How Rent Control Squeezes the Housing Market

Turn any article into a podcast. Upgrade now to start listening. Members can share articles with friends & family to bypass the paywall. In June, New York City’s Rent Guidelines Board voted 7-1 to pause rent increases for 960,000 rent-stabilized apartments, delivering on Mayor Zohran Mamdani’s central campaign promise to “freeze the rent.” Only Arpit Gupta, a New York University associate finance professor, cast a “no” vote, arguing that with landlords’ operating costs continuing to rise, the move would only lead to the deterioration of rent-stabilized units and drive up rents for non-controlled apartments. “In the absence of seeing our data that [operating] costs have gone down, or policy decisions that would go in that same direction, it’s hard for me to vote for a freeze,” Gupta told The Dispatch last week. Rent-stabilized apartments make up more than 40 percent of the city’s rental units and are subject to upper limits on rent increases voted on annually by the Rent Guidelines Board. The freeze applies to both one-year and two-year leases renewed between October 1, 2026, and September 30, 2027. Economists have long doubted the wisdom of rent control, with basic economic theory positing that it acts as a price ceiling that reduces housing supply and creates market inefficiencies. In a 2012 poll of 41 leading economists, only one respondent agreed with the statement that local ordinances limiting rent increases on some units “have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing,” while 33 disagreed or strongly disagreed. Mamdani’s rent freeze proposal found a welcoming audience on the campaign trail, but the question of how rent control actually affects both tenants living in rent-stabilized dwellings and those in the non-controlled rental market is worth revisiting. How are market-rate rents determined? Economists think of prevailing rents as a supply-and-demand equation: An increase in demand to live in a certain area creates upward pressure on rent, while an increase in housing supply creates downward pressure. On the supply side, the rate of housing construction in a given locality is closely connected to reduced rental costs. A 2019 paper by Evan Mast, now an assistant professor of economics at Notre Dame, found that new market-rate housing can lower rental prices across levels of affordability, even if the newly built units are expensive. That’s due to a process known as a migration chain, whereby tenants moving into new units create vacancies in their previous unit type, lowering rents in that type of dwelling and generating another wave of movement driven by other tenants seeking to upgrade. Using a sample of apartment construction in 12 major U.S. cities, Mast found that building 100 market-rate units opened up the equivalent of 40 units in a city’s poorest neighborhoods. Housing supply is also affected by whether rent revenue allows landlords to cover their operational costs, such as maintenance, property taxes, mortgages, and energy bills. That’s why, in New York, the Rent Guidelines Board is required to consider various operating costs when determining rent increase limits for rent-stabilized units. The demand side of the equation is shaped by factors including local incomes, population growth, and the relative attractiveness of a neighborhood. Rents will generally be higher in areas where more households are willing and able to pay higher rents. The physical characteristics of a unit, including its size, condition, layout, and amenities, also affect how much tenants are willing to pay. Beyond supply and demand, rents can also vary depending on how long a tenant has occupied a unit. Landlords may offer modest discounts to retain reliable tenants and avoid the costs of turnover, meaning rents for existing tenants can adjust more slowly than for newly leased units. In weighing these factors and landing on a final monthly rent amount, landlords often use comparable nearby apartments as a gauge for what the market will bear. One important tell of whether landlords are charging rents that an efficient market would support is the number of vacant apartments in a given area. “If we see in a marketplace like New York that the vacancy rate for both all units as well as market units is very low, that indicates that landlords aren’t … making a mistake in that sense,” Gupta said. “Because at the level of rents that they’re charging, we still have pretty low inventory available.” Rent control’s effects. Arguments in favor of rent control tend to center on creating affordable housing for a city’s poorest tenants and protecting tenants against large rent increases that would force them to relocate. Yet, most rent control programs are not strictly redistributional. San Francisco’s rent control laws apply only to buildings constructed before June 13, 1979, with no income restrictions for occupants. New York City similarly applies its rent stabilization program to buildings with at least six units built between 1947 and 1973, and also implements a separate and even more tenant-friendly rent control process for buildings constructed before 1947. A Wall Street Journal analysis found that the city’s top 25 percent of earners received a greater discount on rent-stabilized apartments relative to market prices than any other income quartile. Having tenants locked into below-market-rate units that they are unlikely to leave gives landlords little incentive to maintain buildings, so the quality and quantity of rent-stabilized apartments can steadily deteriorate. A 2019 paper by economists Rebecca Diamond, Tim McQuade, and Franklin Qian used a 1994 change in San Francisco law that expanded rent control to smaller multifamily buildings to study how otherwise similar buildings arrived at different outcomes based on whether or not they were subject to rent control. The city’s 1979 law generally allows for rent increases up to a maximum of 60 percent of the consumer price index, a common measure of inflation. The authors found that landlords in these newly controlled multifamily buildings reduced their housing supply by 15 percent, contributing to an overall 25 percent decline in the number of tenants living in rent-controlled units relative to 1994 levels. Faced with the choice of maintaining buildings whose costs may outpace the rent they could recoup or withdrawing units from the controlled rental market altogether, some landlords choose the latter. “When prices go up in the controlled housing stock, which is the solid majority of all multi-family housing in San Francisco, the controlled landlords are responding by effectively decreasing their housing supply,” Brian Asquith, an economist at the W.E. Upjohn Institute for Employment Research who studied how landlords reacted to San Francisco’s rent control, told The Dispatch. “That’s exactly the supply response you don’t want in response to an increase in housing demand.” Gupta said a pause on rent increases in New York City would have been more justifiable had landlords’ true operating costs been decreasing, as they were at times during Mayor Bill de Blasio’s administration (2014–2021), when the Rent Guidelines Board approved three rent freezes. “If the true costs of operating a building are in fact going down, I would be happy to vote for a freeze because our mandate is to tie the rent growth in some way to operating conditions,” Gupta said. However, according to data the Rent Guidelines Board released in March, the price index of operating costs for New York City buildings containing rent-stabilized units increased by 5.7 percent between 2023 and 2024. The supply problems created by rent control may also be exacerbated by a negative spillover effect on new housing construction. California law requires landlords who remove properties from the rent-controlled market to keep those units vacant for at least five years before offering them at market rate, even if they are demolished and redeveloped. As of 2024, San Francisco County’s median home was built in 1948, the third-oldest of the 100 largest counties in the U.S. “Given how expensive the city is and how many people want to live there, if it weren’t for this big regulatory barrier, you would think a lot of it would be redeveloped,” Asquith said. While zoning regulations have played a major role in housing scarcity, the baked-in incentive for the city to hold on to its rent-controlled housing stock likely hasn’t helped. With rental housing supply shortages existing across all 50 states, increases to market-rate rents in America’s biggest metro areas have naturally followed. “The city’s housing market is effectively breathing with only one lung,” Gupta wrote in a City Journal article explaining his vote against the rent freeze. “That pressure drives up market-rate rents. Politicians often point to extremely high-listing rental prices, which are typically well beyond the rents most people pay in the city. This mismatch is a product of a two-tier housing system that privileges insiders but forces outsiders to pay exorbitant rents.” Eli Kronenberg is a Dispatch intern and a rising senior at Northwestern University. When he’s not reporting, he is usually taking long walks, listening to an array of podcasts, or riding the emotional rollercoaster of supporting Tottenham Hotspur.