The Biden-Harris administration’s nationwide rent-cap proposal to limit annual rent increases to 5 percent for large landlords regardless of their expenses or inflation will exacerbate the shortage of available housing units and disincentivize new housing construction.
Rent control in New York, San Francisco and other cities reduced investment in rental properties, led to fewer units being available at all price levels and drove more Americans into homelessness. A nationwide cap on rent increases would replicate these terrible results on a vastly larger scale.
The Biden-Harris plan would eliminate depreciation write-offs for landlords with at least 50 rental units unless they agree not to raise rent more than 5 percent annually for two years. The proposal would apply to existing units and exempt new units as well as those that undergo “substantial renovation or rehabilitation.”
Like other Biden-Harris proposals, rent control caps are a virtue-signaling measure, not a practical solution. If they were adopted, growth in the housing stock would slow as capital investment would be diverted from developers to more profitable ventures. And it would disproportionately affect new renters, who would be charged more than they would otherwise to make up for landlords’ lost income from units subject to this rent control policy.
The economic repercussions of this misguided policy extend beyond the housing market. A nationwide rent cap could also impede labor mobility, because if housing costs in a given area increase, it could become more difficult to find workers willing to relocate. At the same time, fewer existing units will become available for newcomers because current residents will face the incentive to remain in their rent-controlled units longer than they might otherwise.
A cap on rent increases could also reduce property tax revenues due to a decline in the assessed value of rent-controlled properties. The strain on local government budgets would reduce funds available for education, public safety, infrastructure and other services.
An October 2020 Senate Budget Committee report found that federal programs intended to help Americans afford housing were hindered by duplication and overlap. Former Budget Committee Chairman Michael Enzi (R-Wyo.) noted that, in 2019, “Washington spent over $50 billion on housing, guaranteed about $2 trillion in home loans and provided billions more through the tax code, yet more than half a million people in this country were homeless on a single night.” Rather than fixing the existing federal housing programs that fail to meet their objectives, the proposed rent cap is a simplistic and predictably ineffectual attempt to treat the symptoms of the housing crisis without addressing its cause.
The announcement of rent caps allows the Biden-Harris administration to claim to be “doing something” about affordable housing in an election year. The White House doesn’t seem to understand that the most effective way to solve the affordability crisis and render the housing market more accessible is to lift regulations that constrain the housing supply.
The road to affordable housing is paved with evidence-based, supply-oriented policy, not more economically illiterate dictates from the top. Policymakers should focus on tearing down the regulations that block capital from flowing into new property developments that would increase the housing supply.
For example, they should reform zoning laws to allow accessory dwelling units, reduce minimum parking requirements, lift height, lot coverage, and setback restrictions, and remove other impediments to construction in order to meet local housing needs. Rent control, like other price controls, has never made housing more plentiful or accessible.
Alec Mena is state government affairs associate for the Citizens Against Government Waste.
