The White House has layered economic illiteracy atop its latest sop to the Democratic Party’s most disaffected voters.
The White House has layered economic illiteracy atop its latest sop to the Democratic Party’s most disaffected voters.
M idway through his press conference at the close of last week’s NATO summit, Joe Biden trailed off into what seemed like a bizarre digression. “I’m not anti-corporate,” the president said in a meandering response to a question about the legacy he would leave behind if his insistence on staying in the race paved the way for a Trump restoration. But “corporate profits have doubled” since the pandemic, and it’s “time things get back in order a little bit.” In a subsequent non sequitur that had nothing to do with corporate profits, Biden proposed in his second term “to make sure that rents are kept at 5 percent increase, cor- — corporate rents for cor- — apartments and the like and homes are limited to 5 percent.”
At the time, it was hard to tell whether this was a parenthetical thought that somehow escaped the president’s lips or a genuine policy proposal. It turns out it was the latter. The White House is telling reporters this week that it will lobby Congress in a second Biden term to implement something like a national rent-control program.
The Biden plan reportedly calls for legislation that strips landlords who own more than 50 properties of certain tax benefits if they increase rents on their properties by more than 5 percent per year. The scheme, which is estimated to capture about half of the rental properties on the American market, “wouldn’t cover units that have not yet been built, in an attempt to ensure that the policy does not discourage construction of new rental housing,” the Washington Post reported. With that, the White House layered economic illiteracy atop its latest sop to the Democratic Party’s most disaffected voters.
The history of rent-stabilization and rent-control laws is a dismal one. In New York City, a price-control scheme was designed to shield cost-burdened renters who could not afford to buy property outright from being pushed into the outer boroughs or out of the city entirely by market forces. The effects over the years have not been to anyone’s benefit. As of last year, over 26,000 units in the city were deliberately kept vacant because landlords did not believe they could afford the upkeep required to rent their properties out. Not only do prospective landlords struggle to secure loans for rent-stabilized properties because of the increased risk of default on those loans, the lack of incentive for landlords to make necessary renovations to their properties results in less inventory, not more.
That cuts against Biden’s interests. The president freely admits that he needs American homebuilders to construct new single- and multi-family properties. “It’s time for Republicans in Congress to join Democrats to pass my plan to build 2 million new homes — because to lower housing costs for good, we need to build, build, build,” Biden’s communications team insisted on Tuesday. But homebuilders respond to market signals just like anyone else, and the signal that conveys the most information to producers is price. Distortions in the market that artificially reduce the value of existing housing also, therefore, depress construction.
“The vast majority of studies examining each find that rent control leads to a lower supply of rental accommodation, less new rental housing construction, and a fall in the quality of rental housing too,” the Cato Institute recently observed. “Under rent control, landlords will be incentivized to cut maintenance, screen tenants more stringently, convert rentals to owner-occupied units, or condos, or AirBnBs, and, in many cases, halt new rental construction.” Contrary to the Biden administration’s apparent assumptions, simply exempting new construction from this new national rent-stabilization scheme will not mute the effects of new disincentives to engage in the housing market.
Foreign experiments with national rent control have turned out about as well as New York City’s. Canada is in the midst of a “rent crisis,” with the government now musing about the prospect of capping international student visas to reduce the strain on the housing market — that is, when it isn’t berating greedy landowners for taking creative advantage of loopholes that allow them to charge market rates for the properties they own.
Sweden’s rigid rent-control regime yields low rates to those lucky enough to lock them in. But “young Swedes often wait more than a decade for an apartment,” and “longer still in the most desirable parts of the country, like Stockholm,” one observer noted.
In Spain, which has one of the smallest rental markets in Europe due to relatively high rates of homeownership, property owners prefer to court “short-stay tourists” over tenants. As a result, it’s now “next to impossible” for renters to find a long-term property, affordable or otherwise. “The supply of long-term rental flats has dropped 15% since the law was passed, while the short-term supply grew by 60 percent,” said one European real-estate expert. “It’s just perverse.”
“Perverse” is the right word for it. Jason Furman, once Barack Obama’s top economic adviser and now an economics professor at Harvard’s Kennedy School, put it even more bluntly. “Rent control has been about as disgraced as any economic policy in the tool kit,” he said in response to the Biden administration’s latest folly. “The idea we’d be reviving and expanding it will ultimately make our housing supply problems worse, not better.”
We’re fortunate insofar as it’s unlikely that Congress will kneecap the already-strained housing market. The president’s latest pander tells us little more than that the White House and the Biden campaign alike are fresh out of ideas.