The following testimony was submitted by the Grassroot Institute of Hawaii on Feb. 26, 2025, for consideration by the Senate Committees on Ways and Means and Commerce and Consumer Protection.
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Feb. 26, 2025 10 a.m.
Hawaii State Capitol
Conference Room 211 and Videoconference
To: Senate Committee on Ways and Means
Sen. Donovan M. Dela Cruz, Chair
Sen. Sharon Y. Moriwaki, Vice-Chair
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 ON SB1133 SD1 — RELATING TO HOUSING
Aloha Chairs , Vice Chairs and other members of the committees,
The Grassroot Institute of Hawaii would like to offer comments regarding the portion of SB1133 SD1 that allows counties that have lost more than 1% of housing stock due to a natural disaster to enact rental unit price controls.
We support the bill’s provision for a long-term residential lease tax credit, especially in the wake of the wildfires on Maui in 2023, but we are concerned about this bill’s potential negative effect on rental affordability and availability in our state. It is likely that rent control would end up hurting the people it is intended to help by exacerbating the current crisis in affordable rentals.
Economists have been studying rent controls for many decades and widely agree that they have a negative effect on housing markets, especially for vulnerable populations. Even limited rent control can negatively affect the broader housing market. Thus, it is possible that enacting rent control in just one county would still affect the rental market throughout the state.
It is well-documented that over the long term, rent controls result in an increase in evictions, especially among lower-income tenants.[1]
Rent control measures have also been shown to reduce 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 controls, and disagree with the idea that they 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 control laws can have a negative impact on the rental market.
A 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.
Where rent control measures are put in place, landlords who are fearful of the long-term impact of a rent control law often 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 SB1133 HD1, which would likely result in an anticipatory spike in rental prices along with increasing scarcity in the rental market. This would keep rents high while simultaneously discouraging new landlords from entering the market.
Though this bill seeks to mitigate this problem via a tax credit for landlords, it does not specify the amount of the credit, nor does it guarantee that the credit will make it profitable to rent out units under a restrictive regulatory regime.
The evidence is clear: 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.
Grassroot sympathizes with the desire to increase the affordability of rental property in Hawaii, but this cannot be accomplished by regulating rental prices. In fact, the rental control measures proposed in SB1133 HD1 are likely to make the situation worse, not better.
A much better policy would be to facilitate more homebuilding by removing the barriers that have frustrated the construction of new housing units. 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.
