President Biden proposes to inflame the housing crisis with rent control
There comes a time in a politician’s campaign when the most he can muster is to throw candy into the crowd. President Biden has reached that time. The candy, in this case, is the daft proposal unveiled by the president during a speech this week to foist federal rent control on the country. Like most candy, the wrapping is tawdry and the flavor fades fast, but the empty calories will stick around. Rent control is a sure way to worsen our housing crisis.
A progressive economist once said that “rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” There are few universal policy agreements among economists, but one of them is the broad consensus that rent control is terrible. Rent control was born in the early 20th century as a temporary response to the flood of soldiers returning to American cities from the World War I battlefields. Over time, however, artificially limiting the rent fossilized and stuck around as urban growth exploded, then lost momentum in the 1980s as economists of all stripes saw that it reduced the quantity and quality of housing. Yet President Biden has just proposed to lock in the nation’s housing shortage by spreading this cancerous idea.
During a speech in Las Vegas on July 16, President Biden proposed to cap rent raises by “corporate landlords.” Although he fumbled the numbers in the speech, his plan appears to be to ask Congress to eliminate long-standing federal tax reductions unless property owners limit rent increases to 5%. No exceptions, even where a rent increase is merely to keep up with inflation.
The proposal invites disaster. Rent control achieves the opposite of its intent. A 2018 study of San Francisco’s rent control regime, for example, showed that rent control reduced the supply of rental housing, reduced housing affordability, and reduced economic equality.
The reason for this counterintuitive result is simple: Rent control fails to account for rational human responses. Faced with an inability to receive a return on their labor and investments—or even being forced to rent property at a loss—housing providers saddled with rent control often convert their property to condominiums, tenancies in common, or other uses outside the controlled market.
Rent control also discourages new construction. One stark example from two neighboring cities: In 2021, St. Paul, Minnesota, capped rent increases at three percent. A mere three months later, permits to build multi-family housing had plummeted by a stunning 82 percent. Yet next door in Minneapolis—which had not capped rent—permits shot up by 68 percent.
The Biden campaign floats some weak excuses for why this time will be different. First, his campaign says that the proposal will not discourage new housing because his proposed rule would not apply to new construction. But this is a common feature of rent control tried elsewhere, and it still hurts housing costs because rent-controlled housing pushes prices upward in the uncontrolled market.
Second, the Biden campaign claims this is just a short-term band-aid, maybe a few years, just to help while new supply ramps up. Tell that to the Doughboys. We’ve all heard this story before. Temporary measures have a funny way of sticking around, including rent control itself. It began as a temporary war-time measure in New York City, and everyone knows how that ended: It didn’t.
There is a more reliable and time-honored way to keep rent affordable: build more housing. President Biden should understand this. At least, he appeared to three months ago, during his last speech in Las Vegas where he said: “We have to increase supply, because when supply is down and demand is up, costs rise. The bottom line to lower housing costs for good is to build, build, build.”
Now, though, the president’s mantra is “regulate, regulate, regulate.” He now says the true cause of high housing costs is not a supply shortage but “corporate greed,” a phrase he invoked like he was telling a campfire ghost story. I have never understood the strange coincidence that corporate greed seems to wax and wane in precise harmony with changes in supply and demand. But his audience ate it up.
Instead of tossing out candy while praying the sugar high lasts through November, the president should return to his earlier message: “Build, build, build.” While housing policy is often a local matter, the federal government could take some major steps to help make that building happen. Instead of imposing yet another layer of one-size-fits-all national edicts, the federal government should be in the business of helping states and local government remove regulatory barriers to building more housing.
For example, the president could push to open federal lands to housing development. This would mostly affect the western states, but the Mountain and Sun Belt markets are the spots where net demand for rentals has ballooned. The federal government controls a staggering amount of land in the West, and leasing such land for housing would ease our supply crunch. This is especially true in Nevada, where Biden unveiled his rent control proposal. A whopping 80.1% of the state is owned by the federal government—the most of any state in the union. Of course, we may not want apartment buildings cluttering the Ruby Mountains, but plenty of Nevada’s federal land, and federal land across the country, is not a conservation area—it’s just open land, much of it close to urban centers. The federal government already leases its lands to private ventures for grazing, oil and gas, coal, and so on. So why not housing?
And while the president is talking tax incentives, he should consider using those incentives as a carrot to encourage more building, rather than a stick to force landlords to keep rents low. We already have in place the structure for doing this, such as the low-income housing tax credit, which federal law could expand and build upon.
The president who spoke in Vegas this week is peddling false hope. He’s tossing candy to the crowd, a cheap facade that will just inflame the problem. The president who spoke in Vegas three months before had the right idea: “Build, build, build.”
