OPINION:
Last week, with millions of Americans struggling to pay their rent on time, President Biden proposed the oldest, most thoroughly debunked voodoo economic trick in the book: rent control.
The president wants to freeze rent increases in the United States at 5% yearly. As a former professor of economics, I can attest that any kind of price freeze ultimately results in supply shortages and drives prices higher.
Mr. Biden, however, needs to blame someone else for the rising cost of living, and he desperately wants the public to believe landlords are the big bad wolves of this story.
The president’s team has concocted a narrative about how landlords’ use of “proprietary algorithms” has arbitrarily raised rents on tenants.
This means that landlords are using pricing estimation tools (think Hotwire.com or Priceline) to gauge their properties’ value. The Department of Justice and Mr. Biden’s friends in Congress are also targeting the software companies that create and run these algorithms, comparing them to a “cartel.”
To blame rent inflation on landlords using 21st-century empirical data tools to get a better market sense of what their units are worth is as absurd as blaming Henry Ford for Amtrak’s revenue declines. Politicians are willing to look at anything but the mirror when pinning the blame for sky-high rents. But the penalty that Mr. Biden has concocted will only make matters worse.
Citing the rising construction cost in labor and material, Del Nordby, who rents out 59 units in Nevada, said Mr. Biden’s rent cap would make it harder for landlords to justify investing in new properties. The American Apartment Owners Association made the same case: “Rent increases are often necessary for landlords to cover these rising costs from inflation and continue providing high-quality housing.”
As even the left-leaning Brookings Institute put it, the available research demonstrates that “while rent control appears to help current tenants in the short run, in the long run, it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.”
A study released in March analyzed the impact of a proposed 7% cap on rent increases in Washington state. The researchers found that the proposal, which would affect about half the state’s rental properties, would cause 7,000 fewer units to be constructed over the next decade, ultimately increasing prices. The study also found that the resulting decrease in rental value would result in a $16 million decrease in spending on maintenance each year.
What we need right now is more landlords developing new properties and bolstering the housing market. But that can’t happen if Mr. Biden keeps demonizing and penalizing them as the problem.
If Mr. Biden really cared about lowering rents, he would address his own inflationary spending practices. That, however, would take an acceptance of proven economic principles that are not generally found in politics, much less in an election year. And here we are.
• Terry Thompson, an economic and political commentator, served as an adjunct professor of economics with the John Brown University Soderquist College of Business.
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