The city of Elizabeth, New Jersey, recently capped rent increases to 3 percent. The previous cap limited rent increases to $20 or 3 percent, whichever is lower. Tenants and housing activists are unhappy. One activist said,
This decision to increase the rental cap, which protects its more vulnerable tenants, shows how the city protects developers rather than tenants who are struggling to make ends meet. Our city must protect working-class families.
Apartments.com reports that the average rent in Elizabeth is $1,657. The $20 cap would amount to a 1.2 percent increase in the average rent. At the end of November, the Consumer Price Index was 7.1 percent higher than November 2021. At that rate of inflation, limiting rent increases to $20 would mean that landlords would be losing money every month. And the same is true with the 3 percent limit.
According to housing activists, landlords should not be allowed to make a profit. Instead, they should be penalized for the “sin” of providing housing. Those activists and their political lackeys haven’t uttered a word about the long-term consequences of this policy. And those consequences are easy to predict.
Housing producers will not build or provide more housing if they are required by law to lose money each month. At a time when Elizabeth, like much of the nation, desperately needs affordable housing for low- and middle-income families, the city is taking steps to discourage the production of more housing.
In addition, if landlords are losing money each month, they will have neither the funds nor the motivation to maintain or upgrade their properties. Doing so would simply add to their losses. Both the quality and the quantity of rental housing will decrease.
Rent control is politically popular at the moment. It provides temporary relief for renters, They are the immediate and easily identified beneficiaries. However, as Henry Hazlitt writes in Economics in One Lesson,
But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself.
Sadly, few are willing to exert the effort to look beyond the immediate consequences and beneficiaries. Tenants and housing activists are unhappy today. When the long-term consequences of their policies becomes to obvious to evade, they will be even more unhappy.