What is Rent Control?

Posted By: Christopher Tipton Advocate, Educate, Inform, Legislate,

By Chris Tipton

Rent control is a policy that has been implemented in various cities around the country with the aim of regulating and stabilizing housing costs for renters. In essence, rent control places limits on how much rental housing providers can increase the rent for their properties, typically through government regulations. While the intention behind rent control is to protect renters from excessive rent hikes and ensure affordable housing, it often leads to a range of unintended consequences, impacting both renters and property owners. In this discussion, we will delve into the concept of rent control, its potential benefits, and the significant unintended consequences it can have on rental housing. We will also draw from the insights of economists to provide a balanced perspective on this contentious policy.

Rent control can take various forms, but the common feature is the imposition of restrictions on how much a rental housing provider can increase rent. Typically, these restrictions are tied to the inflation rate or set as a fixed percentage, with the goal of preventing owners from taking advantage of high demand or low supply to excessively raise rents. The primary motivation behind rent control is to provide affordable housing options, especially in cities where the cost of living is high and housing is scarce.

Proponents of rent control argue that it can have several positive outcomes. The most common is that it makes housing more affordable for low-income and middle-class individuals and families, preventing them from being priced out of their neighborhoods due to rising rent prices. They also argue that it can provide stability for renters, allowing them to plan their finances more effectively without the fear of sudden and drastic rent increases. Additionally, rent control advocates believe that it can contribute to social equity, ensuring that housing is not only available to the highest bidders but remains accessible to a broader cross-section of the population.

However, while these intentions are noble, rent control often brings about a series of unintended consequences, which have been extensively studied and analyzed by economists. One of the most significant drawbacks of rent control is its impact on the housing market itself. By limiting the potential return on investment for renal housing providers, it can discourage them from maintaining and upgrading their properties. This can result in deteriorating housing quality, as owners have less incentive to invest in repairs or renovations.

Economists like Assar Lindbeck and Dennis Snower, in their influential study on the topic, pointed out that rent control often leads to a misallocation of housing resources. When rent is artificially suppressed, the demand for rental units exceeds supply, creating shortages. This can result in waiting lists for rental properties and priority given to affluent applicants, leading to gentrification. The shortage of available housing can be particularly detrimental in high-demand urban areas where housing is already scarce.

Rent control can also lead to reduced mobility for renters. In cities with strict rent control policies, renters may be less inclined to move, even if they have better job opportunities in other areas. This reduced mobility can have a negative impact on economic growth as individuals are less likely to pursue higher-paying jobs if they fear losing their affordable housing.

Economists have also highlighted that rent control often distorts the housing market by incentivizing property owners to convert their rental units into alternative uses, such as condos, offices, or short-term rentals like Airbnb. This conversion can further reduce the supply of rental housing, exacerbating the problem of housing scarcity.

Moreover, rent control can discourage the construction of new rental units. Developers and investors are reluctant to build new rental properties in areas with rent control regulations, as they will not achieve a sufficient return on investment due to the restrictions on rent increases. This can lead to a reduction in housing supply, exacerbating the shortage issue.

Economists like Edward Glaeser, a professor at Harvard University, have studied the effects of rent control in different cities and found that it tends to reduce the overall housing stock. In San Francisco, for instance, Glaeser's research suggests that the city lost around 15% of its rental units to conversion or demolition due to rent control policies between 1980 and 1994.

Another unintended consequence of rent control is its potential to create a two-tier rental market. In many rent-controlled cities, older renters who have been in their units for a long time benefit from significantly lower rents, while newcomers or younger renters face higher, market-driven prices. This can create inter-generational inequities and discourage the turnover of rental units, limiting the availability of housing for new renters.

Furthermore, rent control can have a negative impact on property maintenance and investment in new construction. Rental housing providers who are unable to charge market rents may lack the financial resources to maintain and improve their properties, leading to deteriorating living conditions for renters.

An example of this can be seen in New York City, where rent control has been in place for decades. A study by economists Peter Salins and Gerard Mildner found that the physical quality of the city's rent-controlled housing is generally lower compared to unregulated housing. This is because property owners have less incentive to invest in maintenance when they are unable to charge higher rents.

It's worth noting that the unintended consequences of rent control can vary depending on the specific design of the policy and the local housing market conditions. Some cities have implemented more flexible forms of rent control, such as vacancy decontrol, which allows rental housing providers to increase rents to market rates when a renter leaves. This can mitigate some of the negative effects of strict rent control but does not eliminate them entirely.

Rent control is a well-intentioned policy designed to provide affordable housing and protect renters from excessive rent increases. However, as economists have extensively documented, it often leads to a range of issues that can ultimately harm both renters and property owners. These consequences include housing shortages, reduced mobility, misallocation of resources, discouragement of new construction, deteriorating housing quality, and the creation of a two-tier rental market. The East Bay Rental Housing Association is constantly working with East Bay policymakers to educate them on the complexities of rental housing and how these unintended consequences arise when implementing similar policies.  It is EBRHA's continuing goal to find balanced solutions and explore alternative approaches to addressing housing affordability without distorting the housing market.

Chris Tipton is the Marketing & Communication Mgr at the East Bay Rental Housing Association. For more information about EBRHA, please visit www.ebrha.com