President Joe Biden has an idea to bring down rental costs. Unfortunately, he’s rehashing an ineffective idea. Last week, President Biden proposed making tax benefits for large landlords contingent on capping rate increases (a form of rent control).
Rent control is a failed idea from the past. Many cities and states have given rent control the boot. So why is President Biden trying to bring it back and spread the pain nationwide?
The president noted in a statement:
Rent is too high and buying a home is out of reach for too many working families and young Americans, after decades of failure to build enough homes. I’m determined to turn that around.
Today, I’m sending a clear message to corporate landlords: If you raise rents more than 5% on existing units, you should lose valuable tax breaks.
The administration calls for giving “corporate landlords,” which he defined as those with over 50 rental units, the choice to either cap annual rental rate increases at 5% or lose a tax benefit to deduct the property’s purchase price and improvement costs from their tax returns (or depreciation write-offs).
The president is correct that we have a housing shortage decades in the making. A lower housing supply drives up rental prices. However, rent control does not increase supply but reduces it, as we explained in a recent policy focus.
Numerous cities axed their rent control policies after the opposite results and other unsavory outcomes resulted. In San Francisco, rental housing fell by 15%, and the number of renters living in rent-controlled units plummeted by 25% after rent-control policies were implemented.
The construction of new rental units was limited. In addition, because property owners had less revenue to spend on maintenance and repairs, some rent-controlled buildings deteriorated.
The National Association of Realtors, a leading trade group representing realtors, opposes the Biden proposal.
Price controls may seem appealing, but they have backfired on local governments and harmed the people we need to help the most. Developers are reluctant to build in areas where the government imposes rent controls on new buildings, and these policies actually decrease the supply of low- to mid-range housing units.
We can protect the most vulnerable by supporting targeted assistance to renters and housing providers when there is a gap between rising wages and rising rent. But the long-term solution remains increasing supply. We need more than 328,000 new apartment units each year just to keep up with demand — that’s 4.3 million units by 2035.
Robert D. Broeksmit, the president of the Mortgage Bankers Association, told the New York Times:
Increasing the supply of affordable rental housing nationwide — not politically motivated and self-defeating rent control proposals floated during election campaigns — is the best way to alleviate affordability constraints for renters.
The intention of bringing down rapidly rising rental costs is well placed, but rent control as a solution is misplaced. Anyone saying otherwise either doesn’t know the history of rent control in America or doesn’t care.
To expand the supply of rental units, we deregulation. Reforming land-use, building and permitting processes and encouraging the building of new rental units including accessory dwelling units among single-family property owners are good places to start.