The Biden-Harris administration recently proposed capping rent price increases at 5%. The cap would apply to any landlord that owns more than 50 units, which equates to 20 million rental units nationwide, or roughly 50% of the nation’s total units. I suspect that all Americans agree with the goal of keeping essentials like food, housing, and healthcare affordable. Unfortunately, the proposed price controls – rooted in bad economic assumptions and perhaps some technophobia – are likely to do the opposite.

A third of American households rent, roughly half of which devote over 30% of their income to this monthly bill. These renters are frustrated. Rent inflation is 80% higher under Biden-Harris than in the Trump years. And it’s worse in the swing states, where rents have more than doubled over the past four years.

The administration seems to believe its rent cap will counterbalance what it describes as excessive landlord profits, which it contends have come in part from their increasing use of algorithms i.e., computer programs that suggest rental prices based on supply and demand estimates.

The excess profit accusation is simply wrong. In an attempt to corroborate its claim, the White House cited Mid-America Apartment Communities and AvalonBay Communities for their respective 6% and 18% increases in profits during the first quarter of 2024. However, the White House conveniently ignored these companies’ respective 15.5% and 18.3% profit declines in 2023.

The administration’s stoking fears about algorithmic pricing, including through initiating Department of Justice and Federal Trade Commission investigations, is also misplaced.

Today, across most industries, algorithms — powered by machine learning and artificial intelligence — are analyzing large swaths of data to formulate business-guiding insights. Even governments have gotten into the act by using algorithms for numerous purposes, including pricing services. While information generated by these algorithms may sometimes indicate to users that prices can increase, they may also signal that prices should decrease.

Better information on consumers and costs improves price efficiency, and that benefits everyone. Indeed, PricewaterhouseCoopers projects that AI will give North America a nearly 15% economic growth boost by 2030 in part due to the improved price efficiency generated by AI.

The housing market has a supply problem, not a price-gouging or technology problem.

Since 2012, the U.S. has created about four million fewer housing units than new households, which led to shortages that drove up prices. Prices will subside when housing supply responds.

Austin, TX, serves as an instructive example. In the last three months of 2023, builders pulled 3,890 single-family building permits (a 25% increase from the same period in 2022) and 5,866 multifamily permits (a 34% increase). Between May 2023 and 2024, prices fell by 6%.

Rather than craft rent control policies around assumptions of bad behavior and purported negative effects of algorithms, which the government itself uses and hopes to use more, the Biden-Harris administration should address America’s housing problems from the supply-side perspective. The White House’s choice to instead impose new government controls on rents will only decrease housing construction.

Builders are already constructing more high-end units than affordable housing units. That is why, since 2012, the number of units renting for less than $1,000 per month in the U.S. has declined by 6.1 million units while the number of units renting for at least $1,400 grew by 8.4 million units. If the Biden-Harris administration’s rent price cap becomes law, this disparity will grow larger. Builders will have even less incentive to develop new affordable housing options at the new, mandatory discount rate.

The lesson is clear: Market incentives alleviate price and availability problems. More government does not. Hopefully, the Biden-Harris administration comes to the realization sooner rather than later.

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Dr. Mark A Jamison is a nonresident senior fellow at the American Enterprise Institute, where he works on how technology affects the economy. He is also the Director of the Digital Markets Initiative (DMI) at the University of Florida, where he focuses on competition policy and regulation of information technologies, institutional development in regulation, and competition and innovation in the information sectors.

The views expressed in this piece are those of the author and do not necessarily represent those of the Daily Wire.

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