By Eloisa Versaci
On November 4th this year, elections were held in New York City and they resulted in the victory of Zohran Mamdani, a democratic state assemblyman. The newly elected mayor’s campaign counted mostly on one main message: making NYC more affordable. Among many policy proposals he promised to enact, one has become increasingly popular among citizens and therefore electors, such policy is the introduction of rent control. In an article published on December 5th, the New York Post interviewed several people from NYC and managed to capture the strong incentive provided by the “freeze the rent” policy that characterized Mamdani’s campaign. They interview paralegals, real estate appraisers, content creators and many other citizens, who all have in common their concern regarding the surge in rent expenses. Jonathan Miller, a real estate appraiser, claimed that rents have been increasing more each year since 2021, up until 2025, when they experienced the highest increment. “It’s been a real roller coaster,” and salaries are not adjusting to rents increases quickly enough. As a consequence, it may not be too long before the majority of new Yorkers will not be able to afford an apartment. In order to address this issue, Mamdani has proposed to freeze rents and borrow $70 billions to construct 200,000 affordable places where people can actually live.
Despite the immediate appeal of his plan which may seem very well designed to redistribute resources in favor of low-medium income households, one should wonder: is there enough evidence to conclude that Mamdani’s proposal can be trusted? The answer is far from obvious and based on empirical evidence collected by scholars in the past seems to be mostly negative than positive.
As already stated above, the new mayor did not only propose to add a cap to rent but he also advanced the idea of investing in the construction of new buildings to increase the supply of available apartments in the town. Such measure, can potentially be helpful for citizens, however its results are surely not going to be evident in the very short term because it takes time to build new dwellings. Moreover, New York lies on an island, this feature of the city exacerbates the issue of housing, as it adds natural constraints further limiting the land available to build in. It follows that rent control may seem a reasonable policy to ease tenants’ situation, making them tangibly better off in the short term. Yet, this reasoning fails to consider several implications of rent control which may offset its immediate benefit.
According to basic economic theory a market is efficient when it is sorted by a price generated by the intersection between demand and supply which are not distorted by any intervention from governments or other entities so that no agent can be better off. In this case, the price represents the mechanism ensuring that the quantity sold will be bought by consumers with the highest willingness to pay and produced by producers with the lowest marginal cost so that the economy’s total welfare will be at its highest level. When, however, the government does intervene, every textbook predicts that the market is likely to experience a loss of its welfare.
In the case of rent control, the government is preventing the price of apartments to go above a pre-determined level, which is lower than the one where markets would be in equilibrium. It follows that demand will increase but such increase will not be matched by a surge in supply, as now less suppliers will be able to cover their marginal cost.
In other words, economics offers a simple warning: cap prices, expect fallout. Indeed, preventing rent from increasing means capping landlords’ revenues and their incentives to invest in their dwellings. Many owners often have apartments requiring major repairs which are left empty for years because turning them into livable spaces would imply making an investment whose costs cannot be recouped by increasing the rent on vacant apartments. The implication is that, since breaking even would take so much time, landlords lose money by leaving the apartment vacant rather than renting it for a price that would not allow them to cover the minimum expenses. As a matter of fact, according to the New York City Housing Vacancy Survey, 26,310 apartments among those already subject to some sort of rent-stabilization were “vacant but unavailable for rent”.
Moreover, going beyond classical textbook analysis, Glasser and Luttmer in a paper published in 2003 manage to prove that there is an extra Welfare Loss resulting from the introduction of rent control. Classical theory assumes the existence of an underlying mechanisms which still ensures that the transactions happening are the most efficient ones (those between consumers who value the apartment the most and landlords who have the lowest marginal cost). Yet, when there is no price regulating a market, the existence of such mechanism cannot be ensured. Therefore, those getting an apartment will not necessarily be the consumers with the highest willingness to pay as no discrimination can be imposed without a price, so some of the transactions happening will be inefficient so together with the loss resulting from undersupply, there will be another one coming from misallocation of resources.
Furthermore, although such consequences already seem to cause more damage to tenants than benefits, they do not capture all the possible results that the introduction of a cap to rent may lead to. Indeed, the emergence of such difficulties in navigating the house market may constitute a high disincentive for New Yorkers to leave their current house to look for a better one. What does it imply then? More people may choose to stay in homes that no longer fit their needs, because moving would expose them to the costs and uncertainties that rent control is designed to shield them from. Two main consequences stand out: housing resources further misallocated, and labor mobility declines. The latter in particular, follows from the so-called anchoring effect: the discounted rents offered under rent control can effectively anchor tenants in a place, discouraging them from relocating for higher wages in another city or region; therefore, the policy ultimately reduces workers’ willingness to move for better opportunities. These distortions in the way households sort into housing also have immediate consequences in the rental market itself. Indeed, not only will New Yorkers face a diminished pool of potential houses to rent, but they may more frequently incur into discriminatory practices when presenting an offer to landlords. Previously, a landlord inclined to favor one prospective tenant over another had to weigh that bias against the potential loss of higher rent from the disfavored applicant. Under the new regime, that trade-off largely disappears: if every renter pays the same price regardless of willingness to pay, landlords can indulge their preferences at no financial cost. For renters, it amounts to yet another loss in a housing landscape that has already tilted against them.
In the end, Mamdani’s pledge to freeze rents resonates because it targets a fear shared by many New Yorkers: that without intervention, the cost of staying in the city is slipping beyond reach. Yet, economic evidence points to a harsher reality: rent control often creates as many problems as it claims to solve. Fewer available apartments, worsening upkeep, and families trapped in homes that no longer suit them are not abstract theories. They are patterns seen repeatedly in cities that have tried similar policies, from Berlin, to San Francisco to New York itself. As suggested by Diamond, McQuade, and Qian (2019) there may be a better way. If the goal is to shield households from sudden rent hikes, economists argue that offering support directly, through subsidies or tax credits, delivers that protection without crushing the housing market. Such tools give tenants the insurance they need while preserving landlords’ incentives to maintain and invest in the homes people rely on. For New York, the real question may not be whether to act, but whether rent control is the right tool for the job.
The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.