Rent Control Won’t Lower Prices: Here are 3 Things People Don’t Know
My friend Torontians, this is not a solution
Novak Djokovic just withdrew from the French Open.
Known as Nole, he’s one of the greatest tennis players ever, holding a record 24 Grand Slam titles, more than Nadal and Federer.
Djokovic’s versatility on clay, hard, and grass courts earned him the moniker “rounded” player. This week, he aimed for his 25th title, a feat that would solidify his place in tennis history at nearly 40 years old.
His run was cut short by a knee injury, preventing him from playing Casper Ruud.
In life and business, when pursuing goals, we face frictions — opposing forces that hinder our progress. These frictions challenge us all on the path to achieving our aspirations.
One third countries in the developed world are struggling with rising rent prices. Despite having numerous resources, governments often fail to address this pressing issue effectively.
Being a downtown Toronto resident, I often hear people complain about rising housing costs.
The common refrain is that everything, especially the housing market, seems to be getting more expensive.
Yes it does.
When I ask about potential solutions, many argue that government intervention is necessary to control rents.
However, some things are beyond our control.
Why do governments fail to control rent prices?
Novak Djokovic on the tennis court: he can master almost every aspect of his game, but he can’t control injuries.
Djokovic and his team are acutely aware of what they can and cannot influence.
This understanding allows them to make strategic decisions, such as withdrawing from the French Open to recuperate and prepare for Wimbledon, where Djokovic has clinched seven titles.
So, why is it that governments find it challenging to regulate something seemingly straightforward like rent prices? And why do so many people believe this is the ultimate solution?
Two reasons:
Most people don’t understand how the world works, they don’t understand economics.
They see only the obvious solution, they see only the surface, because they don`t understand how the economy works.
Here’s why rent control doesn’t work
Imagine a gardener trying to make flowers grow faster — not by tending to the soil or providing sunlight, but by pulling at the petals.
It’s clear that this approach won’t work. Likewise, governments often fail to stabilize rental housing prices when they implement rent control policies.
Take Stockholm, for example — a stark lesson in the unintended consequences of rent control. On paper, Sweden boasts one of the strictest rent control systems globally, thanks to a policy known as hyresreglering.
This system allows a strong tenants’ union to negotiate with landlords, keeping rents up to 50% below market rates. It sounds like a win, right? But reality tells a different story.
In Stockholm, the wait for a rent-controlled apartment can stretch up to 20 years in the city center and averages around 10 years citywide. Many Swedes who finally reach the front of the line are in their 50s and likely already own homes.
Essentially, this “solution” leaves many people out in the cold, exactly when they need affordable housing the most.
Liberal economists often refer to rent controls as a “zombie policy” — a concept that seems to come back to life despite its proven drawbacks.
Here’s why:
- Degrading Property Quality: Rent controls discourage landlords from maintaining or improving their properties. As a result, the quality and quantity of available rental units decline.
- Supply and Demand Imbalance: By setting rents artificially low, rent controls distort the market. Prices no longer reflect the true value of the property, creating an imbalance between supply and demand.
- Growing Competition: This disparity may result in a scarcity of rental properties, as investors hesitate to fund new construction. The reduced availability of units intensifies competition and drives prices higher.
What’s with people trying to control things they can’t?
The appeal of rent control often stems from what’s immediately visible.
People see a straightforward fix and assume it’s the solution. It’s a short-term answer to a complex issue.
There’s a general dislike for landlords, and it’s easy to blame the government for housing problems — essentially, for many of their problems.
This phenomenon is linked to what behavioral psychologists call “the illusion of control,” a cognitive bias where individuals overestimate their ability to control events, like the housing market.
Humans have an inherent desire to feel in control of their surroundings and outcomes. This need can lead to an overestimation of one’s influence over events, even when those events are primarily driven by chance or external factors.
It’s much like gambling; gamblers frequently believe they can sway the result of a game of chance, like throwing dice in a certain way to achieve a desired outcome, despite the randomness of the process.
This illusion can cause people to advocate for measures like rent control because it offers a semblance of control, even though the underlying issues remain unaddressed.
Real solutions require acknowledging the complexity and looking beyond quick fixes to create sustainable change in the housing market.
What decision are you going to make?
To make better decisions, you need solid data.
Take Djokovic’s team, for example — they meticulously collect data on his performance, understanding what’s achievable and what’s far-fetched. This data empowers them to make informed decisions that lead to winning outcomes.
You can apply the same logic to tackle the issue of high rent.
Blaming the government or waiting for change isn’t a solution. The solution lies in making smart trade-offs.
As I mentioned in my last article, you have two choices: live in a small downtown apartment and walk to work, or endure a two-hour commute each day to enjoy a larger apartment outside the city. This is the reality. No illusions here. You must choose; something has to give.
Armed with this data, you too can make better decisions about your housing.
From my research and analysis, the situation isn’t likely to improve soon — in fact, it might get worse. So, now is the time to make informed, decisive choices.
Nikita
