Jacobin - Rent Controls Work — but They Aren’t a Silver Bullet
Chief economist Brian Callaci co-authors a piece arguing that while rent control is effective at stabilizing rents and preventing displacement, it must be paired with increased housing supply, zoning reform, and public investment to meaningfully address the housing crisis.
Following Zohran Mamdani’s victory in the Democratic primary for mayor of New York, Harvard economist, former Treasury secretary, and serial policymaking failure Larry Summers took to Twitter/X to denounce Mamdani’s campaign pledge to freeze the rent for rent-stabilized tenants: “Rent control is the second-best way to destroy a city, after bombing,” he said. His remarks were seized upon by the usual cast of self-styled wonks and pundits looking for more reasons to denounce Mamdani’s victory as a danger to the city.
While Summers presented the rent-control-as-bombing line as his own witticism (a disturbing one, one might add, given several cities around the world are currently suffering immensely under bombing attacks), it’s actually an old economics cliché, first uttered by Swedish economist Assar Lindbeck. It’s often found in the same section of introductory economics textbooks as warnings about the dangers of raising the minimum wage.
Zohran vs. Econ 101
Introductory economic theory predicts that imposing a price ceiling on any market, including housing, will reduce supply by preventing the price from rising to the level that would prevail in an open market. As Summers argues, rent controls cause “under investment in repairing, maintaining, constructing new apartments,” which, he asserts, “is likely to exacerbate rather than improve issues around housing affordability in New York.”
The intuition behind the Econ 101 argument is simple: since it’s costly to build and maintain housing, capping the price of housing in a market reliant on private developers and landlords for housing supply will discourage investment and reduce supply. Some people, particularly those with the willingness and ability to pay rents above the rent cap, will have their demand for housing unmet.
The result, in this simple blackboard model, is a housing shortage: there are people willing to pay for housing, at a price landlords will accept, who are unable to make a mutually beneficial transaction. This, for economists, is deadweight loss: stuff that we have the capacity to produce (rental housing) and desire to consume (demand for housing) that goes unproduced and unbought— the supreme social evil.
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