r/neoliberal • u/Junior-Key-5043 • 1d ago

User discussion Question: how does rent control cause rent prices to go up in the longterm?

I saw a comment at some point on here saying that rent control causes rent prices to go up. What is the source on that and what is believed to be the mechanism?

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u/CptnAlex Jerome Powell 1d ago

Rent control and inclusionary zoning tend to go hand in hand.

Rent control is good for exactly one thing- keeping current tenants in place. This is most often (but not always) a good thing.

  1. Rent control often discourages future development, meaning that housing supply stagnates. A city that isn’t growing is shrinking.

  2. Non-covered units become more expensive, as landlords seek to extract value where possible. Landlords also end up parceling other services separately when possible to make up deficits (like renting parking spots separately from units).

  3. Covered units often become neglected. Why would a landlord supply new appliances and periodic renovations if it’s difficult to recoup costs?

  4. Tenants eventually often outgrow their rent control covered units, either by family expansion or income growth, but stay put because non-covered units have risen so much in price and supply has reduced opportunities to move.

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u/CptnAlex Jerome Powell 1d ago edited 1d ago

Rent control is often implemented by well-meaning people. Another well intentioned, but potentially destructive policy is inclusionary zoning. This is the requirement that developers set aside some portion of units in a new build for affordable housing. For instance, a city might require a developer that makes a building of 10+ units to set aside 25% for affordable housing; some policies allow for a developer to pay tens or hundreds of thousands per affordable unit to opt out.

It’s good in theory, however it massively increases costs in many cases. New construction is basically always more expensive to rent than older construction, so new construction is often marketed as “luxury”, but these finishes are a small cost. It’s the labor, the wood, the concrete, the glass, the financing that costs the most. So now a developer needs to make their money on the other units.

This:

>Increases costs for market units
>The affordable units often are only affordable to the top earners in the affordability bracket i.e. if “affordable”means a prospective tenant needs to make <75k annually, then usually the only people who can affordable to live there need to make 70-75k⁠)

>It reduces density to avoid triggering inclusionary zoning
>It causes urban sprawl as developers build in nearby municipalities that are not covered

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