NPR (among other outlets) reports that Oregon has become the first state to pass a statewide rent control law. Perhaps those of us wanting to celebrate the triumph of liberal, free-market capitalism should keep the champagne on ice for a little bit.

The law, obviously, is designed to help people deal with rising rent, especially in Portland. It is also designed so as to deviate a bit from the standard analysis of price ceilings I hope you remember from your introductory economics class. NPR and the New York Times report that the control exempts new construction (for fifteen years, anyway) and subsidized rents, but it caps rent increases to the change in consumer price index plus seven percent. It’s a moving cap, but it’s a cap nonetheless that has the potential to distort the market.

The canonical analysis of rent controls still applies. If Oregon lawmakers are holding prices below what the market will bear, they will create shortages. People will want more housing in Oregon than landlords (and potential landlords) are willing to supply.

Price ceilings also change how people compete for scarce housing. If they can’t offer higher prices, they will tend to compete by accepting fewer amenities and by accepting lower quality. Upset that your toilet doesn’t flush? You can hear a landlord now: “go ahead and move. There are three other people who are willing to take this apartment at the controlled rate.” All else equal, we can expect people to have more plumbing problems than they otherwise would have had.

The Times reports that “Apartment buildings with fewer than five units are exempt from the bill. So are housing complexes that are less than 15 years old.” The “five units” exemption is puzzling, and it suggests to me that we will see a lot more four-unit complexes than we otherwise would have seen. Exempting more recent construction is wise, but I can’t help but wonder how prospective landlords will see the rules. Do they only get fifteen years free from rent control? Might they see this as a step toward eventual control even of newer units? The rent control rules introduce important risk into the market for Oregon housing that shouldn’t be discounted.

The problem, fundamentally, is that it is really, really costly to build new housing in places like Portland, San Francisco, and other places where rent has been spiraling upward. Trying to fix the problem by capping price increases is like trying to “fix” a fever by changing the numbers on your thermometer so that it never reads above 98.6 degrees or by taking a swig of cold water before you take your temperature. It fixes an effect and not the underlying cause. If Oregonians want cheaper housing, they need to look for and root out the rules making it so costly to build.

Republished from Independent.org. Originally published in Forbes.