Democratic nominee for mayor of New York City Zohran Mamdani says his agenda is about lower costs and affordability. It’s going to be hard to reduce prices without knowing what prices are.
Prices are not arbitrary numbers made up by rich people or greedy corporations. If they were, then Mamdani’s promises to change them by government fiat might make sense. He wants rent control, a $30 minimum wage, government-priced groceries, free buses, free child care, free baby supplies, and publicly funded challenges to utility pricing decisions.
The true path to affordability is not to mandate affordability. If it were that easy, everyone would do it. Experience has shown how price controls work: They backfire and cause shortages.
Understanding what prices are is the first step to lowering them. They are signals that communicate information about the relative scarcity of a good or service. And they encourage or discourage behavior by the people who buy and sell those goods or services.
Lowering prices by government directive is like taking mercury out of a thermometer to lower the temperature of a room. It won’t lower the temperature, and it breaks the thermometer. As the temperature continues to be uncomfortable, people won’t even know what it is anymore.
That’s what happens in housing markets with strict rent control. Nobody knows how much housing is even available as apartments are taken off the market and hoarded by people with good rates. The price signals are useless because the government prohibited them from being useful.
Removing them can quickly change the picture, as Buenos Aires, Argentina, has learned recently. President Javier Milei abolished what were some of the strictest rent controls in the world. Buenos Aires’s rental supply increased by 170 percent while real rental prices declined, the Wall Street Journal reported last year. Allowing prices to rise to the market rate ended up reducing prices.
In a competitive market, the solution to high prices is high prices. They attract new supply from businesses that want to get in on extraordinary profits. The more businesses get in, the more they undercut each other, bringing the price down to the market rate.
For an example closer to home, look at Austin, Texas. It’s a place where lots of people want to live, which would ordinarily push rental prices upward. But in the absence of rent control and with the help of zoning reforms and deregulation, rental prices have fallen over the past two years in Austin because so many more apartments have been built.
They weren’t built by the government, but rather by those evil greedy private corporations and individuals who are guilty of the heinous crime of providing millions of Americans with places to live. They even make money from doing so.
Making money from providing people with stuff they need is not a sign of a problem. It’s a sign that things are working as they should. Profits are also a signal. As with prices, governments should refrain from distorting profits — and, just as importantly, losses — because doing so hinders people’s ability to figure out what is working and what is not.
One can model prices with graphs on a blackboard, but that is not where they come from. Prices come from human interaction, as people’s unlimited wants collide with limited resources. It is one of the perversities of language that ignoring the fundamentally social institution of prices makes one a “socialist.” Price controls are anti-social because they substitute the cumulative judgment of the participants in a market with the individual judgment of someone with political power.
The only affordability agenda that will actually lower prices is one that recognizes that having prices is good. They help people get along. And when people are upset with how high they are, there’s probably a government policy contributing to the problem that, if repealed, would deliver affordability better than any five-point (or five-year) plan.