The Biden administration has called for imposing federal limits on rent increases. This is a profoundly misguided policy from an economics perspective, and since it lacks statutory authority, it is unlikely to occur.

Economists universally condemn rent controls as an inefficient and counterproductive way to improve housing. While rent control appears to help tenants in the short run, it decreases the supply and affordability of housing in the long run.  Owners will not spend on maintenance and improvements if they cannot recoup the costs through higher rents. Capital will move to more productive investments.

Rent control can also lead to a “mismatch” between the tenants’ needs and rental units. People stay in cheaper rent-controlled units even if their housing needs change, resulting in inefficient use of space.

Rent regulations and controls have historically been the province of state and local governments under their police powers. This has not been an area for federal intervention.

Yet, this is not the first time the administration has tried to interfere in the housing markets. Its national eviction moratorium issued by the Centers for Disease Control and Prevention was struck down by the Supreme Court (6-3) on Aug. 26, 2021. The court held that the CDC had exceeded its authority in issuing the eviction ban and that “if a federally imposed eviction moratorium is to continue, Congress must specifically authorize it.”

Undeterred, the administration issued “The White House Blueprint for a Renters Bill of Rights” in Jan. 2023. It expressed the need for clear and fair leases, eviction prevention, a tenants’ “bill of rights,” and the rights of tenants to organize.

Yet, it acknowledged that it “is a statement of principles; it is not binding and does not itself constitute U.S. government policy” and that “adoption of these principles may not meet the requirements of existing statutes, regulations, policies.”

This time, the administration is at least acknowledging the need for statutory authority. Its proposal calls on Congress to pass legislation giving corporate landlords owning more than 50 units a choice to either cap rent increases on existing units to 5% (or less) or lose the federal tax benefit of faster depreciation write-offs.

However, there is no explanation of why 50 units is a threshold for imposing the controls or if 5% is an adequate return to ensure that rental properties can be maintained. According to the Congressional Research Service, “REITs and real estate corporations have a relatively small ownership share nationally,” and about two-thirds of rental units are in properties of 49 units or fewer. Why is there a distinction between corporate and non-corporate owners? And what is the distinction between tenants of smaller owners and larger owners?

Rent controls, in general and these in particular, remain a poor policy that Congress is unlikely to enact. The administration’s plan seems more like a politically popular ploy than a well-thought-out proposal.

Joel Zinberg is a senior fellow with the Competitive Enterprise Institute/InsideSources.com