In another case of legislators feeling they have to do something whenever there is a lack of perfection in the economy, two misguided bills have been introduced recently in the Colorado legislature that will result in a greater housing shortage if enacted. One bill is a repeal of a statewide 40-year prohibition against local rent control. The other is a “just cause” eviction bill that would greatly restrict the landlord’s options at the end of a lease.

It is unfortunate there is a housing shortage and that rising rents have burdened tenants, but rent control and other efforts by government to defy the law of supply and demand will backfire to the detriment of tenants, landlords and the state’s economy. In a 1990 poll 93% of economists thought rent control was a serious mistake. Economics professor J.W. Mason summarizes it by saying, ”It’s become almost a textbook cliche: in any econ class you learn about why rent control is a bad idea.”

People respond to incentives. Landlords will respond to this profit-reducing legislation by spending less on maintaining existing properties. This will result in older properties becoming run down, lowering property values and reducing real estate tax revenue to the local government. Apartment building owners will have an incentive to convert units into condos or to sell the properties, thus decreasing the rental unit supply in the long term. Below-market rents will encourage developers to decrease investments in affordable apartment construction, further worsening the housing shortage in the coming years.

The just cause eviction bill has a troubling anti-landlord sentiment. Tenants are already protected from unfair eviction by Colorado laws. The new bill has a provision that at the termination of the lease contract, a landlord must pay two to three months rent on a new location for the tenant if the lease is not renewed, and this applies even if the landlord wants to renovate or move into the property. It is quite unfair that the landlord becomes financially burdened and tied to the tenant for the next two or three months. These two bills fail to consider that many rental properties are mom-and-pop operations that may be struggling to pay real estate taxes, repair costs and bank loans.

California passed statewide rent stabilization and eviction restrictions in 2019. These controls along with environmental and zoning constraints have caused a great slowing of the construction of affordable housing. High-end projects have become the only profitable choice. In spite of this legislation, rents have skyrocketed in California because there are too many renters chasing too few rental units.

A 2017 study of rent control in San Francisco by three Stanford economists found that the rent control in place since 1994 had reduced the city’s rental housing supply by 15% and boosted rents costs by 5% above what they otherwise would have been. The controls resulted in a 25% reduction in the number of renters in the rent-restricted areas compared to 1994. Rent control also added to gentrification as it fueled a higher proportion of high-end housing.

Government can motivate developers with a more streamlined approval process and less restrictive zoning laws that allow for higher density. Joint ventures between government and private developers is another option. Denver offers tax abatement to make the construction of affordable housing and rehabilitation of existing housing more profitable. If a government entity feels they must aid low-income tenants, rent subsidies are a far better choice than putting a cap on how much rent can be charged. Government entities in Summit County are making a substantial financial commitment toward addressing the affordable housing shortage. It is a slow process to build housing, but our local government should not panic and resort to rental pricing restrictions that are destined to fail.

The free market is already adjusting to the high rents and lower demand as shown by the average monthly rent decreasing in the third quarter in Denver by 1.7%. This decline will continue because 40,000 new rental units are in some stage of construction in the region, and over a third of the new units available in 2022 went unoccupied, according to the Denver Post. The U.S. Census Bureau has found that net migration to Colorado has slowed to a trickle in 2021 and 2022 compared to 2010 through 2020, which will also push rents down.

There will be many quotes in the news from renters who favor these two bills and landlords who dislike them. But all that matters is how history and economics tell us these are bad bills that will lead to less housing and higher rents in the long term. Summit County officials should oppose this proposed legislation and continue with existing programs which encourage private contractors to build more affordable housing as that is the most effective way to hold down rents in the coming years.

Paul Olson’s column “A Friendly Conservative” publishes biweekly on Tuesdays in the Summit Daily News. Olson has lived in Breckenridge since 1995. Semiretired, he works at REI in Dillon and enjoys snowboarding, Nordic skiing and hiking. Contact him at pobreck@gmail.com.