Imposing rent control reduces property values, leaving some apartment building owners unable to pay back their loans. That can lead to bank failures, and banks being bailed out at the expense of taxpayers or depositors at other banks.
As real estate broker Tom Hynes notes, Signature Bank loaned $11 billion “to developers to rehab apartments. In 2019,” New York State changed its “rent control law, killing value. In 2023, depositors panic. New York killed Signature.” As a result, the public is on the hook for billions of dollars in bailout costs.
Due to rent control, when there was a run on the bank, and the FDIC had to take it over, “the FDIC couldn’t find a buyer willing to buy a full share of Signature Bank’s $11 billion portfolio of NYC rent-stabilized apartment loans,” notes real estate economist Jay Parsons. Instead, the FDIC “plans to retain a 95% stake in the rent-regulated pools,” reported the Wall Street Journal. “New York state legislation enacted in 2019 made it much tougher for multifamily owners to raise rents, a development that has greatly reduced the worth of these buildings.”
When federal bank regulators bail out a big bank, they have to either raise their assessment on other banks — which reduces the interest rate those banks can afford to pay depositors — or get an infusion of cash from taxpayers, as happened in the 1980s and 1990s when taxpayers bailed out the Federal Savings and Loan Insurance Corporation at a cost of at least $124 billion. So one way or another, the public ends up paying for failed banks, either as bank customers, or as taxpayers.
Once limited to places like New York City, rent control is now spreading to more areas, reducing property values and the quantity of housing available. In July 2023, Maryland’s most populous county, Montgomery County, imposed rent control. As a result, some housing projects stopped as a result. Montgomery Perspective reported that a “Montgomery County-based developer has written the county executive and the county council with news: their company is stopping a county project because of the pending passage of rent control. And they are not alone as at least six other developers are stopping further projects here and shifting resources to other areas including Northern Virginia.”
But rent control may come to northern Virginia, too, if its judiciary relaxes the Dillon Rule that currently bars local rent regulations. In
2023, legislation to allow cities and counties to impose rent control was introduced by 5 Democratic delegates, but it had no Republican support and died in a committee of the Republican-controlled House of Delegates on a party-line vote. In the November election, Democrats took control of the House of Delegates. Republican Governor Glenn Youngkin would probably veto the bill if it is passed by the recently-elected Democratic-controlled legislature. But the legislature could also elect left-wing judges who uphold local rent control ordinances by weakening Virginia’s strong Dillon Rule. Virginia’s Dillon Rule is a legal principle that forbids local governments to regulate in an area absent a specific authorization from the state legislature. In Virginia, the state legislature — not the governor — picks judges. Some left-wingers have criticized Virginia’s strong Dillon Rule for years.
Almost all economists think rent control is a bad idea: In a 1992 poll, 93 percent of them agreed that rent control reduces the quantity and quality of housing available. Reason Magazine says that “rent control has a history of constricting the supply of rental housing and reducing housing quality.”
As the Wall Street Journal observes, “If there’s any consensus in economics, it’s that rent control achieves the opposite of its intended goal. It leads to housing shortages by discouraging new development and maintenance of existing properties. As the liberal Brookings Institution notes, “Rent control can also lead to decay of the rental housing stock; landlords may not invest in maintenance because they can’t recoup these investment by raising rents.”It seems foolish for local governments to impose rent control, because that reduces the value of housing stock, shrinking the property tax revenue that funds schools and local governments. “Researchers at the University of Southern California said rent control hurt property values in St. Paul, Minn. by $1.6 billion,” reported Market Watch.