The Economics of Rent Control

Abstract

Affordable housing is on the minds of voters and state and local officials across the country. One policy often proposed to temper high rents is rent control. In its most basic form rent control is a government-imposed cap on rent and using it as a means of keeping rents below the market rate is an old idea, dating to at least the 16th century. But while rent control may seem like an easy way to control housing prices, the bulk of the evidence shows that it’s an inefficient policy with several negative side effects. Rent control decreases the amount of rental housing, raises prices in the uncontrolled sector, reduces the quality of rental units, leads to a misallocation of units, and decreases tenant mobility. It also transfers wealth from landlords to tenants even though some landlords are poorer than their tenants, and this may foster hostility between the two groups. Instead of rent control, cities can make housing more affordable by allowing more building to enable the filtering process to work. They can also provide rent subsidies to alleviate any remaining affordability issues. By looking beyond rent control, cities can help create more affordable housing options for lower-income people.