The "high cost of housing" is a real problem, but the "rent cap" is the wrong solution.

Donald Trump 's protectionism proves that bad ideas never die: companies face similar problems (e.g., the decline of an industrial sector), and politicians often offer the same old, wrong answers ( e.g., tariffs ). If Milan's mayor, Beppe Sala, hasn't received widespread support from the city for the prosecutor's investigation, it's because, despite the uncertain legal framework, the prosecutors' activism is rooted in a real and pressing issue: the high cost of housing.

The city's development has significantly increased rental prices, penalizing the working classes in the suburbs, pushing the middle class out of the historic center, and making it prohibitively expensive for young people and students to find housing. Since the "Milan model," which erected skyscrapers and transformed the city, is under scrutiny, it almost seems as if building new homes isn't the solution to shortages, but the problem. And so , shortcuts, which are popular as such, are emerging, such as the "rent cap": if prices are too high, simply freeze them.

It's a measure that's always existed, in many parts of the world, even if it doesn't work. In this respect, it's similar to tariffs: economists disagree on almost everything, but not on this. Last year, when President Biden proposed a rent cap, the University of Chicago conducted a survey of leading economists asking them to assess the measure's impact on Americans' living conditions, housing supply, and inequality. The rejection rate was 70-85%, while the approval rate was 0-7%.

Rent caps have many drawbacks. As Edward Glaeser , one of the leading urban economists, said, "It's not particularly fair. It's not a good way to allocate scarce space. It's not a good way to help the oppressed. It freezes a city and prevents it from adapting to change." These are roughly the considerations expressed in a 1946 study by two (not yet) Nobel Prize winners, Milton Friedman and George Stigler .

This has always been the case, and it's true even in more recent cases. The case of Spain , and specifically Catalonia, which is very popular among supporters of the measure, shows, according tovarious studies , that the "cap" has reduced prices by an average of 5%, but with some problems: the decline occurred for the most expensive homes, while prices for the cheaper ones increased. This is because there was a reduction in the supply of more expensive homes, which pushed demand towards the lower end, pushing up their prices. There's also a recent case that goes in the opposite direction. Argentina had enacted a law that froze rents, but in a country with extremely high inflation, landlords had massively withdrawn their homes from the market. One of the first measures of Javier Milei 's new government was the liberalization of rents: in just a few months , supply increased by 200% and real prices dropped by 30%.

In general, rent freezes reduce property values, the supply of rental housing, the construction of new apartments, and the quality of existing ones. And you don't have to be a chainsaw-wielding libertarian to understand this. In 1971, economist Assar Lindbeck , a Swedish Social Democrat, wrote in a book on the economic policy of the New Left that rent controls are "the most effective technique currently known for destroying a city, with the exception of bombing."