Rent regulation
Rent regulation is a system of laws for the rental market of dwellings, with controversial effects on affordability of housing and tenancies. Generally, a system of rent regulation involves:
- Price controls, limits on the rent that a landlord may charge, typically called rent control or rent stabilization
- Eviction controls: codified standards by which a landlord may terminate a tenancy
- Obligations on the landlord or tenant regarding adequate maintenance of the property
- A system of oversight and enforcement by an independent regulator and ombudsman
Rent regulation is implemented in many diverse forms. It is one of several classes of policies intended to improve housing affordability. However, there is consensus among economists that rent control reduces the quality and quantity of housing units.
Forms
Rent control can apply to several types of price control:- "strict price ceilings", also known as rent freeze systems, or absolute or first generation rent controls, in which no increases in rent are allowed at all
- "vacancy control", also known as strict or strong rent control, in which the rental price can rise, but continues to be regulated in between tenancies and
- "vacancy decontrol", also known as tenancy or second-generation rent control, which limits price increases during a tenancy, but allows rents to rise to market rate between tenancies.
Effects
On housing supply
There is consensus among economists that rent control reduces the quality and quantity of rental housing units. However, some economists challenge this consensus and argue that controls do not have a statistically significant impact on quantity and quality of housing units.One historical example of widespread rent control occurred in the US during World War II. Roughly 80% of rental housing was put under rent control in 1941. The observed result was that landlords opted to sell their units at uncontrolled prices rather than renting at controlled prices, leading to an increase in home ownership and a decrease in rental units.
A number of neo-classical and Keynesian economists say that some forms of rent control regulations create shortages and exacerbate scarcity in the housing market by discouraging private investment in the rental market. In addition, there would be a dead weight loss and inefficiency since some of the loss due to price ceilings is never gained again. This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan, or elsewhere in the United States.
In 1971, the Swedish economist Assar Lindbeck, a housing expert, said that "rent control appears to be the most efficient technique presently known to destroy a city – except for bombing". In 1989, Nguyễn Cơ Thạch, then Foreign Minister of Vietnam, observed, "The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents. We realized it was stupid and that we must change policy."
In a 1992 stratified, random survey of 464 US economists, economics graduate students, and members of the American Economic Association, 93% "generally agreed" or "agreed with provisos" that "A ceiling on rents reduces the quantity and quality of housing available."
A 2009 review of the economic literature by Blair Jenkins through EconLit covering theoretical and empirical research on multiple aspects of the issue, including housing availability, maintenance and housing quality, rental rates, political and administrative costs, and redistribution, for both first generation and second generation rent control systems, found that "the economics profession has reached a rare consensus: Rent control creates many more problems than it solves". .
In a 2012 poll of 41 economists by the Initiative on Global Markets Economic Experts Panel, which queried opinions on the statement "Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them," 13 members said they strongly disagreed, 20 disagreed, 1 agreed, and 7 either did not answer, were undecided, or had no opinion. .
In David Sims's 2007 study of the deregulation of the housing market in Cambridge, Massachusetts, he found that "rent control had little effect on the construction of new housing but did encourage owners to shift units away from rental status and reduced rents substantially."
Paul Krugman writes that rent control inhibits construction of new housing, creates bitter tenant–landlord relations, and in markets with not all apartments under rent control, causes an increase in rents for uncontrolled units.
Thomas Sowell wrote in 2008 that rent control reduces the supply of housing, and has stated that rent control increases urban blight.
In 1994, San Francisco voters passed a ballot initiative which expanded the city's existing rent control laws to include small multi-unit apartments with four or fewer units, built prior to 1980. A 2019 study found that San Francisco's rent control laws resulted in landlords removing 30% of the rent controlled units from the rental market which led to a 15% citywide decrease in total rental units, and a 7% increase in citywide rents.
On low income renters
In a 2013 analysis of the body of economic research on rent control by Peter Tatian at the Urban Institute, he stated that "The conclusion seems to be that rent stabilization doesn't do a good job of protecting its intended beneficiaries—poor or vulnerable renters—because the targeting of the benefits is very haphazard.", and concluded that: "Given the current research, there seems to be little one can say in favor of rent control."A 2016 study by NYU's Furman Center takes a more positive view on rent regulation, especially as a tool to slow gentrification: "Although rent regulation is ill-targeted if viewed as a purely redistributional program," write the three authors of the study, "as a program to promote longer-term lower rent tenancies for the tenants who benefit from it, even in hot rental markets, it seems to succeed."
A 2021 Columbia Business School study found that there are benefits to rent regulation, arguing that "the housing stability they provide disproportionately benefits low-income households. These insurance benefits trade off against the aggregate and spatial distortions in housing and labor markets that accompany such policies."
Alternatives
To address the challenges lower-income individuals and families face in securing affordable housing, research points to more effective interventions. According to a research review by Lisa Sturtevant, key strategies include increasing federal housing vouchers and expanding the Low-Income Housing Tax Credit program, both of which are seen as more promising for creating affordable housing options.The Reason Foundation identifies, next to housing vouchers, less restrictive zoning and building regulations as a key alternative to improve housing affordability. They argue that these regulations inflate development costs, thus limiting the availability of affordable rental units. Reducing these regulatory burdens and simplifying approval procedures will encourage new construction and expand the housing supply.