Whenever people get anxious about affordability, populists offer up a deceptively simple solution: rent control. Yet capping prices is a textbook policy failure that leaves renters in every community which tries it worse off than they would have been otherwise: less housing supply, more deferred maintenance and reduced mobility. Fresh examples aren’t needed, yet cities and states keep repeating the experiment.
Consider the tale of the Twin Cities in Minnesota. In 2022, St. Paul ushered in one of the strictest controls in the country, capping rent increases at 3 percent for most apartments. Its neighbor Minneapolis, just across the Mississippi River, rejected price controls and concentrated instead on creating housing supply to meet demand.
In St. Paul, housebuilding permits plummeted by 79 percent in the first year. In Minneapolis, they increased nearly four times. Rents went up in St. Paul more than twice as much as Minneapolis, in part because some landlords maxed out the cap to make up for future losses, according to a story this week in the Wall Street Journal. St. Paul is trying to clean up the mess it made, exempting new construction and properties built after 2004 from its ordinance. In elections last month, critics of rent control won the mayoral races in both cities.
Swedish economist Assar Lindbeck wasn’t wrong when he quipped that rent control is “the most efficient technique presently known to destroy a city — except for bombing.” It becomes irrational for landlords to invest in upkeep. Others pull properties off the market to sell. Landlords who keep renting will be more likely to hike rents when the lease is first signed to account for their limited ability to raise prices in the future. This will make initial rent costs higher than necessary. Meanwhile, renters will be less likely to upsize or downsize as needed, not wanting to sign onto a higher-cost lease upfront.
Despite all that, the Los Angeles City Council voted 12-2 last month to lower its existing cap on annual rent increases. Now rents can only rise between 1 percent and 4 percent, inflation-dependent, and no higher than 90 percent of the area’s consumer price index. In other words, landlords will be prohibited from raising rents to fair market value. Meanwhile, a campaign in Massachusetts appears poised to collect enough signatures to put rent control on the ballot next year, with a proposal to limit most increases to 5 percent a year.
There is no feigning ignorance for the consequences that inevitably follow these caps. In New York, it’s estimated there are 50,000 empty apartments across the city thanks to rent control policies. In Scotland, the Scottish National Party capped rent hikes at 3 percent in 2022 – only to report the highest rent increases on record this fall. Meanwhile, in Argentina, President Javier Milei abolished rent controls in December 2023. Properties flooded the market, and rents have fallen by 40 percent on average. That’s something American cities would be wise to replicate.
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