At The Breaking Point: Inside The Global Clamor For Rent Control

For years, affordable housing advocates have warned of a “breaking point,” where rising costs would start to outweigh the benefits of living in the world’s most desirable cities. In New York, that moment arrived June 4, when the already-tense debate over the future of New York State’s rent regulation laws erupted into a full-on conflict. 

Holding protest signs and chanting mottos of support for stronger rent control laws, tenant advocates swarmed the state Capitol in Albany, blocked entrances to the legislative chambers and scuffled with those who tried to push past them. 

More than 60 people — including politicians — were arrested. Two people were reportedly charged with assaulting the State Assembly sergeant-at-arms. 

“Landlords and their lobbyists are not used to not being able to have access to their elected officials,” Cea Weaver, a housing advocate involved in the protest, said in an interview almost two months after the clash.

“Tenants, of course, have been shut out of the halls of political power for centuries,” she said. “It's very symbolic to be shutting down the State Assembly for the real estate industry and they really did not like it.”

Here’s Assembly Sgt.-at-arms Wayne Jackson climbing over / being lifted over protestors at the Capitol today. We deleted the prior tweet because he was misidentified as an Assembly member. pic.twitter.com/UmXC6wk5da

— The Real Deal (@trdny) June 4, 2019

These kinds of clashes — both literal and figurative — are happening all over the globe. As populations in the world's cities swell and housing costs spiral, rent control is being heralded as the answer by many housing advocates and politicians. 

The concept isn’t new, but has been picking up steam this year as a series of cities across the world, including New York — where historic, tenant-friendly laws were passed a few weeks after the demonstrations — London, Berlin and Barcelona, have introduced or proposed new rent control legislation. More city-dwellers are demanding their governments step in between landlords and renters. 

"Landlords were becoming more and more emboldened,” said Esteban Girón, a tenant advocate from Crown Heights who has been arrested more than once protesting rent regulation laws in Albany. “Not all the landlords are terrible or anything like that, but there were enough of them that were that it became an issue.” 

The cities with the least affordable housing are generally the most successful in the world — what urban theorist and professor Richard Florida called “winner-take-all urbanism” — and they are where real estate investors and developers want to be. But the changing demographics and identity of these cities, the very things that attract real estate firms, are also the cause of the growing conflicts. 

Real estate groups can lobby and fight, but as cities change, rent control and tougher regulation may be the new price of admission.

“It’s an existential threat to our industry,” U.S. National Multifamily Housing Council Vice President Jim Lapides said. “It is probably the easiest policy that we argue against … because there is such unanimous agreement on all political stripes about why rent control is bad. But politically, it's so emotional. It has become one of the most difficult issues because of the politics."

Why This, And Why Now?

In the space of six months, four of the world’s most iconic cities have introduced or proposed new rent control legislation. The measures range from five-year rent freezes to enforced rent reductions, to reducing the amount that landlords can raise rents within and between tenancies.

See map for in-depth info on the new laws for each city:  

There are decades of academic work on the effects of rent control. It is overly simplistic to argue, as the real estate industry has, that rent control doesn’t work. It has an effect on markets, and impacts different groups in different ways.

Put simply, it helps existing renters and reduces the flight of low- and middle-income workers, who are less likely to be pushed out of an area or city by rising rents. But it also has a very clear impact on supply of new rental housing, which shrinks over time as the private sector has less incentive to build it. So over the long run, supply is reduced and average prices go up.

“There are a lot of concerns about rent regulation, particularly over the long run,” NYU Furman Center Senior Policy Fellow Mark Willis said. “You may be trying to address symptoms of rising costs without dealing with the underlying problem, which is being worsened at least in part by insufficient housing supply.”

Since 2017, politicians in 14 U.S. states have tried to establish or bolster rent control, either through state legislatures or ballot initiatives, according to the NMHC. Only Oregon, which became the first state in the country to introduce statewide rent control in February, and New York have succeeded, so far, but those victories have given many proponents of rent control a shot in the arm.

“[It's] kind of been hard, in a lot of ways, to figure out, why now, as opposed to last year or five years ago or during the great housing bust?” Lapides said. “I think people are really frustrated, and they're looking for solutions, and rent control is one that sounds like a very easy solution when in fact it ends up having the opposite effect.” 

Those in favor of rent reform argue housing markets have failed to address the problem of rents rising far faster than wages (see map for rent and wage rises in the various cities), and the time for aggressive solutions is now.

“For people on middle and low incomes, it is increasingly not possible to live in our major cities,” said Leilani Farha, the UN special rapporteur on the right to housing. “Mayors are on the front line of this, and they see that the current situation is not sustainable.”

At the same time, the populations of cities are getting younger, a higher proportion of people are renting than in past years, and these renters are angry and organized. So politicians are increasingly having to listen to their views.

“People are angry because they know they are getting a raw deal,” New Economics Forum Head of Housing and Land Joe Beswick said.

The NEF is a think tank that worked with London Mayor Sadiq Khan’s administration to craft the rent control proposals there. The number of private renters in London has risen from about 10% of the population in 1990 to more than a third today, Beswich said. In the U.S., homeownership among millennials, who are between 22 and 37 years old now, is around eight percentage points lower than prior generations. 

In Berlin, 85% of the population rent their homes. Across the world, their increased number makes renters a demographic politicians can’t ignore.

“The size of the renter vote is growing and it is asking for reform,” Beswick said. “Renters have come together and created unions and organisations to campaign for a better system. About two-thirds of Londoners support some form of rent control, and politicians have to take notice of that.” 

He added that this growing call for rent control was happening now because the situation has approached a breaking point, and the various solutions being kicked around by politicians and the private sector had failed to address the problem.

“We’re not saying rent control is a panacea, and we think it needs to be introduced alongside a range of other measures, including a major programme of government housebuilding,” Beswick said. “Increasing supply has been the policy for decades and it gets worse every year. We can repeat the supply mantra, but it hasn’t solved the housing crisis. Something needs to be done now.”

Stars Align As Cities Get Even More Progressive

Weaver, the New York tenant advocate, is the director of organizing for the Upstate/Downstate Housing Alliance, an umbrella group that brought together tenant organizations from around the state. She said she never expected her group to win the battle for increased rent reform in such decisive fashion.

The organizations seeking to block the new legislation threw a lot of money and creativity at their campaign. The Real Estate Board of New York is the powerful lobbying group of the commercial real estate industry, but in the lead-up to the rent reform debate, the industry set up new groups with names like Responsible Rent Reform and Alliance for Rental Excellence to try to deliver their message with a different messenger.

But Weaver said renters groups’ plight happened to line up right as a progressive movement within the Democratic Party began to gain traction, particularly in areas filled with rent-controlled housing like the Bronx and Queens, the district Democratic Socialist Rep. Alexandria Ocasio-Cortez represents.

“What we identified in this moment was, ‘tenant groups in New York City have been organizing for 100 years to save rent stabilization and rent control,’” Weaver said. “What if we could join this new insurgent progressive electoral movement, with this long-standing tradition of tenant organizing, into one space?”

A similar phenomenon has occurred in Berlin and Barcelona, which have always been politically left-leaning cities, where politicians have listened to concerns over housing costs from angry, organized citizens.

In Berlin, a campaign group called Deutsche Wohnen Enteignen sprang up to protest against perceived unfair rent rises by Deutsche Wohnen, a German-listed company that is the city’s largest landlord with around 117,000 units.

The group, whose name roughly translates to “Nationalize Deutsche Wohnen,” has brought together disparate groups protesting against rent rises and has garnered an international media profile. It is pushing against something of an open door in a city where 85% of the population rent their home.

In Barcelona, Mayor Ada Colau is a former housing advocate whose entire political party came from a group set up to protest against unfair evictions from rented housing.

And in the UK, the increasingly liberal city populations and administrations have converged in the campaign for rent control.

“It is no coincidence that the Conservatives are struggling to win votes in places with high housing costs and large numbers of renters,” The New Economic Foundations’ Beswick said. “If politicians want to win in cities with high housing costs, they have to deal with the problem of private renting.”

Developer Becomes A Dirty Word

Then, there is the matter of the man who populations in many of these U.S. cities overwhelmingly disapprove of: President Donald Trump.

“Trump became this crazy symbol for fraud in the real estate industry [and] the damage that New York landlords have had on politics,” Weaver said. “That created a ton of energy on the ground.”

“It certainly didn’t help that Trump is a real estate developer and perhaps the most hated person in New York,” said David Schwartz, co-founder of development firm Slate Property Group. "There was this perception that these are billionaires — Bernie Sanders likes to talk about it all the time — these are billionaires, they're making a lot of money and they can make a little bit less money, and that's OK." 

In the 2018 election campaign, city politicians sought to distance themselves from the real estate industry — and an unprecedented number of politicians publicly swore off real estate dollars for their campaigns. Being popular among city voters can now increasingly mean taking a tough stance on developers. 

“It’s a way for politicians to signal to local people that they are on their side,” said Tony Travers, visiting professor in The London School of Economics’ Department of Government. “Landlords are never a popular group, so by taking action against them, even if by and large they are just reacting to market forces, you are sending a message to voters.”

For some, while real estate rents might be a public flashpoint, the current rise of rent control is actually a symptom of a much deeper crisis in capitalism itself.

“There is something in capitalism that isn’t working at the moment,” said Ralph Winter, the founder of German investor Corestate. “If you look at why real estate prices around the world have got so high, and people can’t afford to live in cities anymore, it is because for the last 10 years, rates have been so low, and that has pushed prices and rents up.

"People can’t get any interest on money in the bank or in their pension funds," he continued. "There is a big mismatch. It is creating unrest between social groups, and it is something we have to solve.”

Missing The Real Issue

As Beswick pointed out, even those pushing for rent control don’t think it is a silver bullet for making housing markets more affordable. The real estate industry in cities around the world has pushed back against rent control. But for many in the sector, a more nuanced discussion about how the public and private sectors can work together is needed. This conversation is likely to include greater regulation. 

Market forces haven’t succeeded in solving the problem, and government intervention alone won’t achieve increased affordability. Simply put, cities need far more homes than they have now, and there is no efficient way to build them en masse.

“Addressing affordability without proposing a dramatic increase to the supply of housing is like addressing climate change without seeking to limit carbon output into the atmosphere,” said RXR Realty Executive Vice President Seth Pinksy, who worked for former Mayor Michael Bloomberg in New York. “It’s ignoring the underlying cause.”

To focus entirely on rent control, he said, was a missed opportunity to make a real difference in New York. While he thinks rent control is relied on to protect the most vulnerable members of the community, he believes the new laws in New York will result in underinvestment, and the decline in the quality of the housing stock.

He uses the city’s subway system as an example: Investment was cut, the subway ran fine for decades, and then seemingly all at once, it didn’t anymore.

But Pinsky said the simmering resentment in renter communities is real and should not be ignored. Many have been pushed out by development, experienced increased rents and seen firsthand the negative impacts of swelling population can have on a neighborhood, straining transport systems and overcrowding schools.

What’s more, the city’s poorest people usually benefit from development last. The industry should focus on mitigating the impact and making sure the benefits of developments reach a wider group of people, he said.

“The real estate industry has made a lot of mistakes … Development does in fact create displacement and does in fact have a negative impact on many people who live around it,” he said. “I think the real estate industry hasn’t been sensitive enough to that reality.”

Rolf Buch, the head of Germany’s largest landlord, Vonovia, said at a conference recently that the rent control measures in Berlin were better than seeing the city follow the path of London, where only the rich can afford to live. The same sentiment is taking hold in New York.

“If New York is so expensive that only investment bankers can move here then it's not going to be a great place to live," Schwartz said.

Even so, Buch thinks the new regulations in Berlin, freezing rents for five years, will stymie new supply.

“We have to take people’s concerns regarding rising rent levels seriously and take action,” he told Bisnow. “But we should not forget that the market is already highly regulated. Let me point this out: Regulation is fine, but overpacing might worsen the problems we already have.”

It’s Not How Much You Build, It's What You Build

Those in the real estate sector, and most policymakers, too, from Berlin to Barcelona, London to New York, put forward the argument that the solution to this issue is increasing supply.

But as Beswick pointed out, people have been saying this for decades, and it has proved impossible in practice. And as Harvard Economics professor Ed Glaeser pointed out in an interview with Freakonomics earlier this year: “New York is New York, it’s hard to imagine how much housing you would need to sate demand for New York.”

London’s deputy mayor for housing, James Murray, has often repeated a statistic to represent London’s housing situation: 80% of the housing being built in the capital today is affordable to only 8% of Londoners.

With that in mind, there is a school of thought that cities don’t actually suffer from a lack of supply. They suffer from a lack of supply of the right kind of housing.

“I think we need to problematize this idea that this is a supply-and-demand problem, and that we can just build our way out of this crisis,” the U.N.’s Farha said. “I go to London or Dublin, and a lot is being built, there are cranes everywhere. But it is the wrong stuff being built … Is it for those who are most in need?”

The market in these cities can support any level of rent, because wealth is global and housing has become a financial asset for institutions and wealthy individuals around the world.

A new model needs to be created, Farha argued, where housing is seen less as a financial asset where the cost is set only by the market, but where the market works in concert with government to better reflect the needs of people who live and work in cities.

“I’m a human rights lawyer, and I take a human rights approach to this, which is very specific, and says the cost of housing should be tied to income,” she said. “Yes, we need to build more, but governments need to assure that tenants are protected through measures like rent control so that financial actors can’t come in and push rents up and tenants out.”

That might sound utopian, but it is already happening in some places. In Germany, Deutsche Wohnen, the company so disliked that it was at the centre of calls for it to be expropriated and nationalized, responded to the negative criticism by adopting exactly the kind of proposals Farha advocated. In June, it said it would limit rent increases so that its tenants won't need to pay more than 30% of their annual income on rent.

People continue to be drawn to cities by the tractor beam of jobs and opportunity, and the urbanization trend is not going away. But the real estate industry hasn't solved the issue of making rents more affordable, so the anger is not going anywhere either. This year is just one round in a much larger fight.

Across the U.S., supporters of rent control are still fighting for its introduction or expansion — even in places like California and Illinois, where proposals were recently killed at the ballot and in the legislature.

Some in the real estate industry are stepping up the fight, too. In New York, landlord groups are working to wind back the new laws and have filed a lawsuit in federal court, claiming they are unconstitutional. 

“We have to protect our victories,” Weaver said. “Our housing should be controlled by the people who live in it.”