Why Is Biden Pushing Something as Dumb as Rent Control?
In an act of political expediency veiled as economic policy, the Biden administration this week announced its support for national rent control.
Yesterday, we detailed the economic problems with the scheme. But that analysis of this fundamentally flawed housing policy invites the question: Why would any serious administration adopt it?
The answer lies in the confluence of ideological fervor and the exigencies of electoral politics.
The progressive left has a tremendous sway within the Biden administration, especially when it comes to housing policy. Rent control, despite its repeated failures, remains a favored tool among these ideologues. Their demands are not rooted in economic reality but in a desire to impose their vision of justice on the market. They see rising rents much the way they see general inflation: the result of unchecked corporate greed rather than an excess of demand over supply.
The administration’s more economically practical and politically centrist housing policy advisors, well aware of the pitfalls of imposing price controls, have been forced to craft a version of rent control that might pass muster in a year when political survival is paramount.
The administration’s broader legislative agenda on housing, presented earlier this year, is commendable in its ambition. It aims to expand housing supply aggressively, which is indeed the only sustainable solution to the affordability crisis. However, the effects of such supply-side measures are not instantaneous. Even if policy changes today made the economics of building affordable housing more attractive, it would still take years for these new units to be built and occupied. This temporal lag presents a dilemma: what to do for renters in the meantime?
Enter rent control. This measure is intended to protect renters from spiraling costs until the new supply comes online. Yet, rent control is not merely ineffective; it is counterproductive. By capping rents, the administration inadvertently disincentivizes the very investments needed to increase supply. Developers, fearing future expansions of these caps, may shy away from new projects, thereby exacerbating the housing shortage.
The administration has attempted to mitigate this by exempting new inventory from the rent caps, hoping to reassure developers. However, the shadow of future policy changes looms large. The market’s confidence is easily shaken, and the risk that premium developers assign to the possibility of expanded rent control could easily offset the benefits of the broader housing package.
What’s more, the Biden rent control proposal is likely to diminish supply through another channel—with the perverse effect of raising rents. Renters in hot real estate markets will hold on to their below market apartments, much the way homeowners with low-interest rate home loans are now reluctant to put their properties on the market. This hoarding of rent-controlled apartments will push demand into the new construction market, pushing up rents. The people most hurt by this will be new rental market entrants, such as recent college graduates, immigrants, and younger workers.
Biden Is Desperate to Address Housing Affordability
To understand this policy’s rationale, one must look at the political landscape. Housing affordability is a major concern among voters, particularly within demographic groups that the Biden campaign knows are key to any chance of electoral victory in November. Yet, the solutions that resonate with economists—primarily increasing supply—are often met with resistance by these very voters. They demand affordable housing but balk at the new construction required to provide it. This paradox places the administration in a difficult position, trying to placate voters while adhering to sound economic principles.
What’s more, many of the administration’s allies on Capitol Hill are loathe to adopt policies that would incentivize building new rentals because these inevitably turn on making such investment more profitable. Increasing profits for developers, private equity investors, and other sources of capital is seen as a non-starter for the Democratic party’s leftwing lawmakers.
Another sustainable policy approach to improving housing affordability would be border control. Adding 11 million new immigrants to the housing market has pushed up demand, especially for rentals. But the ideologues in the Democratic Party are even more loathe to clamp down on immigration than they are to increase developer profits or allow new construction.
In succumbing to the allure of rent control, the Biden administration has made a concession to the left-wing of its party. This is not a policy borne of economic insight but of political expediency. It offers the appearance of action, a sop to the progressive base, while the real solutions are left to languish in the purgatory of legislative delay.
The adoption of rent control underscores a broader trend within this administration: a preference for symbolic gestures over substantive policy. It is a decision driven by the immediate demands of an election year rather than the long-term needs of the economy. By prioritizing short-term political gain, the administration risks undermining the very goals it seeks to achieve.
In the end, this policy reflects the tension between ideology and reality that has so often thrown the Biden administration off course. It is a testament to the power of political pressures to distort economic reasoning. As we witness the rollout of this policy, the question remains whether the short-term political benefits will outweigh the inevitable long-term economic costs. History, one suspects, will not be kind in its verdict.