Rent control is frequently promoted as a solution to soaring housing costs, but a deep dive into decades of economic data reveals a starkly different outcome. According to columnist Jerry Agar, these well-intentioned policies often create severe housing shortages, discourage the construction of new rental units, and ultimately harm both renters and the middle-income landlords who provide housing.
The Economic Principle Behind the Problem
Economist Thomas Sowell's analysis is central to understanding the fundamental flaw in rent control. He argues that when a person is said to have a 'right' to a good like affordable housing, another person is compelled to provide it. This system forces landlords to offer housing at below-market rates, violating the principle of voluntary exchange. In practice, this means property owners cannot cover their costs, reinvest in maintenance, or improve their buildings, leading to a decline in housing quality over time.
How Rent Control Stifles New Construction
One of the most damaging effects of rent control is its impact on new housing supply. When renting out apartments becomes financially unviable, developers and investors lose the incentive to build new rental properties. This is not a theoretical concern; it's a proven pattern. Agar points to San Francisco, where three-quarters of rent-controlled housing was built before 1950. This building freeze is a direct response to the economic disincentives created by controlled rents, a phenomenon observed in cities across the United States, Europe, Asia, and Australia.
Distorted Housing Choices and City-Wide Consequences
Artificially low rents also distort how people use housing. In a free market, people typically downsize when their space needs decrease, freeing up larger units for growing families. Under rent control, this natural cycle breaks down. Agar uses the example of a fictional couple, Fred and Wilma. After their child moves out, they have no financial motivation to leave their below-market, three-bedroom apartment for a smaller, more expensive one. This behaviour, replicated across a city, means that larger families struggle to find adequate, affordable housing, while older, often wealthier couples occupy units they no longer need.
The wider impact on urban centres is significant. An article from the New York Times cited by Agar notes that there was more residential development during the Great Depression than in the modern era in New York, a direct consequence of rent control. The policy often leads to dilapidated buildings, after which the very officials who instituted the controls blame landlords for the poor conditions. Ultimately, a policy meant to aid the poor often shifts resources toward luxury housing, which is frequently exempt from controls, making it affordable only to the affluent.
In conclusion, while rent control is politically popular, its economic consequences are overwhelmingly negative. It hurts the very people it aims to protect by creating scarcity, discouraging investment, and distorting the housing market, leaving both tenants and middle-class landlords in a worse position.
