The views expressed in this article represent the opinions of the author and do not necessarily reflect the opinions of the Chattanooga Area Chamber of Commerce, its staff, or its board of directors.
On June 25, New York City’s Rent Guidelines Board voted 7 to 1 to freeze rents on roughly one million rent-stabilized apartments, the first two-year freeze in the board’s history. Mayor Mamdani had campaigned on the promise and appointed six of the board’s nine members, and the outcome surprised no one. One member, Christina Smyth, resigned the morning of the vote, writing that the decision “was decided last year on the campaign trail.” Outside, tenants cheered.
Eight hundred miles to the southwest, Chattanooga renters received better news, and nobody cheered at all. Rents here are flat, and adjusted for inflation they are falling. The median rent in our metro area runs about $1,600 a month, roughly 16 percent below the national median. No board voted for that. No mayor ordered it.
Two cities face the same complaint: housing costs too much. New York chose to control the price. Chattanooga, partly because of Tennessee law and partly through its own recent reforms, chose to expand the supply. Only one of these approaches has ever worked.
What a Freeze Actually Freezes
A rent freeze is a price control, a legal ceiling that holds the price of housing below where supply and demand would set it. Economists have studied price ceilings for centuries, on everything from bread in revolutionary France to gasoline in the 1970s, and the result is always the same. When the price is held down, the quantity demanded rises, the quantity supplied falls, and a gap opens between them. Economists call that gap a shortage, and the word matters. Housing is scarce in every city; scarcity is a fact of life. A shortage is something policy creates. At the capped price, renters want more apartments than anyone is willing to offer.
Notice, too, what the freeze does not freeze. Property taxes keep rising. Insurance premiums, which have climbed sharply nationwide, keep rising. The cost of a new roof, a boiler, or an elevator repair keeps rising. Only the landlord’s revenue stands still. Building owners sued in July to overturn the freeze on exactly these grounds. Whatever the courts decide, the arithmetic stands. As costs rise against fixed revenue, the gap has to close somewhere, and it closes in predictable places. Maintenance gets deferred. Repairs get slower. Marginal buildings get sold, converted, or abandoned, and vacant units sit off the market because renovating does not pay. Deterioration is a rent increase in disguise. The tenant pays it in leaks and broken radiators rather than in dollars. And all of this arrives in a city whose rental vacancy rate recently hit 1.4 percent, the lowest since 1968. The cap will not add a single apartment to that.
Who Gets the Apartment?
Prices do more than reward landlords. They ration. A market rent is impersonal; it does not care who your parents are, what you look like, or whether the landlord approves of your life. Take the price out of the job and something else must do the rationing. Picture a landlord with one vacant unit at the controlled rent and twenty applicants for it. He can no longer choose by willingness to pay, but he will choose by something. The married couple with no children and spotless credit beats the single mother working two jobs, every time. The economist Gary Becker showed that competitive markets punish discrimination, because turning away a paying customer costs the discriminator money. A controlled market shrinks that penalty. Indulging a bias becomes cheaper, and the people the policy claims to protect are the first ones screened out.
Where bias does not ration, connections do. Waiting lists, side payments, and who-you-know take over the work that prices are forbidden to perform. New York has run rent regulation on parts of its housing stock since 1943, and the results are familiar to anyone who has hunted for an apartment there.
I have. From 2009 to 2012, I lived in New York while completing a postdoctoral fellowship in economics at New York University. The financial crisis had loosened the market enough that apartments existed. Getting to them was another matter. Access ran through brokers, and the broker’s fee, a month’s rent in my case, bought nothing except a look at what was available. A decade later, I moved to Chattanooga in the middle of a pandemic and arranged the entire move online. No broker. No fee. No gatekeeper. The difference was not technology. It was a market with enough slack that landlords compete for tenants rather than the other way around.
What the Evidence Shows
Economists disagree about plenty. Not this. Rent control sits beside tariffs, the subject of one of my first columns, on the short list of topics where the profession is nearly unanimous. When the University of Chicago surveyed a panel of leading economists from across the political spectrum, only 2 percent agreed that rent control has had a positive impact on the amount and quality of affordable housing. Paul Krugman, no cheerleader for free-market economics, has written that the analysis of rent control is among the best-understood and least controversial issues in the entire discipline.
The evidence explains the consensus. When San Francisco expanded rent control in 1994, Stanford economists Rebecca Diamond, Tim McQuade, and Franklin Qian found that landlords covered by the new rules cut their supply of rental housing by 15 percent, converting buildings to condominiums and owner occupancy. As a result, citywide rents rose about 5 percent. The law protected sitting tenants and raised the rent for everyone else.
St. Paul, Minnesota provided the most recent domestic lesson. In 2021, its voters approved the strictest rent cap in the country, 3 percent a year with no exemption for new construction. Permit applications for new apartments collapsed almost immediately. Within a year, the city council amended its own ordinance to exempt new buildings. Even the policy’s supporters blinked when the cranes started leaving.
Argentina supplies the mirror image. When Buenos Aires scrapped its rent control law at the end of 2023, the supply of listed rentals more than doubled within months and inflation-adjusted rents fell. The Swedish economist Assar Lindbeck once remarked that, short of bombing, rent control is the most efficient technique known for destroying a city. The evidence keeps proving him right.
The Cheering and the Jeering
A rent freeze earns celebrations in the street. The market process gets the opposite treatment. No one stands outside a construction site cheering on the workers, project managers, and owners. New construction gets jeered as noise, traffic, gentrification, a neighborhood losing its character. Yet the cranes hold rents down; the cap only pretends to. The market process that actually protects tenants works quietly, unit by unit, and never gets a rally.
Readers of this column will recognize the pattern. The benefits are concentrated, and the costs are dispersed. One million stabilized leaseholders are visible, organized, and voting in the next election. The costs fall on people who are much harder to see. The family searching for an apartment next year in an even tighter market. The building that never breaks ground. The tenant whose radiator will not be fixed in 2029 because the money was not there in 2027.
A price cap also has an irresistible political feature. It appears to cost the city nothing. Building housing takes years and shows up in budgets. A cap takes one vote and shows up in headlines. Politicians face elections on a shorter clock than housing markets run on. Therefore the policy recurs even where the evidence is clearest.
The Chattanooga Way
Tennessee closed this door in 1981. State law prohibits local governments from controlling rents on private residential or commercial property, and as a result no Tennessee city can cap rents even if it wants to. Some see that as a tool taken away. In practice, it forces a city’s attention toward the only fix that works, which is supply.
To be clear, Chattanooga earned its housing complaints honestly. After 2020, people moved here faster than we built, and rents jumped. The response is what deserves attention. In 2024, the city passed its first comprehensive zoning update since the 1960s, allowing accessory dwelling units by right wherever single-family homes are allowed and letting hotels convert to apartments without a rezoning fight. The city rewrote its affordable housing tax incentive to tie a developer’s tax break directly to the affordable units delivered. When the state passed its Attainable Housing Incentives law, Chattanooga became the first city in Tennessee to use it. Since 2021, developers have permitted more than 9,400 new units in a city of roughly 82,000 households. The results are what an economist would predict. Rents here have leveled off while New York deepens a shortage it will then have to ration. The National Housing Crisis Task Force now points to Chattanooga as a model for other cities.
I have been careful not to call Chattanooga’s housing affordable or unaffordable. Affordability is a political word, not an economic one; it invites a judgment about what a price ought to be. What economics can say is why prices rise and fall. A price falls when demand falls or supply increases. Nothing else does it. Demand for housing here is rising because people keep moving in. Therefore, if the goal is lower rents, supply must grow faster than the newcomers arrive. Government is often the largest obstacle to that. The National Association of Home Builders estimates that regulation accounts for roughly a quarter of the price of a new single-family home and, in a companion study of apartment construction, about two-fifths of development costs. Rent control belongs on the same ledger. Some critics of the freeze propose a gentler tool, rental vouchers for families who need help. Vouchers at least aim at need. A frozen lease protects whoever happens to hold it, comfortable and struggling alike. But subsidies aimed at a supply that cannot grow mostly bid up rents. Assistance only stretches as far as supply allows. A city that wants lower rents does not need to command them. It needs to make building easy.
The Other Experiment
New Yorkers in stabilized apartments will celebrate two years of frozen rent, and their relief is understandable. Housing is most families’ largest expense, and a capped rent feels like protection. But the lone dissenter on the board called the policy a slow burn, and that is the right image. The damage will arrive over decades, in buildings quietly starved of maintenance, in apartments that never get built, and in landlords choosing tenants by bias and connection instead of price, long after the cheering has stopped.
Chattanooga is running the other experiment, and the early returns are in. Our rents did not stop rising because anyone voted for it. They stopped because we built. The way to hold rents down is not to freeze the price. It is to unfreeze the supply.
Claudia Williamson Kramer is the Scott L. Probasco, Jr., Distinguished Chair of Free Enterprise, Professor of Economics, and Executive Director of the Center for Economic Education at UTC.
To hear more from Dr. Kramer, listen to her latest conversation on WUTC here: https://shorturl.at/CyWM0
