Today, the Biden Administration issued a new housing policy plan. It combines a really awful idea -nationwide rent control—with a modestly good one: using “underutilized” federal government property to build new housing. Here is the White House summary of the rent control proposal:
President Biden is calling on Congress to pass legislation presenting corporate landlords with a basic choice: either cap rent increases on existing units to no more than 5% or lose valuable federal tax breaks. Under President Biden’s plan, corporate landlords, beginning this year and for the next two years, would only be able to take advantage of faster depreciation write-offs available to owners of rental housing if they keep annual rent increases to no more than 5% each year. This would apply to landlords with over 50 units in their portfolio, covering more than 20 million units across the country. It would include an exception for new construction and substantial renovation or rehabilitation.
Economists and housing policy experts across the political spectrum recognize that rent-control is an extremely harmful policy, because it reduces the quantity and quality of housing. Don’t take my word for it. Take that of such progressives as Paul Krugman, and Jason Furman, former chair of Barack Obama’s Council of Economic Advisers, who condemns the Biden proposal because “Rent control has been about as disgraced as any economic policy in the tool kit. The idea we’d be reviving and expanding it will ultimately make our housing supply problems worse, not better.” A recent meta-study in the Journal of Housing Economics reviews the extensive evidence of rent control’s negative effects.
In fairness, as Reason housing policy writer Christian points out, the plan includes a number of mitigating elements that might reduce its harmful impact. It only applies to landlords with over 50 housing units, and exempts new housing construction and renovation. Also, it limits rent increases to 5% per year, instead of imposing a tighter cap. Still, the plan would apply to many millions of housing units (the White House claims the figure is 20 million), which will predictably reduce quality and supply.
If the rent control plan has a saving grace, it’s that even the White House admits it would have to be enacted by Congress. This is unlikely to happen anytime soon. But, as notes, the president putting the idea of nationwide rent control on the political agenda increases its profile, and makes it more likely it could be enacted at some point.
The Biden plan does include a countervailing good idea: the proposal to free up “underutilized” federal property to build new housing. Privatization of federal land could potentially do much to alleviate housing shortages. But it is far from clear how much land the administration actually proposes to make available for this purpose. It’s also not clear whether they plan to privatize the land in order to allow private developers to build on it, or whether they envision some form of public housing, or a combination of both. Public housing has a terrible track record. Privatization is a much superior option.
Another frustrating element of the Biden plan is that the president knows – or at least used to know – that the best way to alleviate housing shortages is to cut back on zoning rules and other land-use restrictions blocking the construction of new housing. In 2020, he ran on a platform of using federal grant conditions to pressure state and local governments to do just that. But he has largely failed to carry out those ideas during his time in office.
In his article on the new Biden plan, notes that Trump and newly minted VP candidate J.D. Vance also have some awful housing-related policies. Most obviously, their plan to implement mass deportation of undocumented immigrants would wipe out much of the housing construction work force, and thereby predictably reduce construction and make it more expensive (this effect, plus other negative impacts of deportation on housing outweighs the potential benefit of a reduction in demand). Unlike the Biden rent control plan, the GOP deportation policy could likely be enacted without major new legislation, which makes it even more of a menace. Vance’s idea of restricting corporate investment in housing would also predictably reduce supply.
But the awfulness of Trump and Vance’s ideas in no way justifies Biden’s rent control plan.
The primary goal of the Biden rent control plan may not be to alleviate housing shortages, but to bolster the president’s reelection campaign. Studies suggest rent control is popular among voters, many of whom don’t understand basic economics. Exploiting widespread public ignorance is a ubiquitous, time-honored political strategy. But that doesn’t make it right.
