The Horrid Consequences of Rent Control

June 19, 2022 by Dan Mitchell@ International Liberty 

 

As John Stossel discusses in this new video, few economic policies are as insanely foolish as rent control.

As you saw in the video, supporters of rent control tend to be the cranks and crazies, such as Bernie Sanders and Alexandria Ocasio-Cortez.

 

The vast majority of economists, by contrast, recognize that such policies undermine incentives to provide and maintain rental housing.

Who is going to invest in a new apartment complex, after all, if politicians impose laws that ensure it will be a money-losing project?

The video highlights what has recently happened in Minnesota.

I wrote about that mistake last year. Christian Britschgi of Reason also looked at what happened. Here are some excerpts from his column.

Another housing development in St. Paul, Minnesota, is on hold… The reason? St. Paul’s newly-passed rent control ordinance, which Alatus’ principals say is making their once-eager investors skittish about doing business in the city. …the policy has developed a rock bottom reputation among economists over the past few decades. They almost uniformly argued that capping rents deterred developers from building new homes, and discouraged landlords from taking care of the ones that already exist. The inevitable result is less, and less well-maintained, housing. …Rent control is always going to disincentivize housing construction.

I recommend reading the entire article, since it also discusses the pernicious impact of zoning laws.

Since we’re on the topic of rent control, here’s the abstract of a study published by the American Economic Review in 2019. Because the policy discourages construction of new units, Rebecca Diamond, Time McQuade, and Franklin Qian found rent control actually increases rents in the long run.

Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.

Rent control is bad for both landlords and renters.

 

But renters generally don’t understand the topic, which is why many of them support demagogic politicians pushing the policy.

The bottom line is that rent control is a form of price control. And we have centuries and centuries of evidence that such policies produce shortages and other forms of economic damage.