial pot plant between him and the camera taping the meeting as he spoke on non-initiation of force. The measure passed 6-1, Bothwell opposed.
Council then breezed most rapidly through a measure on the airport authority. Bothwell said the matter had already been hashed and quickly moved for a swift vote. What was treated as only dotting i’s and crossing t’s for a smooth transition of ownership, though the city didn’t want things to go that far, passed unanimously.