The Unexpected Ending of a Rent Ceiling Story

We could say that Oregon and California have “COLA” rent ceilings because they depend on consumer price hikes. Somewhat different, the state of Washington is considering a flat 7% cap. All three though share the belief that it is government’s job to guarantee more affordable housing.

An economist could have a different opinion.

Rent Ceilings

The new Oregon law includes provisions that apply to “market rate housing that’s 15 years or older.” In those buildings, for 2024, rents can ascend by as much as 10 percent, but no more than that. So, if Oregon’s 7% cap plus the cost of living wound up at 12.6% next year (as expected), then 10% is the most. Meanwhile, with a slew of exceptions, the California law says 10% is the top hike.

Harvard’s housing study group tells us that rents have climbed considerably. Up a whopping 15.3% during early 2022, now the rent increases have subsided and are even decreasing in some areas:

Reasons for the increases and then the decline take us to classic economics.

Demand was way up:

Meanwhile, robust supply response helped to halt soaring rents. Even with higher vacancies and ascending interest rates, multifamily building completion has been high:

Our Bottom Line: Price Ceilings

At this point, we can ask if it makes sense to stop rents from rising further. Oregon was first in 2019. Then, during the same year California followed and now the state of Washington might proceed. As states, their mandate is far more widespread than the hundreds of municipalities that have had their own rent control regulations.

Shown graphically, a bit illogically (but not to an economist), ceilings are below equilibrium (while floors are above it). Their position prevents price from going up to where the market wants it to be:

As the horizonal line that establishes the highest price, the ceiling crosses quantity supplied to the left ot quantity demanded. As a result, ceilings create shortages. What landlords are willing and able to offer is less than what renters want.

So, returning to Oregon and California, and maybe Washington, we can ask if renters know the tradeoff. Yes, they get cheaper apartments. But the surprise ending of the story is that there might not be enough of them.

My sources and more: Thanks to the NY Times for directing me to Harvard’s Joint Center for Housing’s most recent rentals report. Then, Oregon Public Radio had its state’s cap facts while this state website and NBC had them for California.