Will Mamdani’s Plan Fix New York City’s Housing Problems?

Suppose you secretly wanted to destroy a place like New York City. How would you go about it? We contend that you couldn’t do much better than the venerable and popular, yet failed, proposals for rent control.

The economist John Cochrane has explained that it’s generally a bad idea to try to redistribute income by fiddling with prices. The motive for rent control might seem noble: to take from those who have and to give to those who don’t. 

Economists, however, are much more concerned with outcomes than intentions. The effect of rent controls is to erode a city’s housing stock. Paradoxically, such interventions reduce the amount of housing available precisely for the people that rent control advocates want to help.

How? The answer lies in the laws of supply and demand that students learn in an introductory economics class. According to the law of supply, people supply more of something at higher prices and less at lower prices. According to the law of demand, people demand more of something at lower prices and less of that thing at higher prices. 

Housing is no different from any other good. The principles of economics are universal. When a city implements rent controls, the amount of housing demanded in that city goes up. Simultaneously, the amount of real estate supplied in that locality goes down. 

The reason this fact is not more widely understood is that its effect may not be immediately evident. After all, it’s not like existing apartment complexes disappear with the stroke of a pen when the government imposes the price ceiling. 

Over time, however, people build less new housing than they otherwise would. Moreover, a significant portion of the new construction is likely to be luxury housing, to which rent control does not apply. The restriction exacerbates a housing affordability problem, turning it into a crisis.

The Swedish economist Assar Lindbeck once said that rent control is the most effective way to destroy a city other than bombing it. He knew what he spoke of, surveying the war-torn cities of World War II Europe. 

Would you send a fleet of bombers to destroy New York City? We hope not. If you care about the residents, you shouldn’t send a well-intentioned but misguided politician seeking to impose new rent controls either.

The Big Apple already suffers from excessive political interventionism, high taxes, and wasteful spending. Now, a socialist candidate for mayor promises to add much more of the same. 

What is Zohran Mamdani’s most brilliant idea? “Decommodify” housing! Like a snake oil salesman whose products have caused suffering in other times and places, Mamdani is repackaging what every economics student knows to be a terrible idea: rent controls. 

Want a shortage? Easy peasy. All it takes is to impose a price ceiling. The root of the housing affordability crisis is in regulations that make it prohibitively costly to build new housing where it is most wanted. 

Ezra Klein and Derek Thompson examine how restrictions contribute to housing unaffordability in places like California and New York City in their new book, Abundance. For example, many California housing regulations are in the name of local environmental protection. 

Let’s suppose we reach a consensus to reduce energy consumption because fossil fuel emissions contribute to global warming. What would be the most effective path to that goal? More housing in parts of California where air conditioning is unnecessary will be better than expanding in places like Houston, Dallas, or Atlanta, where air conditioning is indispensable if the buildings are to be habitable.

Today, Mamdani aims to implement additional rent controls to address the housing crisis in New York City. To state it more frankly, he plans to implement new restrictions to worsen the existing problems. 

Is Mamdani an evil person? Probably not. However, intentions are not the same thing as outcomes. California’s politicians and their voters also do not intend to exacerbate the housing crisis. But their actions do just that.

Rent controls guarantee that the quantity of housing demanded will increase while the quantity of housing supplied will decrease. Moreover, by targeting “low-income housing,” they make the construction of high-income housing more attractive.

There are two key points to keep in mind. First, just because you intend to solve a problem doesn’t mean that you will. Second, even if you don’t intend to solve a problem, you can. 

Many people are building housing out of no straightforward social concern, yet they are nonetheless helping to keep housing prices affordable by pursuing their own interests. In order to get their own things done, they have to help other people achieve their own goals.

Facts: Profit-seekers built New York City. Free enterprise has generated every product and service that you enjoy in your home today. Without capitalism’s amazing power to create wealth and opportunities, people with no marketable skills, like Mamdani, would be starving. 

If property owners can’t make money from their tenants, they won’t rent. When it’s not profitable to rent buildings, new construction stops, old buildings start decaying, and people lose their homes.

Across America, cities like New York struggle with housing shortages, largely due to rent and zoning restrictions, policies championed by Zohran and his allies. The solution? Politicians and bureaucrats should do less and let the entrepreneurs make more profits by building more real estate.