A National Rent Control Law would weaken the real estate industry

by Zain Jaffer

Normally a bastion of capitalism like America would preach its virtues. Capitalism and business are self correcting. If there is too much supply, or there are too many suppliers of particular goods and services vis the actual demand, then the price goes down. There could be a cartel who agrees among themselves to price something above a certain amount, but we have laws and government entities who watch out for that.

Typically certain localities implement rent control if their respective councils feel that rent is too high in their area. Often these are politicians who want to pander to populist agendas, and get votes.

In reality, competition and not rent control is the answer to keeping rent at the right market rates. The experience of the Soviet Union and other communist countries should have taught us the ills of centralized planning, but we never seem to learn.

My fear at the moment is that there seems to be a growing populist anti-capitalist agenda that might be in the White House after this coming elections. Already they have proposed radical changes such as going after the guns that we as Americans are allowed to have under the Second Amendment to our Constitution.

So what is a national rent control law, which is of course populist, if these politicians are already going after constitutional amendments. That national rent control law is but an afterthought and easy to cross.

This is bad for the real estate industry. But more importantly, it will just be as bad for renters.

A national rent control law would be a disincentive for builders to build new apartments or upgrade and maintain existing ones. If ever they do maintain their properties, they will do the minimum just to comply with the law. That prevents renters from enjoying a better quality of life for their rent.

With the high interest rates now, and with rental income capped by such a law, very few (if any) real estate developers will seek a loan to build new rental properties. Most of what gets built will probably be lower quality mass housing with few amenities.

Whereas if there was no rent control law in place, and the strategy was to encourage more rental properties, each real estate developer would be incentivized to try and capture market share by optimizing their property cost benefit. Rent control will not be forced down on them, and their competitive juices will bring out the best in available rental properties in an area.

The solution to fairer rental rates is to encourage the building of the right amount of rental apartments to the demand. We should not throw too many roadblocks, permits, fees, for real estate developers.

If there are enough (but not too much) rental properties in an area, the rental rates will reach their proper market value without rent control since renters can always balk at excessive rates and have the option to go elsewhere. ###