Would a National Rent Cap Actually Make Housing Less Affordable?

A proposed national rent control policy, while politically appealing for its promise of short-term relief, would likely exacerbate the United States' core housing affordability crisis by worsening the supply shortage. The fundamental issue is a deficit of millions of housing units, and capping rent increases disincentivizes the new construction needed for a long-term solution. If enacted, this type of policy would have an immediate impact on metros like Boston, Washington D.C., Chicago, and Minneapolis, where current rent growth exceeds the proposed cap.

What is the Root Cause of High Rental Costs?

The primary driver of rising rental costs is a severe imbalance between supply and demand. Multiple industry analyses, including those from the National Association of Realtors (NAR), indicate a national housing shortage estimated between 1.5 million and 5.5 million units. When the number of households seeking housing vastly exceeds the number of available units, prices inevitably rise. Therefore, the most effective strategy for improving affordability in both the rental and for-sale markets is to aggressively increase the supply of housing. Policies that fail to address this deficit only treat the symptom (high prices) rather than the disease (lack of supply).

How Would a Rent Cap Worsen the Housing Shortage?

Rent control is a government regulation that limits the amount a landlord can charge for renting a property. While a cap on annual rent increases may lower costs for some tenants in the short term, it creates a significant long-term problem by stifling new development. For developers and builders to undertake the substantial risk and expense of constructing new apartment buildings, they must have a reasonable expectation of profit. If a rent cap artificially suppresses potential returns below what the market would bear, the incentive to build new rental units evaporates. The result is a slowdown in new construction, which over time intensifies the supply shortage and leads to even higher costs for future renters.

This dynamic has been observed in other markets. For instance, Berlin, Germany’s experience with stringent rent controls offers a cautionary tale, where the policy was initially popular but ultimately correlated with a reduction in available rental housing.

Does the Proposal Address These Concerns?

The current proposal attempts to mitigate the disincentive for new construction by including exemptions. It carves out exceptions for "mom and pop" landlords with fewer than 50 units, newly constructed units, and properties that have undergone substantial renovation. However, a critical ambiguity remains: the exception for new construction may be temporary. Once a new unit is no longer considered "new," it would likely fall under the rent cap rule, potentially deterring long-term investment.

While national rent growth has recently cooled, a flat national average masks significant local variation. In several major metropolitan areas in the Northeast and Midwest, year-over-year rent growth is currently above 5%. A national cap would be immediately binding in these markets, creating the exact disincentives for builders highlighted above.

What Are More Effective Solutions for Housing Affordability?

The same White House proposal includes other measures that are more directly aimed at solving the supply problem, such as repurposing federal land for affordable housing and distributing grants for neighborhood revitalization. These are steps in the right direction but, based on our experience assessment, are unlikely to generate the volume of units needed to close the multimillion-unit gap.

A more impactful approach would involve the federal government encouraging localities to reform zoning and land-use regulations that restrict the construction of denser housing types, like townhomes and small apartment buildings. Tying federal funding to the adoption of pro-housing policies could powerfully incentivize cities to remove barriers to construction.

The most sustainable path to rental affordability is to prioritize policies that directly boost housing supply. While rent caps offer the illusion of quick fixes, they risk making the underlying shortage more severe. Addressing restrictive zoning, streamlining construction permits, and incentivizing development are more complex solutions but are essential for creating a balanced and affordable housing market for the long term.