No, rent control won’t solve the housing problem. What can we do?
While rent control is a popular policy among voters, public policy must be judged by its results, not by its intentions.
Mamdani’s rent freeze has passed for one million housing units. Many voters assume that this policy will truly benefit them. After all, if rents don’t increase, what could go wrong? Many things, actually.
A recent literature review about government interventions on the housing market, which analyses 1077 papers in 96 different countries, shows that, while rent controls can indeed stop the increase in the units subject to the policy, secondary effects include less new supply, lower quality of the actual supply given that owners have less incentives for it (they face an increasing demand with a lower supply, so they will find someone that will rent the unit either way), less mobility given that the tenant will very difficultly find another unit with such a low rental and higher rentals for not controlled units (the expected result when the demand going to the controlled units moves to the non-controlled ones).
On the other hand, land-use restrictions that limit how much and where housing can be built create artificial scarcity and reduce supply elasticity of supply, therefore causing any demand shock to translate into higher prices rather than more housing. In this context, demand-side policies such as subsidies, cheap credit and tax breaks end up generating higher prices and rents (more demand vs less supply) instead of increasing the housing stock as would happen in a more competitive market. The adjustment is thus via prices, not quantities, as it should be to benefit tenants.
Land-use restrictions that limit how much and where housing can be built create artificial scarcity and reduce supply elasticity of supply, therefore causing any demand shock to translate into higher prices rather than more housing.
What works to reduce prices, then? Increasing housing supply. It’s no surprise since we’re talking about a textbook case policy and it’s also a result of the vast majority of papers about it. Here’s a list of some studies about it that I posted on X:
https://x.com/frannunesecon/status/2071579023667282423?s=46&t=XIt-VeqC4t8IkJ76vtjTPg
To conclude: No, rent control won’t solve the housing problem. It will actually make it worse. But not everything is lost, we know about a policy that does work: increasing housing supply. It might not be the most popular one among voters, but it’s the one that delivers the best results. The evidence is there. Let’s be reasonable and follow it.