The price of a good reflects its relative scarcity and the relative preferences for that good. Why is water relatively cheaper than diamonds? Because its less scarce. Why are Hondas more expensive than Hyundais? Because people prefer the former.
Price controls control prices but that can’t hope to control those underlying factors. If you fix the price of diamonds low, it doesn’t make them less scarce. Making Hyundais more expensive (by reducing the price of Hondas, say) won’t make people like them.
What does the history of thousands of years of price controls tell us?
The first thing undermined or destroyed is self-rationing. When you pay the full price of going to a doctor, you go there when you have a broken leg but not when you have the sniffles or a minor skin rash. When the government makes health care “affordable,” you go there for sniffles and a minor skin rash.
The underlying reality has not changed, however. The doctor’s time is still limited, and the time that you take up with your sniffles or skin rash is time that somebody else with a broken leg — or perhaps cancer — has to wait to get an appointment.
Government-run health care systems in countries around the world have longer waits — sometimes months — to get medical attention. In other words, the rationing goes on, but more haphazardly, because prices do not force people to ration themselves according to the seriousness of their problem.
It is the same story when housing prices are controlled by government. Rent control has allowed some people to take up more housing space than they would if they had to pay the full price that reflects other people’s demand for housing.
The net result, whether in New York or San Francisco or elsewhere, is a lot of apartments with just one person living in each, and lots of families who cannot find a vacant place to move into. Housing shortages have resulted from rent control in cities around the world.
Housing shortages mean that some people are forced to live far from their jobs and commute, and some become homeless on the street. Homelessness tends to be greater in cities with rent control — New York and San Francisco again being classic examples.
Economists have long been saying that there is no free lunch but politicians get elected by promising free lunches. Controlling prices creates the illusion of free lunches.