Ann Arbor faces a housing crisis, but rent control is the wrong answer.
Earlier this year, Michigan Representative Carrie Rheingans (D-47) of Ann Arbor introduced a bill to allow local governments, such as Ann Arbor, to set rent controls. Michigan is one of thirty-three states that has a ban on rent controls, this bill would reverse it. Rent controls are a price ceiling on how much landlords can charge tenants for rent to make housing more affordable. However, rent controls fail to solve the underlying problem—a lack of housing.
Jennifer Hall, the Executive Director of Ann Arbor’s housing commission, told the Michigan Review that rent controls are “a regulatory policy that is trying to solve a market problem, which is insufficient housing stock.” In other words, there is high demand for housing and not enough houses, creating high housing prices. If there is enough housing supply in the market, the housing crisis would fix itself. “If a community has sufficient housing stock for the demand,” Hall told us, “then there will be options for people with a variety of incomes including housing for low- and moderate-income households.”
Rent controls would need to drastically slash asking prices in order to target low-income households, or those earning at or below $35,850, which is 30% of Ann Arbor’s Area Median Income (AMI). An affordable housing cost, which is defined as no more than 30% of household income, for one of these four person families would be just $896 per month. In contrast, the average rent of a 3-bedroom apartment is $2,457 per month, a three bedroom condo is $2,838 per month, and a four bedroom house is $4,776 per month. Rent controls on the average monthly prices for apartments, condos, and houses would be 63%, 68%, and 81% respectively. These drastic slashes are both politically and economically unfeasibly. Instead, the city should subsidize housing and shelter options.
The lack of affordable options can be partially explained by Ann Arbor’s burdensome construction regulations that made it difficult for builders to create new housing. Ann Arbor has spent fifty years creating legal codes for every part of the building process. These codes restrict what properties can be built, where they can be built, and by how much existing buildings can be expanded.
Now, the city is trying to cut these regulations. Ann Arbor plans to adopt a new Comprehensive Plan for zoning regulations that would allow for higher density housing. This, Hill claims, would enable “economies of scale and [reduce] per unit costs on a single parcel.” Another reason for the high costs is the demand to live in Ann Arbor. Though the actual city’s population has stayed relatively stable, Washtenaw County has grown by tens of thousands of people each of the last couple of decades. The majority of people who work in Ann Arbor commute ten or more miles to work, suggesting that many people near the city would likely want to live in Ann Arbor.
The Ann Arbor housing crisis will not be solved anytime soon, even with a more friendly regulatory environment. Hall estimates that it would take ten years to see the results of new housing projects. Though ten years is a long time to wait for a much needed solution, rent controls would delay a potential solution to the housing crisis indefinitely. When rent controls are put in place, housing prices are set artificially low. This increases the number of buyers of housing while decreasing the number of tenants willing to rent out their properties.
Additionally, there would be less investment in building new housing in Ann Arbor because sellers can’t sell at market price. As a result of this, housing stock would decrease, exacerbating the underlying cause of the housing crisis. So no, rent controls are not the way to solve the housing crisis. Building more housing by cutting burdensome regulations is the real solution.
