Why is Biden pushing for something as stupid as rent control?
The Biden administration this week announced the move as a political expediency disguised as economic policy. National Rent Control.
Yesterday, we detailed the economic problems with this plan. But this analysis of a fundamentally flawed housing policy raises 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 wields great influence within the Biden administration, especially when it comes to housing policy. Rent control remains a favored tool among these ideologues, despite its repeated failures. Their demands are not rooted in economic reality, but in the idea that it should be used to support the right to housing. The desire to impose a vision of justice on the marketThey view rising rents in much the same way as general inflation: as the result of unchecked corporate greed, not as a result of demand exceeding supply.
Government A more economically realistic and politically moderate housing policy adviserPrime ministers, 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 broad housing legislative agenda, announced earlier this year, is laudable in its ambition. Its aims are: Actively expanding housing supplyThis is certainly the only sustainable solution to the housing affordability crisis. But the effects of such supply-side measures will not be immediate. Even if policy changes today increase the economic merit of building affordable housing, it will take years for these new homes to be built and occupied. This time lag creates a dilemma: what to do for renters in the meantime.
The introduction of rent control. This measure is Protecting renters from rising costs until new supply comes on streamBut rent control is not just ineffective, it’s counterproductive. By setting rent caps, governments unintentionally Disrupting necessary investment To increase supply: Developers may shy away from new projects for fear of future increases to these caps, thus exacerbating the housing shortage.
To alleviate this, the government Exclude new inventory from rent capsBut the shadow of future policy changes looms large: market confidence can easily be shaken and the risks that high-end developers take on the possibility of expanding rent control could easily offset the benefits of a broader housing package.
Moreover, Biden’s rent control proposal would likely reduce supply through another channel with the perverse effect of driving up rents: When real estate markets are booming, renters will cling to below-market apartments, much like homeowners with low-interest mortgages are currently hesitant to put their properties on the market. Rent-regulated apartment buying up This will increase demand in the new build market and drive up rents, hitting new entrants into the rental market, such as recent graduates, immigrants and young workers, the hardest.
Biden desperate to tackle rising home prices
To understand the rationale for this policy, one needs to look at the political situation. Rising house prices are a major concern Support is widespread among voters, particularly demographic groups that are key to Biden’s chances of winning the November election, but the solutions that resonate with economists — primarily increasing supply — often meet with resistance from those very voters. They demand affordable housing, but resist building the new housing needed to provide it.This contradiction puts the administration in the tricky position of trying to appease voters while adhering to sound economic principles.
Moreover, many of the administration’s allies in Congress are reluctant to adopt policies that would encourage the construction of new rental housing, because such policies would inevitably make such investments more profitable. Increased profits for developersFunding from private equity investors and other capital sources is seen as out of reach for left-leaning Democrats.
Another sustainable policy approach to improving housing affordability is Border PatrolThe addition of 11 million new immigrants to the housing market has created a surge in demand, especially for rental housing, but Democratic ideologues have been more reluctant to crack down on immigration than they are to boost developer profits and allow new construction.
The Biden administration has made a concession to the left wing of its party by succumbing to the temptation of rent control, a policy born not of economic insight but of political expediency. Emergence of behaviora consolation to progressive advocates while leaving the real solutions in the purgatory of legislative delay.
The introduction of rent control highlights a broader trend within the current administration. Prefer symbolic gestures over substantive policiesThis is a decision driven by the short-term demands of an election year, not the long-term needs of the economy. By prioritizing short-term political gain, the Administration risks undermining the very goals it is trying to achieve.
Ultimately, this policy reflects the tension between ideology and reality that has repeatedly thrown the Biden administration off track. The power of political pressure to distort economic reasoningAs we watch this policy unfold, the question remains as to whether the short-term political benefits outweigh the inevitable long-term economic costs. History is unlikely to be lenient in its judgment.
