The road to hell is paved with good intentions. All too often, so is the road to economic ruin. Few issues inspire as much passion in urban politics as rent control. It appeals to a simple intuition: if the government forces prices down, housing will become affordable. It’s also a good selling point for candidates engaging in economic populism. For decades, urban planners and politicians have framed price ceilings on housing as a shield for the poor against the crudeness of the market. After all, it is always easy to blame the greedy businessmen.
However, the (less politically popular) theoretical consensus of academic economics, supported by overwhelming empirical evidence, demonstrates that rent control is, in reality, a destructive mechanism. Rather than ensuring affordability, it leads to scarcity, quality deterioration, and social injustice. To understand the scale of this failure, I will examine the different paths chosen by two major world capitals: New York City and Buenos Aires. While New York looks likely to double down on failed regulatory strategies under Mayor-elect Zohran Mamdani, Buenos Aires has recently provided the world with a startling example of the power of deregulation. The contrast between the deepening crisis in New York and the rapid market recovery in Buenos Aires offers the former a lesson in basic economics.
The Theoretical Failure of Rent Controls
The theoretical case against rent control is rooted in the laws of supply and demand. In a free market, prices serve as vital information signals, coordinating the actions of millions of individuals. High prices signal scarcity, incentivizing builders to create more housing and homeowners to rent out spare rooms. When a government imposes a price ceiling, namely a maximum allowable rent that is set below the market price, it destroys this signaling mechanism.
The immediate theoretical result of a price ceiling is a disequilibrium where the quantity of housing demanded exceeds the quantity supplied. Because the artificially low price encourages more people to seek apartments than would otherwise do so, while simultaneously discouraging property owners from offering units, a shortage is mathematically guaranteed. This creates a “deadweight loss” to society, namely a reduction in total economic welfare where potential trades that would benefit both landlord and tenant are forbidden by law.
Furthermore, rent control creates perverse incentives in housing quality. In a healthy market, landlords compete for tenants by improving their properties. Under a rent-controlled regime, where revenue is capped, but operating costs such as taxes, utilities, and insurance, continue to rise with inflation, the landlord’s profit margin is compressed or eliminated. To remain solvent, the rational economic actor must cut costs. The only variable remaining under the landlord’s control is maintenance. Therefore, rent-controlled housing stocks inevitably suffer from deferred maintenance, leading to a gradual decline in quality.
Beyond the drop in quality, these regulations lead to a gross misallocation of resources and destroy the natural liquidity of the housing market. In a flexible market, price signals encourage mobility. More specifically, fewer tenants downsize to smaller units, freeing up larger homes for growing families. Rent control breaks this cycle by creating a “lock-in” effect. Tenants are financially penalized for moving, which incentivizes them to remain in units that no longer fit their needs, simply to keep a below-market rate. This manufactured lack of mobility prevents the housing stock from adapting to new demographics and forces new families to compete for small, expensive units in the artificially restricted unregulated sector. Richer tenants are also prioritized over poorer tenants under rent control regimes, because high wages and stable incomes signal lower risk of missed payments, while lower wages signal an increased risk. When dozens of applicants compete for the same rent-stabilized unit, the landlord will rationally choose the lower risk. Furthermore, wealthier applicants have more time and resources to navigate the complex bureaucracies and regulations of rent control and find an available stabilized unit.
New York City: A Lesson in Scarcity
New York City serves as the best global example of the long-term effects of rent stabilization. The city’s complex regulatory framework, originating in the 1940s and which concerns nearly one million apartments, intensified with the passage of the Housing Stability and Tenant Protection Act (HSTPA) of 2019. This legislation severely limited the ability of property owners to increase rents to cover the costs of capital improvements or individual apartment upgrades.
Economists Edward Glaeser of Harvard University and Erzo Luttmer of Dartmouth have estimated that New York’s rent control has reduced the city’s housing stock by roughly 15%, relative to what would have been built in a competitive market. Furthermore, Census Bureau data show that market rents have exploded in the uncovered segment, rising from about $1,100 in 2000 to askings of over $3,500 in 2023, reflecting the housing shortage.
The data stemming from these interventions reinforce the theoretical issues with price ceilings. The 2023 New York City Housing and Vacancy Survey revealed that the citywide net rental vacancy rate had plummeted to a historic low of just 1.41 percent, a figure far below the 5 percent threshold which was typically regarded as a sign of a housing emergency. However, the situation is even more worrying in the rent-stabilized sector, where the vacancy rate sits at a microscopic 0.98 percent. This near-zero availability confirms that price controls have made it impractical for anyone attempting to enter the market today.
The detrimental impact of the HSTPA is visible in the collapse of investment in the city’s aging building stock. Since the law’s passage, filings for Major Capital Improvements have declined by 45%, while Individual Apartment Improvement filings have fallen by a huge 77%. This drop simply means that boilers are not being replaced, roofs are not being fixed, and apartments are not being renovated. The caps on cost recovery mean that if a landlord spends tens of thousands of dollars to fix a unit, they may only be permitted to raise the rent by a negligible amount, making such investments uneconomical.
Faced with this economic impossibility, thousands of property owners have made the rational decision to withdraw from the market entirely. This phenomenon, known as “warehousing,” occurs when the cost of renovating a vacant unit exceeds the value of the future rent permitted by the state. Current estimates suggest that between 20,000 and over 50,000 rent-stabilized apartments are currently sitting empty in New York City, unrenovated and unlivable.
Mayor-elect Zohran Mamdani’s primary housing proposal threatens to worsen this crisis. By campaigning on a platform to implement a multi-year rent freeze on all stabilized units, Mamdani is actually proposing a rent cut in an inflationary environment. If enacted, this policy would push the Net Operating Income, meaning the rent profitability, of thousands of buildings into negative territory. Small, “mom-and-pop” landlords, who own a significant portion of the city’s affordable stock, would face an equally bad choice: foreclose or sell to large private equity firms. A rent freeze would be the final nail in the coffin for the city’s housing supply.
Buenos Aires: Empirical Triumph
While New York will most likely move toward tighter control under Mayor-elect Mamdani, Argentina has provided the world with an alternative. In 2020, the government passed a restrictive rent law similar to that advocated by Western progressives: it mandated three-year lease minimums and capped annual rent increases based on an index that failed to keep up with the country’s rampant inflation. The results were predictably disastrous. Landlords, fearful of locking their assets into losing contracts in a hyper-inflationary economy, pulled their properties from the rental market en masse. Between 2020 and 2023, the supply of rental units in Buenos Aires collapsed by approximately 45%, creating a desperate shortage where finding a place to live became nearly impossible.
However, the election of libertarian President Javier Milei brought a shift in philosophy. In December 2023, Milei issued a decree repealing the rent control law, restoring the freedom of contract. Landlords and tenants are free to negotiate the duration of the lease, the frequency of price adjustments, and the currency in which rent is paid. The response to deregulation was instantaneous and overwhelming. Freed from state coercion, property owners flooded the market with units. In the months following the repeal, the supply of available rental housing in Buenos Aires surged by over 170 percent, with some metrics showing a near doubling of available listings within the first year.
This massive increase in supply had the exact effect predicted by free-market economists: it drove prices down. With landlords now forced to compete for tenants rather than tenants fighting for limited units, real rental prices, meaning adjusted for inflation, began to fall. By some measures, real rents in Buenos Aires dropped by approximately 40% relative to their peak under the control regime. The “Buenos Aires miracle” was not a miracle at all, but simply the result of normal market function.
Conclusion
The comparison between New York and Buenos Aires offers a stark choice between two opposing worldviews. On one side stands the statist approach, characterized by the belief that government intervention can suspend the laws of economics. The other side recognizes that the only way to lower prices is to increase the productive capacity of the market. Only the latter is supported by empirical evidence. Thus, the lesson is clear: price-control populism leads to shortages and worsens the housing crisis across the rich world. Deregulation and free markets solve the issue. Argentines have good reason to be hopeful. New Yorkers, on the other hand, would be justified in feeling pessimistic about housing affordability under the mayorship of Zohran Mamdani.
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