I commented earlier on Cécile Duflot's announcement of a new rent control measure as a political ploy. In that sense it may be successful as an appeal to the left of the Left. As economic policy, however, it is more questionable. France unquestionably suffers from a shortage of housing. It also has a very high unemployment rate. The obvious thing to do would seem to be to put unemployed workers to work building houses, no? So why not try that instead of controlling rents?
Well, one reason is that "the coffers are empty," as Sarkozy used to say. But this is not entirely persuasive, given Hollande's pledge to stimulate new investment via some kind of public investment bank. New housing would be an obvious choice, since the demand is known to exist. To be sure, there would be a lag before the pressure on rents was alleviated, but a lag is better than an imposed rent control that is likely to choke off any new supply of housing.
Another reason is the current credit squeeze, as investors fly to safety. But it would be better to put some of this capital to work building houses than parking it in sovereign debt yielding close to zero. A better use of the government's prerogatives would be to devise incentives to funnel this money where it's most needed.
Perhaps, after the legislative elections, France can debate this issue rather than rely on executive orders to impose rent control. One hopes that the turn to rent control as a sop to the left of the Left is not a sign of the direction that Hollande intends to go in economic policy. This is a bad decision, but it is not yet set in stone. There is still time to revise it after the elections. Matt Yglesias offers a similar analysis here.