Updated July 4, 2023
What is Rent Control?
The term “rent control” refers to the legislative practice that allows governments or similar authorities to decide the maximum limits and annual growth of rental rates of cities and states.
These rules restrict landlords from raising lease or rent rates beyond a specific limitation, thus promoting affordable rental housing. Besides, these laws were introduced to safeguard tenants’ rights and prevent sudden evictions.
- Rent control laws put a limit on the amount that landlords can charge their tenants. It intends to protect the tenants from surging rental rates and unexpected evictions.
- These laws vary depending on location and are decided by a board of members, usually called “rent boards.”
- The laws make housing affordable for low- to medium-income people in expensive cities.
- Family-sized apartments can be misallocated to empty-nest couples, while small studios can cram huge families. Besides, it can lead to the decay of rental housing inventory.
How Does Rent Control Work?
Today, rent control laws have taken a much different form than the first introduced ones. A board of members, commonly called “rent boards,” is responsible for varying these laws depending on cities or states. Their role involves drafting detailed guidelines that outline specific laws for tenants and landlords.
These laws dictate terms to the landlords – how many times they can increase the rent and by what percentage they can increase. Besides controlling rent rates, the rent boards also prevent landlords from evicting tenants unexpectedly. Only four states regulate rent rates and put forth rent regulations in the US – New Jersey, New York, California, and Maryland.
The four US states, alongside Washington DC, have well-defined rent regulations to safeguard tenants’ rights. Some European countries and Canada also have rent regulations in practice, but with some variation that suits the local set-up.
Examples of Rent Control
Example #1 – Rent regulations in Los Angeles (California)
Los Angeles is a reasonably overcrowded city with limited units available to rent. It is no wonder that the city has many people living as tenants, given that it has one of the lowest homeownership rates in the US. California implemented a statewide rent control law in 2019, and the rules are as follows:
- The maximum limit of overall rent increase is 8%
- The rent rate can be increased once a year (12 months)
- The increase in rent for additional roommates is limited to 10%
- 30 days’ notice should be given to the tenant when increasing rent
Besides, if the landlord pays utility bills for the tenant, they can raise the rent by 1% every year.
Example #2 – Rent regulations in San Francisco (California)
San Francisco has one of the highest housing prices in the US. In the middle of massive demand for rental units, the only way to control the housing prices is to employ rent control regulations as shown below:
- The maximum limit of overall rent increase is 7% per year
- The rent rate can be increased every 12 months
- There is no change in rent for additional roommates
Effects of Rent Control
Let us now discuss some of the most significant effects of rent control.
A limit on the rent rates usually forces landlords to sell their properties to the owner-occupants to continue earning the market rate for their properties.
Once tenants settle down in rent-controlled apartments, they may refuse to move out in the future and give up the privilege, despite changes in their needs. This misallocation can result in huge chaos – empty-nest couples staying in family-sized apartments while young families may be crammed into small studios.
It can lead to the decay of the rental housing inventory as many landlords may refuse to invest in the maintenance of the existing apartments as they won’t be able to recoup the investments by increasing rents.
Who Benefits from Rent Control?
The tenants are the intended primary beneficiaries of the rent control regulations. Some of the significant benefits the tenants enjoy include the prevention of frequent rent increases, potentially making them decide against displacement. In short, it make housing affordable for low- and moderate-income people.
Benefits of Rent Control
Some of the significant benefits are as follows:
- The lower prices due to rent control make housing affordable for low- to moderate-income people. It is essential in expensive cities where wages often fail to keep pace with rising rents.
- It benefits many aged people who may struggle to afford market-rate housing in the same area.
Disadvantages of Rent Control
Some of the major disadvantages are as follows:
- Since the landlords can’t raise the rent to meet the maintenance expenses, they tend to spend less on their properties, resulting in dilapidated conditions.
- Many landlords deal with rent control by converting their apartments into market-rate condos, reducing the inventory of the rental market.
- Land developers feel disincentivized due to rent control and are more likely to build condos than apartments.
So, it results in affordable housing options for tenants in the near term, but in the long run, it might adversely impact the housing inventory as more and more landlords might run away from the market. So, these results indicate that forcing rent control on landlords can eventually become counterproductive.
This is a guide to Rent Control. Here we also discuss the definition, working, examples, effects, benefits, and disadvantages. You may also have a look at the following articles to learn more –