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homeless again because she is struggling to pay rent is impactful. It is natural and human to want to do something to help people who are struggling. But it is important to offer solutions that are constructive, not destructive.
A constructive solution to a housing shortage is simple: more supply. Building more housing will increase the supply of units, lowering costs. It is the most obvious solution in the world and constructive in a literal sense. You are building something.
Rent control is a destructive policy. In his book Basic Economics, economist Thomas Sowell spends entire chapters documenting the failures of rent control policies around the world, from Australia and Sweden to New York and San Francisco. We have decades of research showing rent control makes housing shortages worse, which explains why there’s near- universal opposition to rent control policies among economists.
Why wasn’t a single housing unit built in Melbourne in the nine years after World War II? Because rent control laws had made the buildings unprofitable. Why did Washington, DC, see its available rental housing stock decline from 199,000 to less than 176,000 in the 1970s? Because fewer people were willing to rent to their homes because of price controls. Why did building permits decline by 90 percent in Santa Monica, California, in 1979 from just a few years earlier? Again, because rent control laws had made the building of new units unprofitable.
The lesson? Rent control has effects on housing supply, and those effects are not good. And that is only half the equation. Rent control also has adverse effects on the demand for housing. Because properties are priced below market rates, people tend to consume more than they otherwise would. In some cases, Sowell points out, this has resulted in housing shortages in the absence of actual scarcity, such as Sweden in the 1950s, which saw the average wait time for a place to live reach 40 months even though Sweden was building more housing per person than any nation in the world.
“As of 1948, there were about 2,400 people on waiting lists for housing in Sweden, but a dozen years later, the waiting list had grown to ten times as many people despite a frantic building of more housing,” Sowell writes. “When eventually rent control laws were repealed in Sweden, a housing surplus suddenly developed, as rents rose and people curtailed their use of housing as a result.”
The evidence is overwhelming. Rent control laws are destructive. We have decades and decades of research that shows that it makes housing shortages worse, which explains why there’s near-universal opposition to rent control policies among economists. Nevertheless, the perils of rent control seem to be a lesson we may have to relearn. Bad ideas, like old habits, die hard.
Jonathan Miltimore is the Managing Editor of the Foundation for Economic Education (see FFE.org). His writing and reporting have been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune, among others. He previously served in editorial roles at The History Channel magazine, Intellectual Takeout, and Scout. He is an alumnus of the Institute for Humane Studies journalism program, a former reporter for the Panama City News Herald, and served as an intern in the speechwriting department of George W. Bush. This article was first published by the Foundation for Economic Education in FEE Daily.
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CS-38 AUGUST 2021 - APARTMENT MANAGEMENT MAGAZINE