Harris Rent Subsidy is a Short-Term Solution, but a Long-Term Problem

Harris Rent Subsidy is a Short-Term Solution, but a Long-Term Problem

A few weeks ago, Niskanen’s Will Wilkinson responded to Senator Kamala Harris’s (D-CA) plan to provide a rent subsidy to those paying more than 30% of their income to rent.

Wilkinson’s point is essentially that while this subsidy will provide temporary relief, the root of the housing affordability crisis is an artificial lack of supply created by city zoning codes. Once the income of the most distressed renters increases thanks to this subsidy, rents will increase in kind if there is not more housing.

This is the point Jibran Khan makes in National Review in his argument against Harris’s plan.

It is universally acknowledged that California’s housing crisis is driven by a lack of housing, so what will Harris’s plan do about this? Nothing. True, zoning laws are made at the state and local level, while Harris is a federal official — but the federal government could try to incentivize local-level reforms to build more housing, especially by leveraging the money it provides for local infrastructure projects. And yet under Harris’s proposal, the currently homeless would remain homeless, while renters would receive some very short-term relief at the cost of other taxpayers.

Why would the relief be short-term? Because as landlords become aware that renters are receiving a subsidy, they will simply raise rents by the amount of the subsidy. The cost will be the same for the renters — who today are lining up for a chance to rent, showing that they are willing to pay it. In the end, then, this would be an effective subsidy for landlords, not renters.

Whether rents will increase exactly as much of the subsidy is unclear. As hellish as the permitting process in San Francisco is, it is not impossible to build new housing (i.e. supply is not perfectly inelastic).

But Khan’s point is broadly true. More money for renters without supply growth amounts to greater rents (both literal and economic) for landlords.

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By | 2018-08-07T16:00:14+00:00 August 7th, 2018|Blog, Land Use Regulation|