Democrats dominated the Nov. 4 elections, but the other big winner was price controls. In New York, the democratic socialist Zohran Mamdani ran for mayor on a simple promise to “freeze the rent,” cementing himself as the affordability candidate and propelling his extraordinary rise to City Hall. In New Jersey, Mikie Sherrill, a moderate Democrat, scored a double-digit victory in the governor’s race after proposing to freeze electricity rates. After this month’s results, Americans can expect more Democrats of all stripes to run on controlling prices.
This may terrify many economists, who have long dismissed price controls as failed policy. But, like it or not, voters are demanding short-term price relief, and temporary price controls may be the only viable way to provide it. The key for politicians who embrace price controls is to design them, and the policies that accompany them, to maximize their benefits and mitigate their costs.
For decades, the textbook policy response to high prices has been to increase supply, such as by offering tax incentives or reducing regulatory barriers to housing construction and energy production. But these solutions can take years to have an effect. You can’t build new homes or new power plants overnight. Demand-side fixes, such as subsidies or tax credits to offset the cost of expensive items, can sometimes provide short-term help. But in practice, these subsidies often create more demand chasing still constrained supply, pushing prices up and transferring most of the value of the subsidy to landlords or utility companies instead of the people who need it.
The insufficiencies of this policy playbook have helped create what we call the affordability conundrum: Voters want immediate cost relief, but standard policy tools can’t always provide it.
It’s no surprise that politicians are turning to price controls, such as rent caps or utility rate freezes, which promise immediate and visible relief. These measures, too, can be self-defeating: They jam the signal that high prices send to companies to enter markets or expand production, which can help lower costs over the long run.
As any economist will tell you, capping prices below production costs causes shortages and rationing. Many Americans remember how the Nixon-era price controls, particularly on gasoline, led to shortages, station closings and round-the-block lines to fill up, especially when combined with spiking oil prices after the 1973 Arab oil embargo. Even caps that sit above current costs can deter maintenance and investment. When rent controls were lifted in Cambridge, Mass., landlords invested in renovations, raising property values across the city. When San Francisco expanded rent control in 1994, the supply of rental housing declined, as landlords converted units to other uses.
Yet sharply rising rents and utility bills wreak havoc on family budgets. That’s why there is a case for temporary, targeted price controls that hold down costs, paired with supply-side reforms that encourage new production. Rent caps focused on existing units, combined with government investment in new housing and reforms to zoning, permitting and other land-use regulations, can protect tenants from rent spikes, while encouraging new construction to build the three to four million homes that economists believe we need to make up the shortfall in the housing supply.
Similarly, a freeze on electric bills paired with government investments that expand solar, wind and other clean-energy production and transmission can shield household budgets until more power comes online. To their credit, both Mr. Mamdani and Ms. Sherrill proposed such measures.
Indeed, there may be political benefits to bundling price controls with supply reforms. As Rogé Karma noted in The Atlantic, even some advocates of housing development say that rent control has been essential to easing the way for zoning and permitting reforms that would allow more homes to be built, ultimately bringing down prices.
Policymakers should step in if there are signs of price controls becoming permanent or spreading to other parts of the market. Once enacted, price caps tend to stick, as interest groups mobilize to preserve them. Tenants who did not receive relief initially may argue for an expansion on fairness grounds.
Policymakers can reduce these risks by inserting sunset clauses, targeting controls to well-defined groups — such as existing tenants and low-income households — and backing long-term supply efforts with specific timelines and funding. But no government can fully bind its future self, and we may need to accept some trade-off between immediate relief and weaker long-run investment.
Faced with an electorate demanding action, the lesson for policymakers isn’t to reject price controls wholesale or embrace them unequivocally. It’s to treat them as a tool to be used carefully, temporarily and alongside measures that expand supply. In a cost-of-living crisis, the question isn’t whether to intervene, but how to do so in a way that delivers relief today without creating new problems tomorrow.
Neale Mahoney is a professor of economics at Stanford. Bharat Ramamurti writes The Bully Pulpit newsletter on Substack.
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