Among the last acts of President Biden’s now-abandoned re-election campaign was a hasty proposal for a national rent control policy. The Biden administration has been all over the map since runaway inflation took hold following the enactment of excessive stimulus in a supply-constrained economy. The administration has variously embraced narratives that the inflation would be merely “transitory,” or was the result of “corporate greed.” The latter argument has been thoroughly debunked by economists, most recently in an analysis published by the Federal Reserve Bank of San Francisco. Nevertheless, the progressive left does not typically grapple with the laws of supply and demand, and the Biden administration’s proposed rent cap policy is a prime example.
When President Biden describes the rent cap policy, one could be forgiven for not wholly understanding the scope and scale of the proposal. One might assume from the president’s rhetoric that the administration is seeking to prevent landlords from raising rent by more than 5 percent a year. In more detailed briefing materials, the president’s proposal has been scaled back rather more than the rhetoric suggests. The administration has proposed that landlords that own 50 or more rental units must not increase rent by more than 5 percent or risk losing depreciation tax allowances. The restriction would only apply to existing housing and would only be in effect for two years, and it would require Congressional action. The number of caveats and exceptions to this policy speaks more of the likely embarrassment of the administration’s policy staff than the president’s judgment. Despite the watering down of the proposal, the policy remains a variation of rent control, and will have a deleterious effect on the housing market proportional to its scope.
As has been well-documented in a recent book, The War on Prices, rent controls are a demonstrable policy failure that lead to restricted supply and a poorer-functioning housing market. Another recent paper examined 112 empirical reports assessing the effects of rent control. This meta study confirmed that rent controls reduce mobility, reduce housing quality, increase rent in uncontrolled markets, and generally reduce the supply of new rental housing. In short, rent controls singularly fail to mitigate housing affordability challenges.
More recent research by the American Action Forum looks at the administration’s proposal specifically, and finds, consistent with the overwhelming evidence, would harm renters to the tune of thousands of dollars. Specifically, AAF finds that, “A 5 percent cap on rent would not lower overall costs and could result in between $3,500 and $6,000 in additional costs for renters over a five-year period, alongside roughly $1 billion in administrative costs.”
The Biden administration has not covered itself in glory in dealing with recent inflation. They’ve attempted any number of rhetorical defenses while hoping the bitter medicine eventually prescribed by the Federal Reserve would take effect and cool price growth. The administration has gone to the well on policies that will have precisely the opposite effect on home affordability as intended. Housing affordability is a very simple challenge of supply and demand. When confronted with excess demand, what does the administration do? Try to stimulate more demand with new housing credits. When confronted with insufficient supply, what does the administration do? Proposes a rent control policy to hinder housing supply. Unsurprisingly, it’s ultimately tenants who lose out.