The Folly of Rent Control

Mike Kozinski ’21, Guest Columnist

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In a recent speech in Las Vegas, Nevada, Vermont Senator Bernie Sanders (D-VT) unveiled his housing plan meant to curb the growing cost of housing. Later on Twitter, Sanders proposed measures, such as plans to “[b]uild and rehabilitate 7.4 million affordable housing units” and “[b]uild 2 million mixed-income units,” with the ultimate goal to “[e]nd homelessness.” Sanders’ most radical idea proposed in the speech was his call for a national rent control program. Under a Sanders administration, landlords would not be able to raise rents beyond one and a half times the rate of inflation or three percent, whichever is higher.

It is not unexpected that Sanders would propose solutions to the nation’s lack of affordable housing for two reasons. First, the prices charged for rent, especially in the nation’s largest cities are excessive. According to data collected by Zumper, an apartment search platform, the median monthly rent for a one bedroom apartment in San Francisco is $3,540 as of September 2019. While nationwide rents are more reasonable at a median rent of $1,250, the excessive rents charged in America’s largest cities have profound consequences. Lower-income Americans are prevented from pursuing opportunities simply because they cannot afford the rent; consequently, the U.S. cannot cultivate human capital as people cannot afford to live in the nation’s economic hubs, which costs the United States economic growth.

Second, 36.6 percent of American households rent their homes according to data from the Pew Research Center, which is the highest rate since 1965. Given that renters will constitute an increasing share of the electorate, it is a smart tactic to address the concerns of potential voters.

However, Sanders’ rent control plan will do little to address the concerns of renters. Rent control is a futile policy attempt that only exacerbates the problem of extortionate rents. It not only fails to solve the problem, but it also harms the very renters that Sanders wants to help.

Rent control discourages new housing construction. Since landlords are not allowed to charge rent beyond what is legally permissible, landlords have difficulty profiting from managing rent-controlled apartments. As such, there is little incentive for investors to direct money into building more housing; consequently, the supply of affordable housing decreases and there is little incentive to increase it. By contrast, investors have more incentive to build luxury housing units, which has the effect of gearing the overall housing market towards the rich. Such units are occupied almost entirely occupied by wealthy renters who will be able to afford the high rent.

Additionally, it is ironic that a self-proclaimed “democratic socialist” is promoting a policy that is regressive and hurts lower-income renters. Since landlords cannot profit by raising rent, they profit from rent-controlled apartments by cutting general upkeep and improvement costs to a minimum, which disproportionately harms low-income renters. Low-income renters lack the resources to make necessary improvements on their individual units, whereas high-income renters can afford to make any improvements they need or want or move to another unit. This pernicious policy creates a system where low-income renters live in increasingly dilapidated buildings, and the housing market simultaneously caters only to the wealthy.

Despite his good intentions, Sanders’ plan for national rent control would harm the very renters he seeks to help due to the bad incentives of the policy. During this election cycle, it is important that voters carefully research the unintended consequences of candidates’ policy. As per H.L. Mencken, “there is always a well-known solution to every human problem — neat, plausible, and wrong.”