Rent control

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This article is about rental housing price controls. For the films, see Rent Control (1984 film) and Rent Control (2005 film).

Rent control is part of a system of rent regulation, administered by a court or a public authority, which limits the changes that can be made in the price of renting a house or other real property. The objective of controlling the prices of rent is usually to counteract the inequality of bargaining power between landlords and tenant, as part of a minimum set of rights to make the market fair.

Controls on the price of rents is used in residential housing, agricultural tenancies, and business tenancies. It may function as a price ceiling. Rent control laws are used in approximately 40 countries, although they often vary from one country to another, and may vary from one jurisdiction to another within some countries.[1]

Current law[edit]

Canada[edit]

In Canada there are rent regulation laws in each province. For example, in Ontario the Residential Tenancies Act 2006 requires that prices for rented properties do not rise more than 2.5 per cent each year, or a lower figure fixed by a government minister.

Germany[edit]

German rent regulation, regarding prices, is found in the Civil Code (the Bürgerliches Gesetzbuch) in §§ 535 to 580a.[2] Rental price increases are required to follow a "rental index" (Mietspiegel), which is a database of local reference rents. This collects all rents for the past four years, and landlords may only increase prices on their property in line with rents in the same locality. "Usury" rents are prohibited altogether, so that any price rises above 20 per cent over three years are unlawful.[3] In practice, landlords have little incentive to change tenants as rental price increases beyond inflation are constrained.

United Kingdom[edit]

UK house prices 1975-2006.

Rent regulation covered the whole of the UK private sector rental market from 1915 to 1980. However, from the Housing Act 1980, it became the Conservative Party's policy to deregulate and dismantle the protections for tenants, starting with abolition of all price controls, leaving a basic regulatory framework of freedom of contract. Rent regulations survive among a small number of council houses, and often the rates set by local authorities mirror escalating prices in the non-regulated private market.

United States[edit]

Rent regulation in the United States is an issue for each state. In 1921, the US Supreme Court case of Block v. Hirsh[4] held by a majority that regulation of rents in the District of Columbia was constitutional, but shortly afterwards in 1924 in Chastleton Corp v. Sinclair[5] the same law was struck down by the conservative majority of the court. After the New Deal, the Supreme Court ceased to interfere with social and economic legislation, and a growing number of states adopted rules. The application was often inconsistent. For example, in New York only some properties continue to have the protection of rent regulation, while others on the private market are left to be priced according to whatever the landlord can charge.

Theory[edit]

"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land ...."

Adam Smith, The Wealth of Nations (1776) Book I, ch 6

Price controls remain the most controversial element of a system of rent regulation. Historically, economists such as Adam Smith and David Ricardo viewed landlords as producing very little that was valuable, and so regarded "rents" as an exploitative concept. Modern rent controls were intended to protect tenants in privately owned residential properties from excessive rent increases by mandating gradual rent increases, while at the same time ensuring that landlords receive a return on their investment that is deemed fair by the controlling authority (which might, or might not be a legislature). Sometimes called rent leveling or rent stabilization, rent regulation is argued to promote social stability by slowing displacement in booming economic cycles.

It was argued by some economists, particularly from the 1960s and 1970s,[6] that some forms of rent control creates shortages and exacerbate scarcity in the housing market.[7] This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan or elsewhere in the United States. These studies were criticised on the basis that poorer standards in housing conditions were also seen in states which had no rent controls, and so the evidence was inconclusive in demonstrating a causal link.[8]

The view developed among American economists in the 1990s that new methods of regulation, allowing for nominal rent increases in defined situations (for instance, linked to inflation or behind wage rises) were "so different, they should be evaluated largely independently of the experience with first-generation rent controls" studied in the 1970s.[9] The more modern view is that "a well-designed rent control can be beneficial".[10]

See also[edit]

Notes[edit]

  1. ^ http://www.globalpropertyguide.com/investment-analysis/The-pros-and-cons-of-rent-control
  2. ^ English translation available: BGB §§568 ff
  3. ^ M Haffner, M Elsinga and J Hoekstra, 'Rent Regulation: The Balance between Private Landlords and Tenants in Six European Countries' (2008) 8(2) International Journal of Housing Policy 217, 227
  4. ^ 256 U.S. 135 (1921)
  5. ^ 264 U.S. 543 (1924)
  6. ^ C Rapkin, The Private Rental Housing Market in New York City (1966) and G Sternlieb, The Urban Housing Dilemma (1972)
  7. ^ Block, Walter (2008). "Rent Control". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267. 
  8. ^ See P Weitzman, 'Economics and Rent Regulation: A Call for a New Perspective' (1984-1985) 13 NYU Review of Legal and Social Change 975, 979
  9. ^ R Arnott, ‘Time for Revisionism on Rent Control?’ (1995) 9(1) Journal of Economic Perspectives 99, 102
  10. ^ R Arnott, ‘Time for Revisionism on Rent Control?’ (1995) 9(1) Journal of Economic Perspectives 99, 99

References[edit]

  • R Arnott, ‘Time for Revisionism on Rent Control?’ (1995) 9(1) Journal of Economic Perspectives 99
  • A Anas, ‘Rent Control with Matching Economies: A Model of European Housing Market Regulation’ (1997) 15(1) Journal of Real Estate Finance and Economics 111–37
  • T Ellingsen and P Englund, 'Rent regulation: An introduction' (2003) 10 Swedish Economic Policy Review 3
  • H Lind, 'Rent Regulation: A Conceptual and Comparative Analysis' (2001) 1(1) International Journal of Housing Policy 41
  • C Rapkin, The Private Rental Housing Market in New York City (1966)
  • G Sternlieb, The Urban Housing Dilemma (1972)
  • P Weitzman, 'Economics and Rent Regulation: A Call for a New Perspective' (1984-1985) 13 NYU Review of Legal and Social Change 975-988
  • M Haffner, M Elsinga and J Hoekstra, 'Rent Regulation: The Balance between Private Landlords and Tenants in Six European Countries' (2008) 8(2) International Journal of Housing Policy 217