President Joe Biden has unveiled a controversial plan to implement a form of national rent control, targeting approximately 20 million apartment units across the United States. This proposal, while aimed at addressing rising housing costs, raises serious concerns about its effectiveness and potential unintended consequences.
The plan offers large landlords a stark choice: cap annual rent increases at 5% or lose valuable federal tax breaks. As Neera Tanden, director of the White House Domestic Policy Council, stated, “Congress needs to pass the President’s plan now.” However, this urgency overlooks the proposal’s fundamental flaws and its potential to harm the very people it aims to help.
One of the most glaring issues with this proposal is its narrow focus on corporate landlords. Sharon Wilson Géno, president of the National Multifamily Housing Council, points out a critical flaw: “Low-income households are more likely to live in rental housing owned by smaller operators.”
This means the benefits of this rent control scheme would primarily flow to higher-end renters, leaving those most in need of affordable housing without relief.
Moreover, the proposal’s short-term nature – capping rents for just two years – fails to address the root causes of housing affordability issues. As Géno aptly describes it, the plan is a “farce” that could have far-reaching negative consequences. She warns, “It’s absolutely going to impede future development because they’re seeing what’s happening to existing property.”
Even affordable housing providers are skeptical of this approach. David M. Dworkin, president and CEO of the National Housing Conference, stated bluntly, “Rent caps don’t work and will have a chilling effect on housing supply.” This sentiment echoes the concerns of many economists who argue that rent control often leads to reduced housing quality and availability in the long term.
Rent control would make the housing affordability crisis worse, not better.
Hard to find something economists agree on more than that.
The only solution to a shortage of housing is to build more housing. https://t.co/knNqfKXUqq pic.twitter.com/NNkMvAwjHu
— Alec Stapp (@AlecStapp) July 15, 2024
The proposal’s attempt to exempt new construction from these restrictions is unlikely to mitigate its harmful effects. As Dworkin notes, “Exempting new construction will do nothing to change this, making clear that long-term investments in housing can be made uneconomic retroactively.” This uncertainty could deter future investment in rental properties, exacerbating the housing shortage.
While it’s true that housing costs have risen significantly – with rents across all property types up 32% in June from four years earlier, according to Zillow – a blanket rent control policy is not the solution. Instead, it could lead to reduced housing quality, decreased new construction, and a shift of the rental market towards luxury units that can command higher initial rents to offset future limitations.
The Biden administration’s proposal, while seemingly well-intentioned, fails to address the complex factors driving housing costs. A more effective approach would focus on increasing housing supply, streamlining zoning regulations, and providing targeted assistance to low-income renters.
This rent control proposal is likely to do more harm than good. It risks benefiting higher-end renters at the expense of those truly in need, while potentially stifling the very development necessary to address housing shortages.
