We are in a time when what would have seemed to be unimaginable domestic policy changes — from the abolition of the Department of Education to cutoffs of federal support for universities — are on the table.
The Department of Housing and Urban Development is involved in this creative destruction — having pulled back a Biden-era program called Affirmatively Furthering Fair Housing, which tied federal assistance for some 1500 communities to local zoning changes, some as intrusive as regulating proximity of supermarkets and new housing.
But the Trump administration’s HUD should go further by tying its assistance to cities that refuse to adopt policies that actively harm its key goals: improving housing quality, increasing supply and access for those of lower incomes. One policy prescription in particular would change housing policy across the country for the better — linking federal aid to the end of rent regulation.
Some 305 localities have adopted a version of rent controls, including Los Angeles, Washington D.C. and most notably, New York City, where the prices of 960,00 apartments, nearly a third of all housing, is price-regulated.
HUD has a special interest in the market distortions, inadequate maintenance, and inhibition against new construction that rent regulations — like any price control — pose. The department, through its Community Development Bloc Grant program, distributes $3.5 billion to 1500 communities for the expressed purposes of “providing decent housing and a suitable living environment and economic development, principally for persons of low-and-moderate income.”
Rent regulation runs contrary to those goals. Nothing about the price regulation regime guarantees it will help those of low income. Nothing prevents wealthy tenants from renting apartments whose costs are below market levels; federal data shows that 30% of households in rent-regulated units earn more than $100,000 annually. As a practical matter, owners have an incentive to rent to higher-income tenants to ensure rents, even if low, will at least be paid. Notoriously, residents of rent-controlled apartments in New York have included the actress Mia Farrow and the powerful Congressman Charles Rangel.
HUD has every reason to be concerned about low-cost apartments being rented by those of high incomes. It spends some $30 billion on so-called housing choice vouchers, which pay 70% of the rent on privately-owned apartments for those of low income.
The poor with whom HUD concerns itself must compete for housing with the non-poor in rent-controlled units, and with those continuing to live in low-rent units larger than what they need because the cost is so low. Here’s how the Brookings Institution has described that problem: “Once a tenant has secured a rent-controlled apartment, he may not choose to move in the future and give up his rent control, even if his housing needs change.”
This “misallocation,” Brookings continued, is not without major consequences, most notably “empty-nest households living in family-sized apartments and young families crammed into small studios.” Although we tend to focus on the need for more housing, regulation leads to the inefficient use of the existing housing.
HUD is also concerned about maintaining housing quality, and rent control is a problem here, too. New York City — where President Donald Trump, like his father Fred before him, has long owned and managed rental property — is the most dramatic case in point.
A review of the New York City housing stock conducted in 2022 by the Census Bureau found that physical conditions in rent-regulated units are worse than those not covered by the law. The specifics are notable: It found that twice as many regulated units — some 300,000 — are plagued by rodents. Three times as many have mold. Twice as many have had toilet breakdowns.
The cost of code-required maintenance and repairs, combined with legal restrictions on raising rents to cover those costs, is leading to “ghost apartments”—units simply kept off the market because it doesn’t pay for owners to rent them. There are an estimated 26,000 such apartments kept vacant—the direct opposite of the HUD goal of increasing housing supply.
This is not a problem that is limited to New York. It’s endemic to rent-regulated housing.
The St. Louis Federal Reserve Bank looked at the physical effects of rent controls. It concluded that “while rent-control policies do restrict rents at more affordable rates, they can also lead to a reduction of rental stock and maintenance, thereby exacerbating affordable housing shortages.”
Developers will inevitably think twice about building new housing, lest they find that the reach of rent controls expands. So it is that the fact of rent control laws can inhibit housing production.
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Intervention from the federal level in local affairs may be the only way to save cities, especially New York, from its misguided housing policies, cemented in place by what Milton Friedman called the “tyranny of the status quo.” Simply put, tenants are a powerful voting bloc, and the incumbents want to maintain their advantages at the expense of the greater municipal good.
To break this Gordian policy knot, HUD should adopt new regulations governing its major aid programs — from community bloc grants to housing vouchers to an end to local rent regulation. Ultimately, doing so may require an act of Congress. But, if the department’s goal is to increase the availability and supply of housing, it should start now. An administration led by a real estate developer should understand the importance of doing so.
Howard Husock is a senior fellow in Domestic Policy Studies at the American Enterprise Institute