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Rent Control Is a Great Destroyer
The Democrats’ proposal would wreak havoc. For proof, look at Argentina.
By Amber Gunn, WSJ
Sept. 9, 2024 5:14 pm ET
Rent control is in vogue among Democrats. President Biden in July proposed capping landlords’ annual increases at 5%, and Kamala Harris vowed to “take on corporate landlords and cap unfair rent increases.” Those ideas are destructive, and Argentina offers the latest proof.
When President Javier Milei assumed office in December 2023, he inherited triple-digit inflation and a flailing economy. His “shock therapy” plan to resuscitate the country included eliminating government jobs, contracts and subsidies. Perhaps the most successful measure, however, was repealing a rent-control law the National Congress had passed in 2020.
In a bid to provide renters more economic security, the statute locked landlords into tenant-controlled leases for a minimum of three years and capped rent. The consequences were swift and brutal: 45% of landlords reportedly elected to sell their properties. Many others either converted their units into Airbnb-type short-term rentals or increased rates prior to the law going into effect. As the Cato Institute relates, the average rent for a two-bedroom apartment in Buenos Aires rose from nearly 18,000 pesos a month at the end of 2019 to 334,000 pesos four years later, well beyond the 210,000 pesos a month if the rate had tracked inflation. Since the law’s repeal, supply has reportedly rebounded and prices have fallen by double digits.
Mr. Milei knew that a host of socialist ideas—from capital controls to rent control—contributed to the problem. “Ideas that have failed in Argentina have failed all over the planet,” he said during a December broadcast.
He wasn’t merely posturing. Nearly a century of case studies by economists such as Friedrich Hayek, Milton Friedman and George Stigler have exposed rent control as destructive. Center-left economists have agreed. Jason Furman, who led President Obama’s Council of Economic Advisers, has said it “has been about as disgraced as any economic policy in the tool kit.”
Opposition to rent control is about protecting people from unintended consequences, be it housing shortages, underinvestment, tenant discrimination or falling property values. It understands that rent ceilings don’t relieve housing shortages; they exacerbate them. Secured tenants in rent-controlled environments may not give up their units for decades, even after their needs have changed. Meanwhile, units fall into disrepair as landlords neglect basic maintenance or upgrades, because they can’t recoup investments through rent increases. Price-controlled units that can’t be converted into owner-occupied units are eventually abandoned, leading to blighted and dilapidated neighborhoods.
Rent-control advocates ignore economic fundamentals. Whenever there is a shortage of any product in a market economy, rationing will occur by price, which consumers determine via bidding. As Friedman and Stigler observed, “Everything that is not as abundant as air or sunlight must, in a sense, be rationed.” If rationing isn’t done by price, it will be done by force in the form of central planning.
Americans lose sight of this and decry steep increases in rent and evictions in the U.S. Yet their complaints ignore the effect of pandemic-era eviction moratoria, under which many landlords went months or years without being able to evict nonpaying tenants. Once those restrictions were lifted, landlords raised prices to recoup costs, hedge against inflation and deter squatters.
Rental markets are complicated. Rent-control proposals come in various forms and inflict various consequences. The more restrictive the policy, the more drastic the effects. In any iteration, though, it is arguably the worst solution for fixing the housing problem.
As Swedish economist Assar Lindbeck observed, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” No matter how many times we try, we can’t outsmart economic first principles.
Ms. Gunn is a senior policy analyst for the Mountain States Policy Center.
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