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Alabama has been lucky, at least when it comes to inflation’s impact on rental prices. While prices have increased over the last four years for everything from food to gasoline, rental prices in Alabama remain cheaper than approximately 80 percent of the country. But that has not prevented politicians in Washington, DC, from trying to foist bad economic policy on the Yellowhammer State, the worst of which would be rent control.
In July, President Biden announced his plan to impose rent control nationwide, using the U.S. tax code to limit or eliminate deductions for property owners who increase rental prices by more than 5 percent yearly. Vice President Kamala Harris incorporated this proposal into her economic plan during the presidential campaign, adding, for good measure, her intention to use all of the federal government’s power to punish “rent-gouging landlords.”
And these were not just idle threats. In September of this year, the Department of Justice (DOJ) filed a lawsuit against RealPage, a Texas-based software company that some property owners utilize to determine a fair market price for their rental properties, accusing it of antitrust violations and “collusion” to keep the cost of rent high. This heavy-handed action by the DOJ is a classic example of blaming the umpire when your pitcher can’t find the strike zone.
Left unsaid by both, of course, was any proposal to reduce the cost of inflation, lower property taxes, decrease the cost of goods and services that owners are forced to pay to maintain their properties, and eliminate state and local restrictions on development – all of which contribute to the higher cost of rent. Instead, they assign blame, personalize it, create an adversary, and then devise a solution to a problem that they themselves created.
Typical business as usual for Washington politicians. Fortunately, the Americans rejected these and other dangerous policy proposals and voted to return to prosperity.
The reality, of course, is different. While we in Alabama have had the good fortune to have missed unacceptable spikes in the cost of housing, other areas of the country have not been so lucky. Nationwide, since 2020, rental prices have increased by almost 20 percent, with some states seeing increases double that figure. But this increase has little to do with “rent-gouging landlords” and more to do with bad economic policies.
Since 2020, interest rates on home mortgages have more than doubled. The cost of a mortgage on a $200,000 home in 2020 was $948, not including taxes and insurance. Today, with interest rates hovering near 7 percent, that same property would cost $1,331, nearly a 50 percent increase. This fact alone has turned tens of thousands of potential buyers into renters, as many first-time homebuyers have neither sufficient income to qualify for this increased amount nor the desire to pay what can only be described as a “hidden inflation tax.” This, in turn, puts upward pressure on rental prices because more people are seeking rental units while the supply remains unchanged.
There are two solutions to this problem, and neither involves jamming rent control – a failed policy if there ever was one – down the throats of the American people nor “blaming the software” for the spike in the cost of rent nationwide.
The first is for the federal government to get its fiscal house in order. Reducing federal expenditures is a surefire way to decrease interest rates, easing pressures on the rental market. The second is to incentivize the construction of new housing units through lower taxes and less restrictive zoning and building regulations, which are primarily a state and local issue but can benefit from high-level support from our federal representatives inside the Beltway.
One idea that deserves serious consideration is the ROAD to Housing Act, sponsored by our very own Senator Katie Britt, R-Ala. This proposal would incentivize housing construction, promote responsible innovation to meet housing needs in rural and urban communities, increase the availability of financial education and literacy, and give extra attention to those state and local housing authorities that reduce homelessness. Senator Britt had it right when she said, “The ROAD to Housing Act is a comprehensive solution that would take a targeted approach to remove unnecessary red tape to lower the cost of housing, while expanding access to important resources…to empower more Americans and Alabamians with the opportunity to own a home.”
Solving the nationwide housing crisis won’t be easy. Still, the path forward is simple – reduce federal spending, support free market innovations, incentivize construction, and streamline and eliminate state and local hurdles to development. These four tried and true principles will go a lot farther in addressing this vexing problem than any amount of rent control and frivolous lawsuits can ever hope to achieve.
