Add Rent Control To The List Of Progressive Policies That Are Sure To Increase Income Inequality

The list of progressive policy proposals supposedly designed to increase fairness and justice in the world just keeps getting longer and longer. Medicare for all. Free college. Higher minimum wages. Every kind of “climate justice” prescription. Reparations for slavery. And here’s one that seemed to have faded away in disgrace decades ago, but now is making a revival: rent control. Rent control is currently getting expanded and strengthened in numerous progressive jurisdictions, from New York to California, with new proposals now on the table in places like Minnesota and Illinois.

A recurring topic in this blog has been the extent to which progressive policies reduce — or instead, actually increase — income inequality. You will not be surprised to hear that there is a very close relationship between jurisdictions with more progressive and redistributive policies and higher income inequality. In an article I wrote in the City Journal in 2015 I pointed out the close relationship:

[In 2014] Bloomberg Rankings published a national study on income inequality, using U.S. Census Bureau income data to rank each of the 435 congressional districts by economists’ standard measure of inequality, the Gini coefficient. The study found high levels of income inequality in areas of the country known for their political progressivism. Topping the inequality list was New York’s tenth congressional district, which covers the West Side of Manhattan and Wall Street—including City Hall. Of the top 25 spots, 23 went to Democratic districts—and not just any Democratic districts. The five congressional districts covering some part of Manhattan earned the first, sixth, ninth, 13th, and 20th positions. Congressional districts in solidly liberal Chicago, Cambridge, Los Angeles, Santa Monica, and Berkeley placed in the Top 25. House minority leader Nancy Pelosi’s San Francisco district ranked 14th on the list . . . .

That article also noted that, although “New York City has far and away the most extensive public and “affordable” housing programs in the United States, and exceeds national averages in usage of welfare programs from Medicaid to welfare to food assistance,” the City’s “poverty rate . . . is 20.3 percent, compared with 14.5 percent in the United States as a whole. . . .”

It’s not really a huge mystery what’s going on here. Nearly all progressive redistribution programs do not count as “income” when income inequality is calculated. That is true for Medicare, Medicaid, food stamps, educational assistance, all housing assistance, and for dozens more such programs. Meanwhile, most of these programs come with eligibility requirements that encourage recipients to keep their reported incomes low. Of course these sorts of programs are going to cause measured income inequality to go up.

And how about rent control? Out in Minnesota, activists in the Twin Cities are now in the process of agitating for what they call “housing stability” proposals. John Phelan of the (Minneapolis-based) Center of the American Experiment responds with a September 4 post titled “Evidence from San Francisco shows that rent control makes income inequality worse.” The post in turn links to this December 2017 NBER paper by Rebecca Diamond and others titled “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” Excerpt:

[L]andlords of properties impacted by the law change respond over the long term by substituting to other types of real estate, in particular by converting to condos and redeveloping buildings so as to exempt them from rent control. This substitution toward owner occupied and high-end new construction rental housing likely fueled the gentrification of San Francisco, as these types of properties cater to higher income individuals. Indeed, the combination of more gentrification and helping rent controlled tenants remain in San Francisco has led to a higher level of income inequality in the city overall.

Surprise! So, add rent control to the list of progressive policies that are sure to increase income inequality.

Here in New York, of course, we have just eliminated the provisions of our rent control regime that had put it on a slow glide path to extinction over the course of decades. I guess we are proud of our position as the U.S. capital of income inequality.