Pressure mounts on Biden to implement rent controls

A group of economists from leading universities have penned a letter to the Biden administration demanding rent controls on apartment buildings with government-backed mortgages.

They join a chorus of academics, senators, and researchers in demanding that something be done about the relentless surge in rent prices over the past two years.

Long considered a taboo subject in economics, rent controls are now needed to rebalance the “power dynamics between tenants and landlords,” the letter said.

“Over the last few years, we have seen the devastating impact of a poorly regulated housing market on people’s livelihoods, as already unaffordable rental prices outpace wage growth,” the letter reads.

With the dream of homeownership slipping away for many young Americans, soaring rent prices have forced millions to relocate from major urban centers.

While the exodus has been going on for years, rents experienced something drastic in 2022 that made economists take notice. It’s become a problem that can no longer be ignored.

Median rent hits $2,000

In June 2022, the national median rent price topped $2,000 for the first time.

We’re not talking Austin, Seattle, or Nashville. We’re talking about the national average.The average rent in the most desirable cities is up 30% or more year-over-year.

Average rents would eventually peak at $2,053 in August 2022 before pulling back slightly. The national average is now $2,038, according to apartment finder rent.com.

“Housing is getting less affordable for everyone at every level,” says Daryl Fairweather, the chief economist for Redfin, a Seattle-based real estate brokerage.

Something very strange happened to rent prices during the pandemic.

According to Zillow, rents were growing by an average of 3-4% before the onset of coronavirus. In 2022, Zillow’s annual index of rent growth reached an eye-watering 17%.

Many books can be written about why rent prices are going berserk. But it all (well, mostly) boils down to supply and demand.

More people are seeking rental units, and there aren’t enough places to accommodate them. You can blame housing shortages, unfavorable policies that limit construction, and greedy landlords. But it’s a numbers game.

The same dynamics are at play when buying real estate.

Home prices skyrocketed during the pandemic because there were more buyers than sellers. (Record-low mortgage rates didn’t hurt, either.)

Housing inventory reached a record low in 2022. In other words, there weren’t enough houses on the market to accommodate everyone who wanted to buy.

That dynamic has changed over the past 12 months, largely thanks to surging mortgage rates.

A controversial idea gains traction

Thirty-two economists signed the letter urging rent control. They represent institutions such as Rutgers, The University of Texas at Austin, Cambridge, and the University of California at Santa Barbara.

Rent control is a government policy limiting how much a property owner can charge for leasing a property—and how much the rent can be increased each year.

In theory, it prevents landlords from price gouging and promotes affordable housing.

Many economists oppose rent control. They argue that it leads to unintended consequences that make rent less affordable in the long run.

That’s because rent control deters developers from building more rental units, leading to bigger supply shortages and higher rent prices.

In their letter, the 32 economists said they found no evidence that rent control would reduce the housing supply.

“There is substantial empirical evidence that rent regulation policies do not limit new construction, nor the overall supply of housing,” they said.

They cited studies on rent control in New Jersey and Massachusetts to support their claim, which showed no impact on housing construction.

Industry groups will likely reject any efforts to impose rent controls. The National Association of Realtors, representing 1.5 million realtors nationwide, is already waging a “battle against rent control.”

However, if it becomes an election issue, rent control could have a realistic path to implementation.

Americans already spend more than a third of their monthly income on housing. If rent continues to skyrocket, expect more people to support the idea.