Mamdani and the False Promise of Rent Control

Rent control promises relief but delivers scarcity, higher costs, and fewer homes

By Sam Jenson & Jonathan Hofer of The Independent Institute. Excerpts:

"In 1994, San Francisco instituted rent control for buildings built before 1979. This rent control referendum ignited an eviction explosion; filings for eviction shot up 83 percent and wrongful eviction claims rose to 125 percent. Landlords were incentivized to evict tenants so they could charge new renters an updated market price; as the markets shifted, rent did not. 

The supply of rental housing in the city fell by 15 percent, and landlords removed their listings from the market or converted them to condos. A 2018 Stanford Business paper found that the city’s rent control expansion led to a 5% increase in city-wide rents. Further research highlights how rent control causes other negative externalities to the city and nearby residents, including reducing amenity values and indirectly raising other costs on nearby markets. 

San Francisco continues to be an example of rent control failing in a populous city; evictions shot up, and a housing shortage has ensued."

"Ireland, and particularly Dublin, has especially felt the consequences of its rent control laws. Empirical research has noted that rental supply in the country worsened after the introduction of rent stabilization in 2016. Ireland has declared that the entire country is a Rent Pressure Zone (RPZ), in which rent cannot be increased by more than 2 percent per year. 

Previously, only certain parts of the country were designated as RPZs, but this designation is national until February 2026. RPZs are not working; since the beginning of 2024, rent in the country has increased by 8.1 percent for new properties and 5.9 percent for existing housing. Landlords in the country know that they will be capped by this two percent rule, so they will continue to charge higher upfront prices to new tenants."

"Construction has stalled, and the nation is facing a yearly shortage of 20,000 units." 

"Buenos Aires is another example. In 2020, the “Lipovetzky Law” was introduced to control rent. Under this law, landlords could only adjust rental prices once a year and began receiving payments in the Argentine Peso, a currency that was rapidly losing value. Inflation in the country rose to 211.4 percent in 2023. 

Landlords increased the cost of rent, leading to an explosion from a monthly average of 18,000 pesos in 2019 to 334,000 pesos by January 2024. At the height of rent control, one in seven homes in Argentina sat empty. In 2022, 200,000 properties sat empty in the capital city. Some landlords completely pulled their properties off the market; the incentive to rent was gone.

When Javier Milei, president of Argentina, took office in 2023, he repealed the Lipovetsky Law and the effects were instantaneous. The number of available rental units increased by 170 percent and the price of rentals dropped 40 percent, compared to early 2023 levels. In Buenos Aires, “the real price of renting fell almost 27 percent in the first seven months after deregulation occurred.”"

"Austin [TX] has streamlined the permitting process, promoted mixed-use development, and upzoned swaths of the city. This influx of new construction has alleviated some of the competitive pressure in the rental market, which was previously driving prices up. Rent prices in Austin have dropped 9% since the city’s two-year high, the best in the nation."

"As Art Carden et al. previously covered, investors are not likely to finance housing projects when rent control is in place; the opportunity cost is too high. As currency inflates, investors earn less on returns. For example, current 12-month treasury yields sit at 3.91 percent. Treasury yields are generally considered low-risk because the US has never officially defaulted on its obligations (the United States government has previously had four episodes of seemingly bad-faith repayments, or at least, evasion of the spirit of the bargain; the Congressional Research Service disputes these instances as actually qualifying as defaults). Housing projects already entail enormous risk for investors, but with rent control, the desirability of pursuing these types of projects diminishes relative to other asset classes."