Most economists rail against rent control. Rent control distorts the real estate markets. Individuals in rent controlled apartments are receiving ‘rents’ (in the economic sense) because they live in higher quality apartments than they are paying for. In addition, it provides them a strong incentive to stay in their apartment even if they would prefer to move to a different apartment or location. Rent control also limits the supply of new housing because developers know they will not be able to earn a profit for new housing if the rents are held down.
Those who support rent control argue that the program helps people who can not afford to live in their house. But a more effective way to may housing affordable would be to give direct cash grants to poor individuals so they can afford the market rents.
On one of my days off, I was watching a Law and Order episode and found another drawback to rent control, it distorts the landlord’s incentive. Oftentimes, rent control remains with a unit until the tenant moves out. Typically, a landlord has an incentive to maintain an apartment quality to keep their current tenant or attract new ones. They balance the cost of making improvements against the cost of losing their tenants.
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