Vice President Kamala Harris has put forward a number of economic policy proposals that draw on socialist principles and target issues such as affordable housing and economic inequality. Among the most notable is her proposal for national rent control, which would aim to limit annual rent increases in areas where housing costs have skyrocketed. This initiative is intended to protect renters from sudden, unaffordable rent increases. But the history of rent control in cities like New York and San Francisco suggests that such policies often have unintended consequences. In those cities, rent control has been associated with a decline in the overall rental housing supply as landlords convert rental properties to condos or use their properties differently. As a result, the quality and availability of rental housing deteriorates, and rents in uncontrolled market segments tend to rise, exacerbating the very affordability problems the policy is intended to solve.
In addition to rent control, Harris has proposed government-funded down payments for first-time buyers, with a particular focus on low-income and minority communities. This policy is intended to lower the barriers to homeownership, which have historically been higher for these groups. While the intent is to increase homeownership rates, there are concerns about potential market distortions. Similar interventions in the past have shown that injecting government funds into the housing market can lead to higher home prices when demand increases without a corresponding increase in supply. This dynamic was a contributing factor to the housing bubble that sparked the 2008 financial crisis, which led to widespread foreclosures and a severe economic downturn.
In addition, Harris’ proposal calls for the introduction of price controls on essential goods such as food, a measure designed to counter rising costs and make basic needs more affordable for consumers. Historical data from the United States in the 1970s, Zimbabwe in 2007, and Venezuela in the 2010s suggest that such price controls often have significant unintended consequences. In these cases, price controls led to a decline in supply as producers could not cover their costs at the prescribed prices. This led to widespread shortages, the emergence of black markets, and a decline in product quality. For example, during the United States oil crisis in the 1970s, price caps on gasoline led to severe fuel shortages and long queues at gas stations.
The challenges associated with Harris’ proposals are further highlighted by similar experiences in other cities and countries. In Berlin, a rent cap in 2020 led to a 25% decline in available rental housing as landlords took units off the market. This measure caused rents to rise sharply in uncontrolled segments, ultimately leading to the measure being overturned by the German Federal Constitutional Court in 2021. In Stockholm, Sweden, the rent cap has led to a severe housing shortage, with waiting times for rent-controlled housing of up to 20 years and a thriving black market for rental contracts. These cases illustrate how rent caps, although intended to make housing more affordable, often lead to reduced housing supply, reduced quality, and higher prices in uncontrolled market segments.
A contrary example is Cambridge, Massachusetts: the removal of rent control in 1994 led to a significant increase in property values by 25-50% and spurred investment in housing, increasing housing quality. However, Cambridge’s current rental market is characterized by high costs and limited availability. As of August 2024, the average rent in Cambridge is $3,484 per month, with a vacancy rate of just 3.7%, making affordable housing scarce in this highly competitive market. This highlights the complexity of the problem and suggests that while rent control can stabilize prices for some, it may not be the best long-term solution for affordable housing.
The far-reaching implications of these proposals are significant. While Harris’s policies are aimed at addressing social and economic inequalities, they are reminiscent of policies that have caused economic instability and societal harm in other contexts in the past. As the United States considers these proposals, it is critical to weigh their potential benefits against the risks, particularly in light of past experience with similar policies. History suggests that government interventions such as rent controls and price caps often lead to economic inefficiency, scarcity, and unintended negative consequences that can ultimately harm the very populations they are intended to help.
