Ohio Acts Decisively To Limit Rent Control

It’s been 4 years since I spoke at a conference in Columbus, Ohio and wrote here that Ohio could be the perfect place in the country to counter bad housing policy. That view has been validated with the passage of House Bill 430, a measure that preempts local cities from imposing rent control, making Ohio one of 29 states that doesn’t allow rent control to be passed by local governments. What makes the passage so important is that it has been made at a time when foment for rent control and other measures aimed at housing providers at the local level in Ohio has been growing. Other states passed measures years ago, but Ohio’s bold move closes off one of the worst interventions local governments can take in the housing economy; it might be an action that could lead the rest of the country in reversing the tide of bad housing policies generally.

First, prices tell us when housing is scarce. When housing supply fails to keep up with demand, rents go up. It’s that simple. The solution to rising demand because of new jobs in a city could be to increase housing supply. More supply means more competition between developers, builders, and operators of housing for renters rather than renters competing with renters for scarce apartments and rental homes.

However, a policy of relaxing and eliminating rules and regulations that limit housing and offering incentives to build more housing takes courage. It is far easier for politicians to blame developers and housing providers for rising rents; rents go up because of greed, not lack of supply. Their answer is to simply put a limit on how much prices go up while doing nothing about a growing supply-demand imbalance. The result is even higher prices when housing production grinds to a halt. If you want a full explanation of why rent control hurts people with less money, check out the paper I wrote for the Foundation for Equal Opportunity.

In Ohio, rent control talk has been on the rise, especially in the larger cities. Back in 2018, I wrote this about those cities and the rest of Ohio:

“Pro-labor Democrats tend to be stronger politically in those cities while Republicans dominate in rural areas; local politics tend to be controlled by left leaning city councils and mayors while the legislature is overwhelmingly Republican. This mix of different demographics and economics mean Ohio might also be the next battleground over an effort to limit and control private rental housing across the United States. The state may be the place where reality might check a growing problem of bad policies”

That’s why House Bill 430 is so important. The bill addresses utilities, but amendment to the bill as it moved through the legislative process included limitations on rent control, and the full bill with amendments passed both houses of the legislature. Currently the bill is awaiting Governor Mike DeWine’s signature.

The bill does some important things. First it clearly defines rent control as “requiring below-market rents for residential premises or controlling rental rates for residential premises in any manner, including by prohibiting rent increases” and limiting “rental rate changes between tenancies, limiting rental rate increases, regulating the rental rates of residential premises based on income or wealth of tenants, and other forms of restraint or limitation of rental rates.”

The bill also defines “rent stabilization,” another name for rent controls as, “allowing rent increases for residential premises of a fixed amount or on a fixed schedule as set by a political subdivision.”

The definitions are important because later in the bill, these two categories of price controls are made off limits for local governments. The way rent control is defined is critical because local politicians have an interest in imposing rent controls but calling them something else. This leaves no loop holes to exploit.

Also important, the bill explains and declares that “the general assembly finds and declares that maintenance of an adequate housing supply, including access to livable, clean, and well-maintained residential rental premises, in the state of Ohio is an urgent statewide priority and necessary to the well-being of Ohioans.”

While this seems obvious, codifying it is valuable because it puts into state law the idea that more housing is the answer to housing problems, not more money or prices controls. The legislation goes on to catalog all the reasons why rent control is a bad policy. It’s worth looking at the exhaustive list.

“The general assembly further finds and declares that rent control and rent stabilization measures may do any of the following:

(A) Suppress rental and property values and thereby discourage maintenance, upkeep, and rehabilitation of existing residential premises and construction of new residential premises;

(B) Incentivize landlords to convert residential premises to condominiums, cooperatives, and other types of housing, thereby removing such residential premises from availability on the rental market;

(C) Lower property tax revenues for state and local governments and political subdivisions;

(D) Lead to deterioration of residential premises;

(E) Discourage turnover of residential premises and thus deprive potential tenants of the ability to rent such premises and result in misallocation of residential premises;

(F) Impede the sale of residential premises;

(G) Discourage investment in new and existing residential premises, especially during times of rising material costs and labor shortages;

(H) Have an adverse effect, due to lack of adequate housing, on individuals who seek employment in areas with scarce available housing and on employers who seek employees in such areas;

(I) Distort the functioning of the market for residential premises;

(J) Impose substantial administrative and enforcement expenses on political subdivisions;

(K) Retroactively deprive owners of residential premises of property rights.

The bill then drives a stake through the heart of any local attempt to impose rent control.

“No political subdivision may enact, adopt, renew, maintain, enforce, or continue in existence any ordinance and no township may adopt or continue in existence any resolution charter provision, ordinance, resolution, rule, or other measure that is in conflict with this chapter, or that regulates the rights and obligations of parties to a rental agreement that are regulated by this chapter, including, without limitation, by any way imposing or requiring rent control or rent stabilization.”

The bill finishes up with a Dillon Rule clarification. The Dillon Rule is based on legal precedent that can limit the kinds of things a state can prohibit local governments from doing. The National League of Cities describes it as, “derived from the two court decisions issued by Judge John F. Dillon of Iowa in 1868. It affirms the previously held, narrow interpretation of a local government’s authority, in which a substate government may engage in an activity only if it is specifically sanctioned by the state government.”

The bill clarifies that “housing supply is a matter of overriding statewide interest that requires a uniform approach to rent control and rent stabilization measures in residential premises throughout the state.” The closing language of the bill makes it abundantly clear that “it is the intent of the general assembly to preempt political subdivisions from regulating the rights and obligations of parties to a rental agreement that are regulated by this chapter, including through the imposition of rent control and rent stabilization in any manner.”

The language of the bill is thorough and philosophically sound, resonating with all the key reasons why rent control is a bad idea, its effects on the housing economy, and finally, affirming the idea that rental housing is governed by contracts, which state legally enforceable “rights and responsibilities.” Rent isn’t set out of greed but because of response to market forces, and when a resident and housing provider agree on a price and terms, the agreement is enforceable and should not be encroached upon for political reasons by local governments.

Ohio is demonstrating leadership, and hopefully, with the quick fix of rent control off the table, local cities will begin to consider making it easier to build housing and explore more innovative ways to help people in the housing economy meanwhile. Hopefully, Ohio will do the same thing it did with rent control with other interventions that drive up costs and prices for people who need housing, like Mandatory Inclusionary Zoning (MIZ) a policy that has done damage in other cities.