SB2673: Maui rent control could distort housing market

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Commerce and Consumer Protection on Jan. 31, 2024.

Jan. 31, 2024, 9:50 a.m.
Hawaii State Capitol
Conference Room 229 and Videoconference

To: Senate Committee on Commerce and Consumer Protection
      Sen. Jarrett Keohokalole, Chair
      Sen. Carol Fukunaga, Vice-Chair

From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns


Comments only

Aloha Chair and Committee members,

The Grassroot Institute of Hawaii would like to offer its comments on SB2762, which would freeze rent prices as of its effective date. At that time, the bill would prohibit landlords from renting, leasing or offering to rent or lease a dwelling unit at a higher rate until 2026. This rent freeze would apply to only Maui County.

We appreciate the good intentions behind this bill, as it is clearly part of an effort to address the housing shortages and higher rental prices that have arisen in the aftermath of the Aug. 8 wildfires that destroyed much of Lahaina and other parts of Maui.

However, the Grassroot Institute is concerned about the effect of rent control on the housing market, even under the limitations created by this bill. The rent freeze enacted by SB2762 would last only about 18 months and only apply to one county, but evidence shows that even limited rent control can have a negative impact on the housing market.

Moreover, given that the problems targeted by this bill have been exacerbated by government policies such as high rent subsidies and eviction moratoriums,[1] one might reasonably ask whether more government intervention in Maui’s rental market is really a good idea.

It is well-documented that over the long term, rent control results in an increase in evictions, especially among lower-income tenants.[2]

It also reduces the supply of available rental housing, eventually driving up rents as the supply of rental housing dries up.[3] This is why economists overwhelmingly oppose rent control, and disagree with the idea that it can have a positive effect on the supply of affordable rental housing.[4]

Even over a limited period of time or limited geographic area, rent freezes can have a negative impact on the rental market.

A recent study of Berlin’s 2020 rent freeze found that even in the short term, rent control in Germany’s capital city resulted in a dramatic drop in the number of properties advertised for rent.[5] Many of Berlin’s rentals appeared to permanently disappear from the rental market. Meanwhile, the policy created a significant rent gap in neighboring areas, pushing up rental prices where the freeze didn’t apply.

Another consideration is that landlords who are fearful of the long-term impact of a rent control law might act to protect their interests by either raising their rental rates in advance or leaving the market entirely.

When the city of Buenos Aires in Argentina announced a plan to “stabilize” rents in 2021, rental prices shot up 67% in anticipation of the coming rent freeze.[6]

We could expect to see a similar response to SB2762, especially if Maui landlords believe that the state might extend the rent freeze or even enact a permanent rent control law.

We share the Legislature’s desire to lower rental prices throughout the state, especially on Maui. However, rent control laws have an unfortunate tendency to distort the rental market and increase the scarcity of rental properties — and the negative impact falls hardest on the most vulnerable.

The sad fact is that the rental freeze proposed in this bill is likely to make the situation on Maui worse, not better.

A much better policy would be to simply facilitate more homebuilding. And if such measures that could accomplish that come before you later in this session, we hope the committee will look upon them favorably.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii

[1] Paula Dobbyn, “Maui Renters Face ‘Increasingly Hostile Housing Market’ Despite Eviction Moratorium,” Honolulu Civil Beat, Jan. 17, 2024.
[2] Eilidh Geddes and Nicole Holz, “Rational Eviction: How Landlords Use Evictions in Response to Rent Control,” June 22, 2023.
[3] Rebecca Diamond, Tim McQuade and Franklin Qian, “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco,” American Economic Review, Vol. 109, No. 9, pp. 3365-3394, Sept. 9, 2019.
[4]Rent Control,” Kent A. Clark Center for Global Markets, Feb. 7, 2012.
[5] Anja M. Hahn, Konstantin A. Kholodilin, Sofie R. Waltl and Marco Fongoni, “Forward to the Past: Short-Term Effects of the Rent Freeze in Berlin,” Management Science, March 22, 2023.
[6] Patrick Gillespie, “How a Plan to Stabilize Rents Sent Prices Skyrocketing,” Bloomberg, April 16, 2021.

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