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SB2762 SD1 means well, but rent freeze would be harmful

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Judiciary on Feb. 29, 2024.
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Feb. 29, 2024, 10 a.m.
Hawaii State Capitol
Conference Room 016 and Videoconference

To: Senate Committee on Judiciary
      Sen. Karl Rhoads, Chair
      Sen. Mike Gabbard, Vice-Chair

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

TESTIMONY OPPOSING SB2762 SD1 — RELATING TO RENT CONTROL

Aloha Chair and Committee members,

The Grassroot Institute of Hawaii would like to offer its comments opposing SB2762 SD1, which would establish on a date yet to be determined a temporary rent control scheme for Maui County via a rent ceiling that would be set by the County Council and last approximately five years.

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 proposed rent control measure would apply to only one county, but evidence shows that even limited rent control can negatively affect the broader housing market. Thus, it is likely that the effects of rent control in Maui County would be felt throughout the state, and we urge the Committee to fully consider the negative effect that this rent control proposal could have on rental availability and affordability in Maui County and beyond.

For example, it is well-documented that over the long term, rent control results in an increase in evictions, especially among lower-income tenants.[1]

It also reduces the supply of available rental housing, eventually driving up rents as the supply of rental housing dries up.[2]

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.[3]

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.[4] 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.[5]

We could expect to see a similar response to SB2762 SD2, especially if Maui landlords believe that the state might extend the rent ceiling 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.

Moreover, given that the problems targeted by this bill have been exacerbated by government policies such as high rent subsidies and eviction moratoriums,[6] one might reasonably ask whether more government intervention in Maui’s rental market is really a good idea.

The sad fact is that the rental control measures proposed in SB2762 SD1 are likely to make the situation on Maui worse, not better.

A much better policy would be to simply facilitate more homebuilding and remove the barriers that have frustrated the construction of temporary housing on Maui. This would have a more immediate and beneficial effect than rent control.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] Eilidh Geddes and Nicole Holz, “Rational Eviction: How Landlords Use Evictions in Response to Rent Control,” June 22, 2023.
[2] 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
[3]Rent Control,” Kent A. Clark Center for Global Markets, Feb. 7, 2012.
[4] 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.
[5] Patrick Gillespie, “How a Plan to Stabilize Rents Sent Prices Skyrocketing,” Bloomberg, April 16, 2021.
[6] Paula Dobbyn, “Maui Renters Face ‘Increasingly Hostile Housing Market’ Despite Eviction Moratorium,” Honolulu Civil Beat, Jan. 17, 2024.

 

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