Rent control is a current Atlanta City Council discussion topic. Understandably, policy makers and citizens are grappling with the rapid increase in shelter costs in redevelopment areas of Atlanta, and the concept of rent control is certainly not new. But it generally involves a local government restricting free market rental rates to make housing more affordable.
The increased costs for shelter are a national phenomenon as evidenced by Consumer Price Index (“CPI”) reports published by the U.S. Bureau of Labor Statistics. A recent study in Atlanta reveal increases in shelter costs in areas of the city that significantly exceed national averages. As a result, policy makers are discussing options to provide affordable housing including rent control.
However, rent control in Atlanta would require some exception from state law. Statute 44-7-19 (Restrictions on rent regulations by local governments) prohibits jurisdictions of the state from enacting rent control legislation.
Based on review of case studies and published research, the state has good reason for prohibiting rent control. Aside from the important issue of property rights, rent control generally provides a disincentive:
- To build capacity or to maintain facilities. New regulations would lengthen the already cumbersome development process and increase development costs. Investors would be reluctant to invest in new projects and likely reduce operations and maintenance expenses to make-up for lost income.
- To upgrade the quality or value of housing stock. Investors will seek a return and allocate capital elsewhere which would result in lost opportunities to expand the tax digest.
Rent control specific to Atlanta has the potential to:
- Reduce the bonding capacity and the ability to repay debt. In many of the redevelopment areas where affordability is at issue, “limited” Tax Allocation District (“TAD”) bonds have been issued on a tax increment basis for which repayment relies upon increased property tax values. If tax values are impaired, the ability to repay the TAD bonds will be restricted as well.
- Violate bond covenants. The TAD bond covenants may be violated if rent control policies are in-acted. While this is a legal issue that requires a legal opinion, the bond statements and redevelopment plans do not appear to include provisions for rent control or similar provisions. Further, it is reasonable to assume that bond rating agencies would have an adverse reaction potentially resulting in a downgrade of the bonds.
- Reduce general fund revenues. At the point TAD bonds are paid off, the tax increment flows to the general fund. If property values are impaired then there will be further delay in tax revenues flowing to the general fund to pay for vital police, fire and other governmental services placing increased burden on the entire City.
Interestingly, according to an article in the “New England Journal of Public Policy,” “Massachusetts voters approved a question placed on the ballot by initiative petition passing a law that effectively outlawed rent control through the commonwealth” in November 1994. Following the prohibition of rent control, an analysis by economist Timothy Taylor at el. specific to Cambridge, Massachusetts found “Our statistical analysis also indicates that rent controlled properties were valued at a discount of about 50 percent relative to never-controlled properties with comparable characteristics in the same neighborhoods during the rent control era, and that the assessed values of these properties increased by approximately 18 to 25 percent after rent control ended.”
It is certainly understandable that City Council is concerned about the increasing costs of living in Atlanta. On December 5th, “The Saporta Report” published an article by David Pendered (“Atlanta may seek waiver of state ban on rent control to curb soaring prices”) which summarized discussion in Atlanta City Council’s CDHR committee as follows:
“While we do understand property rights, and people should have the ability to maximize profits, in certain areas where a substantial public investment has been made you can make the argument that this public investment came from public dollars.
I.e., the BeltLine. I.e., a stadium. I.e., a large lake or park or something like that. That could influence the property values that then say we can waive this rent control because we put forth a huge amount of public investment.”
“These areas don’t need to gentrify because of that large public investment,” (Andre) Dickens said. “Let’s look at that. That’s something I’ll present to you all soon enough.”
Missing in the discussion of affordability is the cost of Atlanta’s government. Perhaps city policy makers should examine streamlining operations and reducing costs of government to make Atlanta more affordable.
Justin Wiedeman is an Atlanta professional engineer and businessman.
