Housing: Federal Nationwide Rent Control Is A Dangerous Proposition

Sen. Elizabeth Warren (D–Mass.) and Rep. John Bowman (D–N.Y.) now want federal regulators to impose rent control on the entire nation. In their letter to the Biden Administration, which was signed by 50 members of Congress, Warren and Bowman request that the administration “pursue all possible strategies” to control high rents. These politicians portray themselves as fighting for the average American, but, if they get their way, the results will be catastrophic.

The letter authored by the two and signed by 50 members of Congress, proposes seven actions of varying radicalism and legality that President Joe Biden could take to cap rent increases.

“We urge your Administration to pursue all possible strategies to end corporate price gouging in the real estate sector,” reads the January 9 letter to Biden. “Simply put, the rent is too high and millions of people across this country are struggling to stay stably housed as a result.”

The pandemic saw the federal government dramatically expand its role in rental housing markets by imposing eviction moratoriums and allocating billions in funding for rent relief and housing for the homeless.

The letter from Democrats in Congress echoes demands by left-wing housing activists to retain and expand on those emergency interventions. The post-pandemic increase in rents, they argue, represents an ongoing emergency that demands a robust federal response.

In August 2022, the National Housing Law Project (NHLP) and the National Low-Income Housing Coalition (NLIHC) sent their own letter to Biden Administration officials, making the case for many of the same interventions Congressional Democrats are calling for now.

Chief among them is a demand that the Federal Housing Finance Agency (FHFA), the independent regulator and conservator of Fannie Mae and Freddie Mac, impose anti-price gouging protections (aka rent control) and “just cause eviction standards” on properties with government-backed mortgages.

Where exactly the FHFA would get the legal power to impose rent control on properties with a Freddie- or Fannie-backed mortgage isn’t discussed in Congressional Democrats’ letter.

Rents are high, but that is because years of loose monetary policy and irresponsible spending sent inflation through the roof. Buying a home became unaffordable, so more consumers sought to rent, raising the demand for rental units and thus leading to higher prices. Landlords likely also increased rents in part to offset costs that were incurred during the Centers for Disease Control and Prevention’s eviction moratorium.

Luckily, rents are cooling and the stock of rental units is expected to expand. So if congressional Democrats really want to help the situation, they just need to stay out of the way.

A basic understanding of supply and demand would preclude Democrats from pushing such a policy. Placing a cap on what landlords can charge tenants would increase demand, but it would also decrease the supply of available units.

The demand from Congressional Democrats today is that the FHFA enforce price controls on properties with federally backed mortgages solely as a subsidy to renters and not out of any concern for the financial health of the government-sponsored enterprises it controls. That is almost certainly outside the agency’s legal powers.

Another idea floated in Congressional Democrats’ letter is to direct the Federal Trade Commission (FTC) to create new regulations defining “excessive rent increases as a practice that unfairly affects commerce” and then bring enforcement actions against violators.

This demand would also require a novel reinterpretation of the FTC’s existing powers. (Under its current chairwoman, Lina Khan, that wouldn’t necessarily be a deterrent.)

The supply of rentals would decrease because some landlords would convert residential properties into office buildings or other structures that would not be subject to rent control. Additionally, the supply of affordable rental units would decrease even more, as some buildings would be torn down and replaced with luxury apartments, as these are typically also exempt from rent control. Moreover, many existing plans to construct more rental units would be scrapped and abandoned, as rent control can take a once-profitable endeavor and turn it into a losing venture.

Also, existing rental units would see a decrease in quality, as, due to artificially low rents, many landlords would be unable to afford maintenance services.What is the end result? A true housing crisis.

“Real estate is inherently local. Residential buildings do not move across state lines,” wrote Judge J. Campbell Barker for the U.S. District Court for the Eastern District of Texas when declaring the Center for Disease Control and Prevention’s (CDC) eviction moratorium unconstitutional.

Congressional Democrats’ letter also proposes having the U.S. Department of Housing and Urban Development (HUD) tell recipients of federal housing grants that adopting rent control is an important part of fulfilling their fair housing obligations.

This, too, would be a novel, sweeping reinterpretation of HUD’s existing obligation to administer federal housing programs in a way that “affirmatively furthers fair housing.” If adopted, the federal government would effectively say that allowing landlords to charge the market rate on their units is an inherently discriminatory practice.

Fortunately, even if HUD did adopt this suggestion, it would be relatively toothless. Congressional Democrats only call for it to be applied to “entitlement jurisdictions,” which, as the name suggests, are entitled to federal housing funds. Depriving them of those funds would likely require an act of Congress. HUD’s leverage to force them to adopt rent control is pretty limited.

Less radical proposals in the letter include demands that HUD, the Justice Department, and the Consumer Finance Protection Bureau investigate unlawful discrimination by “corporate landlords,” that states use COVID relief money to extend emergency rent relief programs and build affordable housing, that FEMA use resources to move the homeless into permanent housing, and the establishment of a federal interagency council for tenants’ rights.

Even the late left-wing Swedish economist Assar Lindbek once said, “Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.” That is not hyperbole. The empirical evidence is clear: rent control is an extraordinarily pernicious policy.

Strict rent control enacted in New York during World War II eventually led landlords to begin abandoning their buildings because they could not recoup their maintenance costs with artificially low rents. Once-strong blue-collar neighborhoods were absolutely devastated.

When a group of Stanford economists studied the effects of a 1994 law change that expanded San Francisco’s rent control policy, they found that “landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase.” Rent control merely caps rents for those who currently hold a rental unit, but it harms everyone else who is still looking for a place to rent, especially low- and middle-income earners.

In 2021, after St. Paul, Minnesota, voters elected to enact a rent control policy, it was reported that St. Paul’s director of planning and economic development immediately had his phone ringing off the hook. Those calls were from developers who were putting their projects to build new units on hold.

Rent control does not protect the working class. Instead, it destroys cities and harms the most vulnerable.

Their letter shows they’ve thought long and hard about which federal agencies’ mission could be conceivably stretched to include “impose nationwide rent control.”

The Democrats who are proposing nationwide rent control are ignoring established economic principles and history. We can only hope that the Biden Administration does not fulfill their wishes.✪