But one can’t blame him for wanting to forget because the policy itself is so misguided. Rent control is one of the worst possible ways to fix America’s housing crisis; it doesn’t just fail to fix the underlying issues but actually makes them worse.
When rents are high, it’s a sign that too few rental units are available to meet demand. This signal is painful for renters, especially those with low incomes who may hear the message, “You can’t afford to live in this place anymore.” But the same signal is also an SOS to developers: Build more housing! (And to politicians: Lower regulatory barriers to construction.)
Encouraging new supply is the only true solution to a housing shortage because, unless new units are built, every other “solution” — rent subsidies, for instance — amounts to trying to rig a game of musical chairs: The teacher may pick new winners, and maybe we like them better than the last ones, but we’ve still left a bunch of players with nowhere to sit.
And rent control isn’t just ineffective but counterproductive. Trying to solve a housing shortage by weakening the signal that something’s wrong is like trying to lose weight by breaking your scale: You may feel better in the moment, but your problems will probably get worse. In the case of rent control, landlords will decide not to build or operate units that are unprofitable at the capped rents.
This inevitability can be resisted with various tweaks, and the administration has some of these. What’s being proposed is not a hard nationwide cap but a soft one: The president has called on Congress to pass a law that would force landlords who raised rents by more than 5 percent to stretch out their depreciation allowances over a longer time. The cap would apply only to corporate landlords who own more than 50 units and thus have more margin (and probably fewer alternative uses for their multifamily properties) than do small landlords who own individual houses. The proposal would exempt new buildings altogether and include a carve-out for units that have undergone substantial renovations. And it’s supposed to be in effect for only two years while America waits for the new housing supply that the administration intends to spur by investing in more low-income housing and also by opening up some federal lands to development.
But while some of these tweaks might make the policy less bad, none of them makes it good.
It is surely better to have temporary caps than permanent ones — but “temporary” government programs have a suspicious tendency to become permanent. My favorite example has long been the temporary telephone excise tax enacted in 1898 to fund the Spanish American War, which was finally repealed in 2006. But New York City’s rent control law, enacted in 1943 as a temporary wartime measure, is probably more relevant here. It’s still in effect, though it covers a shrinking number of units.
Similarly, while it’s undoubtedly better to exempt new buildings than not to, landlords might reasonably suspect that their buildings eventually will come under the “temporary” rent cap — and plan accordingly by whisking less profitable projects off the drawing board. And while a soft cap might be better than a hard one, it’s better only to the extent that landlords feel free to raise rents by more than 5 percent and lose their accelerated depreciation, which of course defeats the purpose.
It helps a little to make genuine efforts to increase the housing supply. But it will probably take much longer than two years for these to have much effect, which of course means that there will be pressure to extend the rent caps. And it’s not clear how much various administration proposals will do to increase supply where it’s needed — for example, most federal land is far from the coastal population centers where the nation’s housing crisis is most acute.
In other words, either this policy won’t accomplish much or it will do bad things. The sad thing is that the White House undoubtedly knows this because economists have made these same arguments to them over and over. This is a desperation move by an administration that is badly behind in the polls — but it buys at best a small and temporary political gain, at the expense of the desperate folks who need somewhere affordable to live.
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