It’s no secret that the cost of living is out of control. In cities across the globe, both house prices and rents have skyrocketed over the past couple of decades: one 2023 report found that out of 94 cities, the number that were some variety of “unaffordable” was…94 . Tenants are often at the mercy of their landlord’s whims; in England, rent increases must only be “fair and realistic,” which according to the UK government “means in line with average local rents”—a complete oxymoron if all the surrounding landlords decide to hike up their prices too. In the state of Louisiana, landlords can raise rent to literally whatever price they choose, and without any set notice. 

As governments face pressure to stabilize prices, many cities have flirted with the idea of rent control: a series of policies that cap rent prices or limit how much they can increase over time. Some cities, like Berlin, New York City, and San Francisco, have some form of the policy already in place. In London, where rents have reached absurd heights, people have taken to the streets demanding it. New York City Mayoral candidate Zohran Mamdani has proposed an outright rent freeze on rent stabilised apartments, albeit along with 200,000 new units.

But suggest rent control to a stadium full of economists, and you can practically hear the sound of a thousand whiteboards flipping in protest. The profession is virtually unanimous in its belief that rent control is a bad idea—and that those who call for it are “economically illiterate.” In one telling poll from 2012, economists were asked whether rent control policies in cities like New York and San Francisco have had a positive impact “on the amount and quality of broadly affordable rental housing.” 81% of respondents disagreed or strongly disagreed. 

Their comments included: “Next question: does the sun revolve around the earth?” and “Unless all the textbooks are wrong, this is wrong.” The award for the strongest statement on the idea goes to the economist Assar Lindbeck, who quipped: "In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing." (Although Lindbeck may have been beaten by a recent tweet that said rent control would “imperil the lives of millions”.)

This animosity towards rent control is in line with the predictions of “econ101”: an Americanized way of referring to basic economics classes, which rely on tidy, stylized models of the free market. Although actual introductory economics courses vary in their content and framing, the idea of “econ101” has taken on a life of its own. 

Specifically, the term often refers to the predictions of the basic supply-demand model, which  underpins a lot of free-market orthodoxy. One of the starkest predictions of this model is that price controls in any market will have negative consequences. If you control prices in any sector, they say—-whether the minimum wage in labour markets, rent control in housing markets, or emergency price controls in energy markets—it will backfire by restricting economic activity. Crucially, this is often taken as a sign that we should simply reject those policies, as opposed to just being one of its various costs and benefits that need to be tallied up.

A few years ago I wrote about how econ 101 fails in the labor market. At this stage, this should barely be a controversial proposition: as far back as 2006, Nobel Laureate David Card was reflecting on how the canonical demand-supply model fails to account for things like employer power, job-search costs, and motivation, among other things. But when it comes to rent control, economists continue to insist that the housing market is adequately captured by an introductory supply-demand diagram. Even economics blogger Noah Smith, who has previously critiqued the econ 101 model for the labor market on similar grounds to me, has stated that the evidence on rent control reaffirms the standard model for housing. 

The Model for Housing

To understand where all this strong opposition is coming from, let’s take a supply and demand diagram for housing: 

We have rents on the y axis and quantity of houses rented on the x axis. The supply and demand for houses should balance, with rents at R* and quantity at Q*. Here, the quantity of rental housing demanded is equal to the quantity of housing supplied at this equilibrium rental rate. Voilà: we’ve got the perfect amount of houses and the perfect amount of people who need them.

Now what happens when we throw rent control into the mix? It is represented by the horizontal line RC, which forces rents down. At this low rental rate, the quantity of houses supplied is lower than the previous equilibrium Q^*. Even though more people are demanding to rent houses at such a low rate, not everybody can do it because fewer people are now willing to supply housing. The incentives to build, maintain, and manage housing for tenants at this rental rate are just not there. 

We have a shortage, and a fall in rented units compared to the “free market.” This is the entire basis for strong opposition to rent control: fewer houses is surely a bad thing, which at the very least has to be weighed against the positive consequences for tenants lucky enough to fetch rent at the lower price (in practice, these are generally the incumbent renters at the time the policy is passed).

But don’t toss your protest signs just yet: there are a couple of key issues with this prediction. Probably the most common misconception surrounding rent control laws is that the reduction in quantity means a reduction in total housing supply (including construction of new buildings). In reality, the immediate effect is often a reduction in the number of homes specifically used for renting.

These aren’t the same thing—despite claims from right-wing outlets like the British Daily Express, which branded Sadiq Kahn’s plans for rent control in London “economic illiteracy’” and claimed “due to these rent controls, there will be less construction or even the demolition of buildings [emphasis mine].”

The economist Josh Mason argues that rent control research is in a similar place now to minimum wage research in the 1990s: a few well-formulated studies are finally starting to displace the outdated conventional wisdom, and this will likely expand as time goes on. He summarizes a few studies which show that rent control does not reduce the total supply of housing. Instead, rent control shifts a number of households from controlled units to either owner-occupied or exempted rental units. Therefore, a more credible interpretation than “rent control reduces the volume of housing” is to say “rent control reduces the volume of housing specifically used for renting.” Even more precisely, it should refer to the quantity of rent-controlled housing only. People will still build housing, but it will just not be in the rent-controlled market. Whether or not you believe that this is a net good, it needs to be acknowledged.

Still, even this interpretation of the theory misses a number of things. Supply-demand is what’s called a partial equilibrium model, which is best used for only one market (in this case, rentals) and it misses what is going on with the market for buying homes, as well as the market for rental homes exempted from the policy.

In this model, the houses not used for renting simply disappear—even though they will presumably benefit whomever ends up in them. Housing economist Cameron Murray has pointed out that getting landlords to sell up to first-time buyers might be considered a desirable consequence of rent control, while them selling to other landlords is a moot point. It’s just a change in ownership; it’s not like the home suddenly vanishes into thin air. Only if the total housing stock is reduced do we have a situation where there are simply fewer resources, but the evidence indicates that is not the case. If landlords decide they no longer want to rent their properties, they’ll likely put them on the market, creating an influx of (presumably cheaper) houses for sale. Renters may now find it’s more cost-effective to become first-time home-owners. 

The second issue is that these predictions assume a rent control policy of hard caps on rental prices—which is pretty rare. Berlin introduced a strict hard-cap policy in 2020, but it was ruled unconstitutional a year later. While it was in effect, rents dropped in affected units (especially significant in a city where 83 percent of households are rented) but vacancy rates also plummeted as landlords pulled properties from the market and converted them to non-impacted property types. 

Critics often point to Berlin’s rent freeze experiment as proof that the policy doesn’t work. But most modern rent-control policies are far more flexible, and can yield better results. For example, some cities might allow landlords to raise rent if they engage in serious renovations. This is a sensible modification to the policy which ensures that rent increases are matched by increases in the quality of homes. So-called second generation rent control also excludes newly-built houses from the policy. This more flexible approach, better thought of as rent stabilization, doesn’t try to freeze prices across the board, but instead protects existing tenants from sudden, unjustified rent hikes while still encouraging investment. 

One 2007 study helps illustrate how this more-flexible form of rent control plays out in practice. When Cambridge, Massachusetts abolished second-generation rent control in 1995, it was shown to have little effect on the total volume of housing built roughly a decade later. There was no construction boom as landlords took advantage of fewer restrictions on what they could do. What did happen was a substantial rise in rents for previously controlled houses, displacing many of the tenants who had benefited from the policy. However, with rent control policies gone, landlords did put more homes up for rent (as opposed to selling or leaving them vacant) and they also invested slightly more in the maintenance of their existing properties, providing a boost to the market. Are the multifaceted consequences of this policy really a catastrophe for the housing market as a whole? 

According to the econ101 model, incumbent renters enjoy substantial advantages and in practice, these renters tend to be poorer. Meanwhile, other parts of the housing market (owners and non-controlled rentals) are boosted by rent control, which is missed by the model, focused as it is on the rent-controlled segment of the market. People are prone to interpreting the negative consequences as a doomsday scenario—but that isn't reflected in the data. 

San Francisco: Shit’s Complicated

Probably the most popular modern study for the anti-RC crowd is the Diamond, McQuade, and Qian (2019) paper on the introduction of rent control in San Francisco. Though undoubtedly well executed research, it demonstrates how the negative spin on rent control persists in the economics profession, despite the well-known issues with the standard model. Rent control was introduced in San Francisco in 1994, and the abstract states: “Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings” until 2016. 

One could be forgiven for thinking this is an overall 15% reduction in rental units. But when this number is unpacked later in the paper, it becomes clear that it’s actually a combination of 8% being converted into owner-occupied buildings, and a further 7% being converted into rental units which were exempt from rent control. Evidently, this is a reduction in rental housing supplies of 8% rather than 15%. In other words, the 15.3% figure refers to the number of properties that were redeveloped in response to rent control, but just under half of these were still used for renting in exempted units, while more than half were sold to owners. All need to be considered in a full analysis of the impacts of the policy.

Does this shift hurt poorer renters and make housing less affordable? The paper does not have direct data on the affordability of housing, so they proxy this by estimating the income of the new tenants from their previous ZIP codes. Based on those estimates, the residents of both owner-occupied and exempted rental units are likely to have higher income, which is a cause for concern because it means the policy favours richer residents—although they are only $1,200 a year richer on average. But rent control also means existing tenants are more likely to stay, which is more pronounced for poor and minority groups, so again the effects are complex. In my opinion, the strangest spin by Diamond and co. is to frame the combination of poorer residents staying and richer residents moving in as a bad thing:

 “…it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. Indeed, by simultaneously bringing in higher income residents and preventing displacement of minorities, rent control has contributed to widening income inequality of the city.” 

Apparently, keeping existing residents in the area while rich residents join is a bad thing! The solution is obviously to have only rich residents so that income inequality in the area is low!

To be sure, this is a complicated question: the counterfactual seems to be that a non-rent-controlled San Francisco would have slightly more residents towards the middle of the income distribution and fewer at both extremes, and I can honestly say I’m not sure whether it’s better to retain poorer residents while attracting richer ones, or to retain and attract residents closer to the middle on both sides of the distribution. As shown in the paper, part of the attraction for higher income residents is that rent control leads to higher maintenance, conversions, and redevelopments. Under the existing law these all allow landlords to increase rents and will generally attract a higher income demographic anyway, displacing existing residents.

It’s not easy to assess these changes as either wholly good or bad. If the redeveloped houses were previously low quality, one could argue second-generation rent control is doing its job by encouraging these investments and improving quality (though there is no data on quality in the paper). On the other hand, one could prioritize existing residents entirely and be against rent control because of these displacements, but that doesn’t seem to be what opponents of rent control are doing as (again) the study shows that rent control also caused medium term retention of existing residents at the lower end of the income spectrum. It also disproportionately benefited ethnic minorities.

In his book Economism, which details the abuse of econ101, James Kwak writes: “The pleasure of pointing out the counterintuitive—of showing, using economic logic, how good intentions will necessarily be frustrated—even contributes to the allure of economism.” Which leads me to a crucial point: all this focus on the counterintuitive effects of the policy distracts from a very simple reality: for 85% (i.e. the vast majority of units) rent control in San Francisco simply controlled rents. 

This is a huge benefit, but one that’s easy to miss from a paper that focuses on the movement of residents between properties, rather than the rent they pay while in them. 

To the authors’ credit, an extended version of the paper includes a welfare analysis that finds the benefits to existing tenants are roughly equal to the costs to future ones. Those who secured rent-controlled units saw clear welfare gains, while those priced out by rising rents—driven in part by landlords redeveloping units to escape regulation—experienced losses.

The authors acknowledge that these effects are almost exactly the same and cancel each other out, which is quite striking. But they also admit a rather large blind spot: their data only includes residents already living in affected units when the law passed in 1994, and omits the “presumably large” gains of people who moved into rent-controlled units later. That’s a big omission, especially for a policy designed to help the most vulnerable renters.

Landlords Are Agents, Too

Even if you are rightly concerned about the total number of rental units available, treating landlords’ behavior as some iron law of nature—passively responding to the impersonal forces of supply and demand—is strange. Their actions are shaped by policy, and can be reshaped by better ones. Not too long ago, New York passed a law which requires 51% of a building’s existing tenants to approve before a landlord can convert it to owner-occupied housing. That type of policy directly limits the kind of tenant displacement often blamed on rent control (see Figure 8). 

The economics profession’s tendency not to ponder this kind of policy continually astounds me. It’s as if we are treating landlord behavior as a fixed input rather than a variable. A passage from the Diamond et al. paper on rent control in San Francisco is telling, where they discuss the forced displacement of tenants by landlords:

“This result suggests that landlords actively try to remove tenants in those areas where rent control affords the most benefits, i.e., high price appreciation areas. There are a few ways a landlord could accomplish this. First, landlords could try to legally evict their tenants by, for example, moving into the properties themselves, known as owner move-in eviction. Alternatively, landlords could evict tenants according to the provisions of the Ellis Act, which allows evictions when an owner wants to remove units from the rental market: for instance, in order to convert the units into condos or a tenancy in common.”

I expect most Current Affairs readers will read this not as “rent control is bad” but as “landlords can abuse their power and tenants don’t have enough rights.” In San Francisco, the Ellis Act allows landlords to suddenly remove all their units from the market and evict tenants. This is exploited by landlords to escape rent control—but is this the fault of rent control, or the Ellis Act? As one study documented, it is a unique policy in the scope it permits landlords to evict tenants. If we want to prevent evictions, we might start by abolishing this act, but you don’t see as many economists calling for that as for abolishing rent control. Were tenants as well-protected as in Germany or the Netherlands, evictions would surely be lower. Massachusetts also boasted greater protection from evictions in its laws.

It goes beyond the Ellis Act. Most countries have some form of tenants’ rights—for instance, in the UK, landlords are not allowed to visit unexpectedly, too often, or for no real reason, a provision known as the right to “quiet enjoyment” of the property. Without this provision, would landlords respond to Sadiq Khan’s proposed rent control laws by visiting every day and playing the bagpipes until the tenants gave up and moved out? Would opponents of rent control see this as a necessary consequence of the policy, or as an unreasonable exercise of landlord power? The property rights over housing are so complicated that continually renegotiating what landlords and tenants are allowed to do is not an imposition into the market, but a question of how it is defined in the first place. Rights we know fall into the background while new ones seem alien. That most people do not routinely think about this is understandable; that university professors do not question it is less so.

In summary, rent control—at least in San Francisco—seemed to benefit most people and prevent poorer residents from being entirely displaced from the city, but it did accelerate neighbourhood segregation within the city through these redevelopments. One way of interpreting SF’s rent control is that it reconfigured gentrification rather than preventing it. My impression is that those who favor mobility will tend to dislike rent control, because it keeps incumbents where they are while pricing out potential renters coming into the city. Faced with the same evidence, those who favour a “right to housing” will prefer rent control as they are less concerned about future renters than those who already live there. 

Ultimately, neither theory nor empirical analysis are going to make the issue of competing values and perspectives go away. When considering the effects of rent control, do we prefer rented or owned housing? Do we want higher quality houses which are more expensive? Do we want to favour existing residents over new ones? I don’t have easy answers to these questions, but the crude econ101 mindset leads some people to believe that they do. 

Dreams of Rent Control

Rent control is not some utopian dream: it exists a couple of hundred miles from me as I write this. Germany has the lowest home ownership proportion in the OECD (a group of rich countries) at around 50 percent and a mere 15 percent—and that’s not because they can’t afford houses. This compares to about two-thirds in the USA, UK and France. While private renting is more common in Germany, even among richer individuals, renters enjoy a wide range of guarantees including controls on rent and security from eviction. According to John Kampfner, Canada, Spain, the Netherlands and several US states have also introduced rent control policies in the past few years. Josh Mason points out that Germans who rent are about as secure in their dwellings as the average UK homeowner and many have no intention of buying for this reason.

No doubt, the evidence surrounding rent control is nuanced and its effects will differ across time and space. I have tried to capture this complexity, but I appreciate that it may be somewhat difficult to follow. To avoid being charged with obfuscation, I’ll summarize my main points simply: 

1. Rent control does not destroy cities. The evidence is unequivocal that it does not reduce the total supply of housing, nor the rate of construction, let alone result in destruction of existing stock.
2. Rent control does reduce the supply of rental housing subject to rent controls. This leads to a complex set of consequences for incumbent renters, prospective renters, and home buyers. 
3. Taking a more holistic perspective, especially considerations of landlords and tenants rights, could lead to sensible modern rent control policies that limit excessive rent increases and associated pressures by landlords to push tenants out. In other words, all of the preceding depends on certain institutional conditions.

Studying the standard-demand supply model will give you a few intuitions. Aggressive price-fixing policies typically have some effect on quantity. Massive increases in supply typically result in lower prices. A big rise in demand will result in higher prices. But turning these general intuitions into universal policy recommendations is like invoking gravity to say space travel is impossible—and that’s being generous to demand and supply. Navigating the complex consequences of modern rent control is a task that requires detailed institutional knowledge, modern empirical research, and a sprinkle of economic intuition. As it stands, the latter has dominated the rent control debate and stymied our ability to imagine a better housing market that works for overcharged renters.