The Pros and Cons of Rent Control

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Rent control policies limit the amount landlords can raise rent each year. With wage increases flat and rents steadily rising, the advantages of rent control are that it makes it possible for lower-income workers to find somewhere decent to live. Rent control opponents say the policies are harmful.

Rent control policies limit how much a landlord can raise the rent on tenants each year. An advantage of rent control is that it makes it possible for working-class and middle-class tenants to live in high-priced cities like San Francisco. Most economists studying the pros and cons of rent control say the negatives outweigh the positives.

Where You Find Rent Control

Tenants and landlords in most parts of the country don't have to deal with rent control. Currently, Washington, D.C., New York City, other cities in New York and multiple cities in Maryland and California have rent control policies in place. More than half the states prohibit cities from imposing rent control.

Like many laws and regulations, that isn't fixed in stone. Legislatures or voter initiatives can lift bans, allowing cities to introduce rent control. Oregon overturned a ban on rent control in 2016, for instance. Currently, organizers in Washington state are working to do the same.

How Rent Control Works

The goal of any rent control program is to provide a stock of affordable rental properties in communities where high demand pushes rents out of reach for many residents. Cities use several methods to achieve the desired effects of rent control:

  • Limit the frequency of rent increases

  • Regulate the timing of rent increases

  • Regulate the amount rent can go up

  • Limit the grounds for eviction

  • Regulate the landlord's right to reduce services to rent-controlled tenants

  • Require arbitration or mediation to settle landlord/tenant rent-control

    disputes

A given city may choose some or all of those policies or have added ones. Rent control policies don't cover all properties at all times, as they include a number of exceptions:

  • When a tenant leaves, the landlord is free to increase the rent to market value.

  • If there's a major renovation to the building, the landlord may be able to raise the rent.

  • California law exempts single-family rental homes and apartments built after 1995 from rent control. New York City's rent-controlled properties are all pre-1947 apartment buildings.

Two Rent Control Examples

In San Francisco, only buildings that received a certificate of occupancy before June 13, 1979 are subject to rent control, with exceptions such as single-family homes and government-subsidized housing. Landlords cannot increase rents for the first year after a tenant moves in and must wait 12 months between increases. Rent increases are capped at 60% of the growth in the region's consumer price index.

  • The annual allowable increase amount effective March 1, 2019 through February 29, 2020 was 2.6%.

  • The annual allowable increase amount effective March 1, 2018 through February 28, 2019 was 1.6%.

In San Francisco, when a tenant moves out, rent can go up to market value. New York City's rules are more complicated:

  • If a tenant moves out, and the building has less than six units, the landlord no longer has to rent control the apartment.

  • If the building has six or more units, the apartment becomes rent stabilized. The city can keep increases on rent-stabilized apartments lower than with rent control.

  • If the rent is high enough on the old apartment, the landlord can take it out of the rent-control program when the current tenant leaves regardless of the number of units.

The Struggle for Housing

In the past few decades, rents have gone up much quicker than wages. Even someone working full time may not be able to afford a place to live if he's working for minimum wage. Several social factors contribute to make that worse:

  • Baby boomers are living independently longer than previous generations did, so their homes don't go on the market.

  • Regulations in some areas make it hard to build new housing.

  • Changes in federal policy have cut funding from programs that help renters.

  • The cost of construction has gone up, making it harder to build affordable rental property.

  • In urban centers with a high demand for housing, builders often focus on luxury projects that generate a higher return. The few affordable rentals go up in price because the demand is so high.

Rent control advocates say the biggest of the advantages of rent control is that it helps financially stressed people find somewhere they can afford to live, counterbalancing the forces that push rents steadily upward.

Advantages of Rent Control

Rent control supporters say the effects of rent control benefit more than just the tenants. If rent rises rapidly, such as when communities draw more upscale residents, that can disrupt neighborhoods and families by forcing out long-time residents. Rent control helps preserve neighborhoods.

By making it easier for renters to live close to work, rent control can also cut down on commuting. That reduces the amount of traffic on the roads and the amount of pollution cars pump into the air. On top of these advantages of rent control, there are others:

  • Rent control allows cities to maintain a diverse population rather than being occupied solely by the rich.

  • Tenants have stability. They can budget long term without worrying about a massive rent increase sucking up their savings.

  • If rent control reduces commuting, that's another cost saving for tenants.

  • If people lose their job, they have a better chance of covering the rent until they can find a new job.

Negative Effects of Rent Control

Despite rent control's benefits, most economists studying the pros and cons of rent control say it's a bad idea. One rent control study in California found that rent control makes things worse because it gives landlords an incentive to turn buildings into co-ops or condos and thereby deregulate them. There are other negative effects:

  • To compensate for the lower rent on rent-controlled apartments, landlords may charge higher prices on unregulated units.

  • If rent control prevents landlords from recouping their costs, they may not be able to afford maintenance on the apartment complex.

  • Rent control discourages landlords and developers from investing in rental property.

  • Because renters may cling to their apartments for longer than usual, it can reduce the city's available rental stock, raising market prices on other units.

  • There's no guarantee that rent-controlled apartments go to people in need. A 2002 study in San Francisco found that a quarter of the renters living in rent-controlled units made $100,000 a year or more.

  • Even tenants who start out with little may earn more over time until they're no longer the kind of low-income tenant that rent control is meant to benefit.

Alternatives to Rent Control

Some economists object to rent control on the grounds that the market should set the rents regardless of who gets hurt. Other economists see it as a blunt instrument, flattening rents with a hammer when more precise, creative solutions might work better.

One highly recommended solution is to ease rules to allow for more development. With more rental housing available, there will be more competition for tenants, which will push rents down. The counterarguments are that this is not going to provide immediate relief because in areas drawing a lot of new residents, extra housing may not reduce rents or produce any affordable housing.

Another alternative is to let rents rise freely but help lower-income renters with tax credits or subsidies. This ensures that the benefits go to renters who truly need help.

References

About the Author

Fraser Sherman has written about bankruptcy law, real estate law, tax law, business law and several other categories. He lives in Durham NC with his awesome wife and two wonderful dogs. His website is frasersherman.com