A tale of two cities and rent control

WSJ: What the Twin Cities Tell Us About Fixing the Housing Crisis

The Natural Experiment:

• In 2022, St. Paul enacted one of the strictest rent-control regimes in the country. The ordinance capped annual rent increases at 3% for most apartments, even empty ones. It didn’t adjust for inflation. ... 
• Across the Mississippi River, Minneapolis steered clear of rent control. Instead, city officials strictly focused on creating new housing.

Results:

• [In St Paul]:  Real-estate investment activity nearly froze. Developers halted new projects as lenders pulled back....Property values declined as investment cooled. 
• In Minneapolis:  ...developers kept building. Housing permits surged nearly fourfold in early 2022 from the year before. Downtown hubs blossomed as new apartments hit the market and attracted young professionals.

BOTTOM LINE:  In the short run, a rent ceiling create excess demand for, or shortage of available apartments.  In the long-run, it reduces supply, thereby exacerbating the shortage.