Rent Control Looks Like It Works for a Year, Then Quietly Stops New Housing

After walking through the dry math of apartment ownership, a finance writer studying housing policy landed on a phrase for why cities keep trying rent control. He calls it, in his words, a "political perpetual motion machine."

He argues the machine runs on delay. Rent control does not just lower what landlords earn, he writes, it raises the uncertainty of those earnings, because once a city controls some rents it can extend the controls or tighten the rules. It also discourages upkeep, since the landlord no longer captures the upside, and it makes owning several buildings in one city less of a safety net, because every property now rises or falls on the same City Hall decision.

If people look back a year after a stricter rule passes, he argues, they see tenants paying less in the first year while housing supply looks unaffected. Even when new buildings are covered by the rules, a half finished project is still worth completing, so early supply looks fine. Voters remember that the world did not end, so they may back the next round, while high prices keep affordability on the ballot.

The damage, he argues, arrives years later through the discount rate, the rate investors use to work out what future rent is worth today. Owning five apartments is normally safer than owning one, because vacancies and repairs do not all hit at once, and investors do not pay extra for risk they could have diversified away. But when rent control makes the cash from every building in a city move in lockstep, he writes, adding units adds less diversification, so buyers will pay less for them, and fewer empty lots or small buildings clear the financial hurdle to become apartments.

Eventually the pressure builds until something breaks, he writes. In the 1970s, he notes, "an empty lot full of rubble was worth more than a rent-controlled building on top of it, especially if that building was insured, so landlords burnt them down."