What are the effects of rent control, both good and bad?
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I live in Sweden, one of very few (possibly the only one?) countries with nationwide rent controls.
The upside of rent controls is that it makes rent more affordable. Where they’ve been implemented, they’ve usually been intended as a temporary social policy. In Sweden’s case, oil imports were drastically reduced due to WWII in the 40’s. When supply decreased, the price increased and most properties were heated by oil. So legislators introduced rent controls to prevent property owners from passing on their costs to tenants, preferring property owners going bust over tenants becoming homeless. The intention was for the rent controls to be abolished once oil rationing went away, but for a variety of reasons that never happened (though changes have been made, and modern Swedish rent controls aren’t as strict as they used to be).
The downsides of rent controls are many. Most notably that it creates a housing shortage. If property owners cant charge their tenants what it actually costs them to invest in and maintain the property, they wont pay a developer to build the property. There are various ways of dealing with this situation. In Sweden it was dealt with by creating a housing queue – you’ll have to wait for 25+ years to get an apartment in attractive parts of large cities. In other places it’s been dealt with by arranging apartment lotteries when an apartment becomes vacant.
A less ovserved downside is that rent controls increases demand. If you can rent a $1,500/month apartment for only $800/month, you may want to rent a $1,200/month apartment for $650 in a coastal city as well, as a vacation home. It’ll sit empty for most of the year and effectively displace locals in need of a permanent residence and thus worsen the housing shortage.
Another downside is that it increases segregation. All housing markets are segregated, to varying degrees. The most attractive neighbourhoods are usually disproprtionately occupied by middle-aged to old people belonging to the majority ethnicity, since they have more money and better connections than other. But it get even more pronounced if you add rent controls to the mix, because while it is uncommon for young people and immigrants to have a lot of money or great connections, it does happen so they have a shot at living in the best neighbourhoods where apartments are bought and not rented, or rented at market rates. But a 24-year old or somebody who only immigrated a couple of years ago literally *cant* have done 25+ years of waiting in the housing queue. If you want to find the whitest neighbourhood in Sweden, find the neighbourhood with the largest share of rented apartments in downtown Stockholm.
A fourth downside is that it inflates prices in alternative housing markets. If you’re moving to a new city and you cant rent a place there since you haven’t waited in line, buying a home is basically your only option. Since it’s your only option, you’re prepared to pay more than you would’ve been if you had other options, and prices increase. Higher prices for owned housing and inaccessible rental housing make housing in general less accessible to less affluent people. Young people without long time in the housing queue and without large savings are most affected.
The inflated housing prices also make rent controls difficult to get rid of. Hundreds of thousands of people have borrowed money to pay an inflated housing price. If rent controls disappear, prices for owned housing will drop and those people will lose tens of thousands of dollars but still have to pay their mortgages.
Tl;dr: don’t try rent controls at home. If you do try rent controls at home, abolish them quickly.
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