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Kelsi G. Hobbs is an assistant professor of economics at the University of Maine. This column reflects her views and expertise and does not speak on behalf of the university. She is a member of the Maine chapter of the national Scholars Strategy Network, which brings together scholars across the country to address public challenges and their policy implications. Members’ columns appear in the BDN every other week.
On June 13, Portland voters rejected a change to the city’s rent control ordinance. The now-rejected change would have removed a cap on the amount landlords may increase rent after a unit is voluntarily vacated by a tenant. As rent control continues to expand nationwide, I’m afraid more municipalities in Maine will follow Portland’s lead in implementing and maintaining rent control. From an economic standpoint, this decision would be a mistake.
Rent control is a legally established maximum price applied to the market for apartment rentals. In economics, we refer to this legally established maximum price as a price ceiling. A price ceiling is considered binding when it is set below the market price. In economic theory, a binding price ceiling is bad because it prevents supply and demand from reaching equilibrium, which leads to a shortage in the market.
When applied to the market for apartment rentals, economic theory predicts that rent control, acting as a binding price ceiling, will lead to a shortage in apartment rentals. Empirical economic research provides evidence of this theoretical prediction. Studies show that rent control can lead to less rent-controlled units over time. Furthermore, there is evidence that there is a decrease in the quality of rent-controlled units. These outcomes are not ideal.
Maine suffers from an affordable housing crisis, which was made worse by the COVID-19 pandemic. This crisis is affecting not only our state’s renters, but also our homeowners. According to a 2023 report by the National Low Income Housing Coalition, HUD’s fair market rent for a two-bedroom apartment was unaffordable for the estimated hourly mean renter wage in Maine. Furthermore, 2022 data from MaineHousing show that the median home price was unaffordable for the median income household. Across Maine, renters and homeowners face housing costs that are too high.
In economics, higher market prices can be driven by an increase in demand or a decrease in supply. To effectively reduce housing costs in both the renter and homeowner markets, we need to either decrease demand or increase supply. The increase in Mainers as a result of the pandemic makes a decrease in the demand for housing unlikely. As a result, we need to focus our attention on policies that will increase the supply of housing. Rent control is not one of those policies.
To effectively increase the supply of housing, it needs to be possible to build more housing. LD 2003, a law that standardizes zoning laws across the state, will help. This standardization will include changes to zoning laws that will make zoning less restrictive, which will make it easier to build more housing.
Although an increase in the supply of all housing will start to bring prices down, we need to pay particular attention to increasing the supply of affordable housing. Making changes to zoning laws will not ensure that there will be an increase in affordable housing. We need to be prepared — at the federal, state and local level — to subsidize the building of affordable housing because building affordable housing often incurs a loss. Programs like MaineHousing’s rural rental program are one way of addressing this issue.
To solve Maine’s affordable housing crisis, we need to make sure that we understand which policies will help solve the affordable housing crisis and which policies won’t. We then need to make sure that we vote for and support candidates that will help bring these policies to fruition. If we are not willing to do these things, then we are not going to see an end to Maine’s affordable housing crisis any time soon.