Not everyone is a political junkie like I am, but unless you live under a rock, you probably heard at least something about Zohran Mamdani winning the Democratic primary for mayor of New York City. But this isn’t a political newsletter, so why am I bringing him up? Simple: a huge part of his platform is to completely freeze the rent for the entire length of his term if elected. I have briefly touched on the subject of rent control in this newsletter previously, but this is the first time we’ve seen the proposal go from limiting rent increases to flat out prohibiting them. So it’s time to do a deep dive into the economic ignorance of rent control and how it destroys communities.
Steelmanning Rent Control
I’m sure most of you have heard the term “straw manning,” but not as many people are familiar with the rhetorical technique of “steelmanning,” which is basically the opposite: you present the best version of the opponent’s argument and deal with it on its own terms rather than creating a dishonest dumbed down version of the opposition’s position. So, in the interest of fairness, that’s what I’m going to start off with here. I’m going to give you the best version of the argument for rent control.
PMAssist Industry Insights is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
And I’m pretty well positioned to be able to do so, as I am a Democrat. A decidedly old school centrist Democrat, but a Democrat nonetheless. So I’m quite familiar with my party’s arguments in favor of rent control that have been around now for half a century or more. I don’t agree with them, mind you, but I know them. So here goes.
Proponents of rent control (of which rent freezes are a part) consider it to be a necessary measure to be taken during times of housing crises in order to protect the most vulnerable members of society, typically low- and middle-income working people, seniors, and those on disability assistance. People in these situations are typically unable to keep up with the cost of housing inflation, which has far exceeded the rate of broader inflation, especially in recent years. Coupled with a housing shortage (we currently have somewhere in the neighborhood of 4 million fewer housing units than are really needed for the current population size), this creates a true crisis for people at the bottom of the economic ladder, forcing them to move out of their communities.
Proponents argue that rent control provides stabilization of the community while not forcing landlords to reduce rents below current levels. The idea is that people should not be forced to move out of the communities that they have called home for many years simply because of out of control inflation, especially if measure can be put in place to curb the inflation. Many rent control policies link the permitted amount of rent increases directly to the rate of inflation. Policies such as “CPI plus 2%” are pretty common, for example. Proponents would argue that this eliminates any harm to the landlord, because they are still allowed to raise the rent, they just have to do so gradually and at a rate that isn’t far eclipsing the overall inflation rate so that wages have time to catch up with housing inflation. Of course, Mamdani is proposing a freeze, not just rent control, so his policy is different, but I’m just giving you the broader arguments so far.
Stay focused on your properties, and let Enterprise Bank & Trust handle your banking. Property management companies from across the country partner with Enterprise for:
Competitive analysis program to offset bank fees and third-party invoices
Property management trust account experts with dedicated support teams to help you open and manage your accounts
Streamlined loan process for simple or complex lending needs
Watch to learn more about our tailored solutions for property managers and their accounts:
“Holding your trust account with the property management team at Enterprise is a no-brainer. Allison understands all of the regulations involved with property management trust accounts. When I transferred my trust accounts over, the team was very involved and made it a seamless process. The credit system they provide is awesome as well. This banking team is hands-down the best option for trust accounts in the property management industry.”
Mike Catalano General Partner and Co-Founder PURE Property Management
When it comes to more details on the rent-control policies, they are usually linked with “just cause” eviction standards, meaning that a landlord can’t just force a tenant out after not renewing a lease, they have to continue to offer lease renewals unless a tenant actually violates the lease. Rent-control policies also typically only apply to certain classes of units rather than the entire market. For example, only buildings built before 1974 in NYC are “rent stabilized,” or some other jurisdictions have limited rent-control to only multifamily properties and excluded SFR. Many of these policies also only apply to lease renewals, so when a tenant vacates, the landlord can reset the baseline rent from which rent-controlled rent increases are calculated going forward. The overall idea is to make the proposals more palatable so that new construction is not impacted, and landlords who have recently invested large sums aren’t impacted. At the same time, “just cause” standards prevent landlords from being able to reset the baseline rent simply by kicking out tenants who would otherwise like to renew. The entire thesis is that stabilization will allow time and policy to simmer down the housing crisis.
What Really Happens in Real Life
So, that’s the steelman version of rent control, or at least the best I can give for it. Now let’s talk about how things actually work in the real world, because we have a whole lot of historical examples of rent control at this point.
And since the person who triggered this discussion is a candidate for mayor of New York City, let’s focus on the example of that city itself long ago. During World War II, the city implemented rent control for the first time as a “temporary wartime measure.” I’m not one to quote Ronald Reagan all that often, but I think his quote is the best one for describing how “temporary” that measure actually was: “Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!” True to Reagan’s quote, rent control didn’t go anywhere in New York. It had some minor modifications after the war, but for the most part, rent control was there to stay. In fact, when the 1970s rolled around and a whole lot of states and cities were starting to experiment with rent control (yes, even Republicans like Richard Nixon supported price controls then), New York went full monty on rent control and basically made every property built prior to then as a rent control property indefinitely.
The consequences have been severe, which is why you never saw them increase the housing units covered by rent stabilization after 1974. They never had the political courage to eliminate rent control on the units that they covered already, but they never added more (at least unless Mamdani gets his way). A summary of the consequences:
The housing supply contracted, as landlords realized that the rent caps prevented them from making a decent return (or any return at all) on their properties. They stopped maintaining or investing any new money into the stabilized properties, which eventually led to many of those buildings deteriorating, being abandoned, and even used for insurance scams through arson in some cases.If you’re a younger person who has only ever remembered NYC as the Times Square you see on TV today, I would encourage you to go back and watch old movies set in New York like “Taxi Driver.” NYC was a violent, dangerous, deteriorating place for a very long time, up into the early 90s.
Housing that remained became poor quality, as landlords were unwilling (or unable) to invest any money into maintaining, let alone improving them.
The policy created distorted incentives for landlords to seek out rent control loopholes such as converting buildings to condos or co-ops, completely removing them from the rental pool, harming people who weren’t able to qualify to purchase or be part of a co-op.
Rent disparities within buildings were extreme, as one resident could have been living there for decades to take control of the rent stabilization, trying to force their family of 5 to live in a tiny apartment that they had long-since outgrown, while another resident who just moved in at fair market rent could be paying thousands more for the same size unit. This created downstream wage distortions, as higher rents normally put upward pressure on wages; when higher rents aren’t allowed on half of the people in the city, there isn’t sufficient upward pressure on wages, leaving the other half of the city without rent control suffering with artificially low wages indirectly caused by the rent control.
And this isn’t just a New York phenomenon. The same situation occurred in San Francisco, Washington DC, Los Angeles, even Stockholm, Sweden. The 1970s were a time when cities across the world were trying out rent control because of the environment of stagflation.
But during the 80s and 90s, when the disastrous outcomes of rent control had become clear to everyone, on both sides of the political aisle, there was massive nationwide backlash, and many jurisdictions straight up outlawed any form of rent control. For example, in 1994, the state of Massachusetts in a statewide ballot initiative, completely banned rent control in the state and repealed existing rent control programs in major cities like Boston and Cambridge. In all, 33 states ended up passing preemption laws that prohibited cities in their states from implementing rent control. That’s how bad of an experiment it was. Can you think of anything else that has engendered such widespread statewide preemption laws?
The Most Obvious Thing in Economics
“The analysis of rent control is among the best-understood issues in all of economics.”
“Nothing brings out unity in economists…like the folly of rent control.”
“The great sacred cow - rent control - is a textbook case of economic stupidity.”
- Paul Krugman
Many of my readers aren’t likely to be big Paul Krugman fans, as my audience is predominantly more right-leaning that I am myself, but despite political views, Krugman is one of the most respected public economics intellectuals on earth. In fact, he’s a Nobel Prize winner in Economics, and he’s the second most cited author in college curricula on economics. If you lean a little left, or you just don’t mind reading some anti-Trump commentary in between the economic commentary, I highly recommend subscribing to his newsletter if you enjoy economics at all.
But despite being decidedly more left-leaning on his overall politics, Krugman despises rent control, as you can plainly tell from the above quotes. As do almost all other professional economists. A poll of economists in 2023 found that only 2% believed that national rent control would make Americans better off, and 62% said that it would substantially reduce the number of available housing units. Not a single economist in the survey would say that rent control would reduce income inequality. Not one.
As Krugman points out, in the “dismal science” of economics, nothing is more universally understood by the professionals than the idea that rent control is bad. Very bad. And these aren’t people who are well known for their widespread agreements. Economics is known for being a notoriously difficult science to practice, which leads to numerous conflicting theories and common disagreements among the professionals. But not when it comes to rent control. Don’t you think that should make everyone wake up and realize that the politicians and special interest groups who are pushing this policy are ignoring the science to everyone’s detriment?
This is what economists pretty much universally say about rent control:
It reduces the housing supply
It decreases the quality of available units
It forces people to stay in units that they would prefer to leave
It creates a “black market” of subletting and illegal under-the-table payments outside the eyes of regulators
It tends to benefit people who don’t even need the help while providing no assistance to young first-time renters entering the market
It discourages new housing developments
This is a no-brainer, folks. So even someone like Mamdani whose brain power is seriously in question should get this. And he probably does. He just doesn’t care, because the rent control rhetoric sells well to young impressionable voters who don’t read Paul Krugman and aren’t aware of the history and the data. He is taking advantage of people to his own political benefit.
Real Solutions
That said, we can’t just denigrate a proposal without offering alternatives. There is a real problem here. People legitimately can’t afford housing. And while some of those people should be told that they need to move to a place that they can actually afford and not everyone gets to live in Santa Monica or the Upper East Side, cities can’t function without working people who do things like serve tables, pick up the trash, and do basic administrative work. These people need a place that they can afford to rent. Simply telling them that the city is too expensive for waiters doesn’t work when the city needs waiters to staff restaurants. Rich bankers can’t get a steak if you’ve pushed all of the people who cook and serve steaks out of the city.
So let’s talk about real solutions that have actually worked and that economists don’t think are absolutely insane.
First, if we’re looking to deal with a short-term problem, which is usually what proponents of rent control say that they’re trying to do, then direct housing subsidies are the easiest and most effective way to have a real impact. Instead of screwing over landlords and giving everyone below fair market rent, simply funnel some housing assistance only to the people who truly need help. Housing vouchers have notoriously long waiting lists. You want to help low income people afford housing? Then subsidize them. Clearly the long waits for housing assistance indicate that the need far exceeds the current supply. On top of this, you need to make the Housing Choice Voucher Program actually palatable to landlords. My own property management company does not participate in Section 8. Why? Because the program is a totalitarian mess. HUD thinks they can force landlords to repaint walls that tenants have damaged while the tenant still lives there, for heaven’s sake. No landlord in his right mind would put up with such nonsense. And that’s on top of HUD having their own lease addendum they want to force you to use that invalidates your own lease, unreasonable inspection requirements, requirements to attend classes before receiving money, the risk of a government shutdown impacting payments, the list goes on and on. The program needs reform. You want to help low income renters, then simply cut checks to landlords and get out of the other nonsense. There are already plenty of state laws to deal with property habitability and basic landlord/tenant law. HUD doesn’t need to be adding on their own layer of nonsense.
Second, and this is the most important one, we need to radically rethink zoning and housing regulations. For decades the NIMBYs have been destroying the housing supply by outlawing multifamily housing, manufactured housing, housing on small lots, ADUs, etc. This doesn’t help anyone but spoiled rich jerks who don’t seem to understand that poor people don’t just disappear when you don’t have housing for them. They live in the streets, they become squatters, they engage in crime, etc. What’s better, tent cities in your parks, or a multifamily building down the street? A squatter in your rental property, or letting people rent out an ADU in their backyard? This needs a little less knee-jerk regulation and a little more deep thought into actual consequences and outcomes.
On top of the NIMBYs creating all sorts of problems, we have the safety and living standards zealots making every house cost much more than is reasonably necessary. Recent studies have found that about a quarter of the total cost of a new house is fully because of building regulations. Some states, such as the notoriously regulation-happy Washington, see this number jump to nearly a third of the total cost of a new house. A third! The average home in the state costs over $600k, so we’re talking over $200k in regulatory costs. I can still buy entire houses in some Atlanta suburbs for less than the cost of regulations in Washington state. In Hawaii, one of the most expensive housing markets on earth, a new condo’s price is 58% from regulations. And multifamily is really suffering here, as the nationwide average is 41% of the cost of development going towards regulatory burden. This is pure insanity.
Is it better to have lower income people in houses, or is it better for them to go homeless just so you can have a regulation that says that every home must have a wall outlet at least every 6 linear feet of wall? Yes, that’s a real regulation, even here in Georgia. Would you rather have low income people in houses, or do you want to stubbornly cling to your 4 year approval timeframe for new housing developments? Yes, that’s the real number in San Francisco, one of the cities most beset by homelessness. I would think that having to step in human feces on the way to the office would motivate people to get rid of regulations so that people can get housing, but I guess my brain works differently than a Californian’s. But this isn’t just a left-coast problem. NIMBYs are everywhere. I frequently see comments on local Facebook community pages here in the Atlanta suburbs about people trying to block housing developments because they don’t want more traffic, or they don’t like “the kind of people” who might be attracted to the neighborhood, etc. The NIMBY problem is an everywhere problem, and NIMBYs love to impose regulations that delay or prevent housing. The real solution to the housing affordability crisis is to tell the NIMBYs where to shove their concerns and to press forward with making housing easy and quick to build again. I’m all for regulations that keep asbestos out of insulation, since it actually kills people, but that’s a big difference from a regulation that requires two parking spots per home in a neighborhood that is dominated by public transportation.
And finally, we need to incentivize affordable housing developments. When was the last time you saw a simple 3 bed 2 bath ranch home being built? I don’t think I’ve seen any get built around us since before the Global Financial Crisis. That was more than fifteen years ago now. Everything that is built is made for upper-middle-class homebuyers who are already well established. There are no homes being built for lower income Americans in the early years of their adult lives. It’s obvious why, when regulations are contributing such a huge portion to the costs. When regulation is 30% of a $600k house, that cost doesn’t go down much for a cheaper, smaller house. So if you’re trying to build a $300k simple ranch house, you really can’t, because the cost of regulation is still $200k, and the remaining $100k isn’t enough for materials, let alone labor. So instead, a simple ranch house would cost $500k, barely less than the much bigger 5/4 for $600k. There’s no market for it anymore, because the young families who want a simple 3/2 can’t afford the $500k price tag. We’ve regulated builders right out of being able to offer these homes. So if we’re not going to get rid of the regulations, then we need to subsidize the construction of these homes so that builders are able to build them again. If the “safety advocates” want to insist on this overbearing regulation and the maze of inspections, then kick in public funding or tax breaks to developers who would build these more affordable houses. Make that house cost $300k again so a young family can afford it. It won’t happen naturally as long as you cling to your regulations and red tape, so you’ll need to make it happen artificially with direct subsidies to the builders.
Purely a Supply Problem
At the end of the day, this is a supply problem. We need to increase the supply of available housing, particularly to lower income people. All of the rent control in the world is never going to solve a problem that is all about the supply of housing. In fact, it will make the problem worse by reducing the supply of housing. Policy needs to focus on incentivizing new housing development, not stifling it.
If Mamdani gets his way, and right now Polymarket is indicating an implied 69% probability that he wins the election, then we are going to get a front row seat to the economic destruction of the New York housing market. Because remember, past examples of the failures of rent control have focused on rent stabilization efforts, not flat out rent freezes. A rent freeze like proposed by Mamdani for over half of all units in the city will be catastrophic. Far worse than anything we’ve seen in the past, and those examples were already pretty damned bad.
I hope New Yorkers are smarter than Polymarket gives them credit for. But if they’re not, at the very least I hope this ends up being an example for the rest of the country on what not to do. A shame that NYC’s most vulnerable will be the ones who have to suffer to provide that example and to boost Mamdani’s short-term political goals.
The Zillow & Compass Soap Opera
I don’t cover the real estate sales industry very much in this publication. It’s not my area of expertise, and frankly, I’m in property management specifically because I hate sales brokerage so much. But what impacts real estate sales impacts PM, so we need to pay some degree of attention. Thankfully, we have Rob Hahn for that! He’s been providing some great coverage of the ongoing legal drama between Compass and Zillow. I recommend a subscription to his newsletter. And for the record, I side with Compass.
We’re Hiring!
My property management company is looking for another BDM! If you have PM experience, and you either live in Atlanta or are willing to move here, please send me a resume. The position offers a combination of salary and per-door commission (with a heavy emphasis on commission), so we’re looking for go-getters who will put in the work to close leads. You would start off with 40+ leads from day one, so plenty of opportunity. Georgia real estate license required, or must be willing to get it prior to starting. If interested, email me a copy of your resume to toddo@revolutionrm.com
Open to Work
Are you an experienced PM industry employee looking for work? Or are you a PM company or vendor seeking the best talent? Send me your info and I’ll feature it here! And look forward to future editions where we’ll be featuring some of the best RTMs available!
We always have some available ad slots open for industry vendors, and we offer discounts if a slot is still open within the next four weeks. Sign up for a full-size ad or ad package here. Pricing and ad details can also be found at that link.
Debate Me
Disagree with my take here? Have a different perspective? There’s nothing I love more than a good debate or even just an intelligent conversation. If you’d like to jump on a podcast recording with me to discuss this topic, please let me know!
PMAssist Industry Insights is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
