Some of our nation’s politicians seem to know very little about basic economic principles despite constantly proposing legislative action on economic issues. Sen. Elizabeth Warren (D–Mass.) and Rep. John Bowman (D–N.Y.) now want federal regulators to impose rent control on the entire nation. In their letter to the Biden administration, which was signed by 50 members of Congress, Warren and Bowman request that the administration “pursue all possible strategies” to control high rents. These politicians portray themselves as fighting for the average American, but, if they get their way, the results will be catastrophic.
Rents are high, but that is because years of loose monetary policy and irresponsible spending sent inflation through the roof. Buying a home became unaffordable, so more consumers sought to rent, raising the demand for rental units and thus leading to higher prices. Landlords likely also increased rents in part to offset costs that were incurred during the Centers for Disease Control and Prevention’s eviction moratorium.
Luckily, rents are cooling and the stock of rental units is expected to expand. So if congressional Democrats really want to help the situation, they need to stay out of the way.
A basic understanding of supply and demand would preclude Democrats from pushing such a policy. Placing a cap on what landlords can charge tenants would increase demand, but it would also decrease the supply of available units.
The supply of rentals would decrease because some landlords would convert residential properties into office buildings or other structures that would not be subject to rent control. Additionally, the supply of affordable rental units would decrease even more, as some buildings would be torn down and replaced with luxury apartments, as these are typically also exempt from rent control. Moreover, many existing plans to construct more rental units would be scrapped and abandoned, as rent control can take a once-profitable endeavor and turn it into a losing venture.
Also, existing rental units would see a decrease in quality, as, due to artificially low rents, many landlords would be unable to afford maintenance services.
What is the end result? A true housing crisis. Even the late left-wing Swedish economist Assar Lindbek once said, “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” That is not hyperbole. The empirical evidence is clear: rent control is an extraordinarily pernicious policy.
Strict rent control enacted in New York during World War II eventually led landlords to begin abandoning their buildings because they could not recoup their maintenance costs with artificially low rents. Once-strong blue-collar neighborhoods were absolutely devastated.
When a group of Stanford economists studied the effects of a 1994 law change that expanded San Francisco’s rent control policy, they found that “landlords treated by rent control reduced rental housing supply by 15 percent, causing a 5.1 percent city-wide rent increase.” Rent control merely caps rents for those who currently hold a rental unit, but it harms everyone else who is still looking for a place to rent, especially low- and middle-income earners.
In 2021, after St. Paul, Minnesota, voters elected to enact a rent control policy, it was reported that St. Paul’s director of planning and economic development immediately had his phone ringing off the hook. Those calls were from developers who were putting their projects to build new units on hold.
Rent control does not protect the working class. Instead, it destroys cities and harms the most vulnerable.
The Democrats who are proposing nationwide rent control are ignoring established economic principles and history. We can only hope that the Biden administration does not fulfill their wishes.
Author Benjamin Ayanian, plf.org