By Alexandre Olbrecht, For The Trentonian Regardless of political viewpoint, we can all agree that everyone in our country deserves an affordable place to live of sufficient quality. For the most part, Americans trust free markets to equalize the supply and demand for housing such that the outcome becomes affordable housing for all. However, in the State of New Jersey, which the U.S. News and World Report ranks 49th in home affordability, the market might need the gentle nudge of government intervention to get back on track. The question becomes how the government can do so in an efficient manner without interfering with the price discovery mechanisms in the marketplace. The historical approach by policy makers is to employ rent controls, which set a maximum price that rental properties can be leased for. Vice President Harris recently proposed this policy on the federal level and states like New Jersey have also started considering this policy. To make matters worse, there is also a proposal in Trenton to ban the use of pricing algorithms that landlords use to set market clearing pricing. While rent control sounds good in practice, it has strong distortionary effects in the market for housing. By forcing the effective rental rate too low, landlords react in several ways. First, landlords who are stuck with rent-controlled apartments may not make investments or appropriate repairs to their properties, thereby slowly degrading the quality of housing over time. One can essentially think of this as the mantra of “you get what you pay for.” Alternatively, some landlords choose not to rent their properties at the lower rates (or convert their properties out of housing and into other uses), thereby reducing the supply of housing. This creates upward price pressure in the market because there are now fewer housing options. Since there are now fewer homes for rent, landlords renting market priced homes can now charge a higher premium for their properties, thereby increasing the cost of renting and making the affordability problem worse. Additionally, this type of rent control policy can have implications in the labor market because people may not be willing to move for a better job as they would risk losing their cheap rental home. This effect is particularly strong for people whose incomes have grown and would no longer qualify for a rent-controlled apartment if they moved out. In fact, recent empirical evidence in a study in the American Economic Review showed that rent controls decrease housing supply by 15 percent and decrease labor mobility by 20 percent. The biggest problem with this type of government policy is that it makes it less likely for developers to build new properties because rent controls drastically reduce the return on investment for new constructions. Put another way, for developers to want to increase the housing supply, they must feel that the costs of building new homes and apartment buildings would be offset by the future revenues of renting out the properties. However, if rent controls force those revenues artificially lower, then it may not make financial sense for developers to build new housing units. The State of New Jersey needs a policy that will create an incentive for developers to build new developments in a way that they also are incentivized to include lower income tenants as well. New York State, through its 80-20 program, is a very good example on how to provide housing to lower income residents while maintaining the quality and increasing the supply of available housing units. This program provides lower interest financing and local municipal tax abatements to prospective landlords who build new developments as long as they promise to keep 20 percent of the units available for lower income residents.  Many municipalities have sweetened the pot of the 80-20 program by allowing developers to build the required 20 percent of low-income housing over the limit that their local zoning laws allowed, preventing any crowding out effects. The lower income units in this program are also governed by annual reviews of the finances of each tenant. Based upon the annual median income of the county or locality with adjustments for family size and other factors, tenants must continue to requalify to stay in these apartments, ensuring that those low-income units are inhabited by people who need them. As more homes come available for rent, pricing algorithms will signal to landlords to adjust their pricing accordingly at a much faster rate. When prices get too high, these algorithms will create an incentive for developers to undertake new construction projects. The State of New Jersey needs to address its affordability problem and allow price discovery mechanisms inherent in the marketplace to send the proper signals in assisting the private sector in determining how much new housing to create. New York’s 80-20 program is an excellent example of a successful policy that the Garden State should seek to mirror to help with the housing affordability problem in our great state. Alexandre Olbrecht, PhD is a professor of economics at Ramapo College of New Jersey and Executive Director of the Eastern Economic Association. The views in the article represent his own and not those of the College and the Eastern Economic Association.