Reacting rising housing costs President Biden is unveiled a plan to cap rental prices nationally by giving landlords the option to cap rents increases at 5% or risk losing tax-breaks. Like the president’s scheme to address the eye-watering college tuition by writing down student debt, a national cap on rents will inevitably make the problem worse. Here’s why:
1) Supply chain problems and demand whiplash caused the prices of most things to go up – supply and demand, nothing new there.
2) That second round of supercharged stimulus, as the economy was recovering caused a hairy spike in inflation. Honestly, that should have been obvious as well.
3) The Fed then raised interest rates went up to battle inflation. A second order effect was to more or less freeze the housing market which...
4) necessarily put pressure on the rental stock. Indeed, evictions in those swinging sunbelt states are up 35% over the past year.
Without a doubt, there is a problem, but this isn’t the solution. Rent controls generally lead to the destruction of rental stock because the cost of maintaining rental property is also going up as rents are capped. Faced with squeezed operating margins, owners and landlords will often decide the property can be used more profitably for something else. The destruction of rental stock will then exacerbate the housing shortage, further driving up prices.
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