Rent control in the United States

This article is about a rent ordinance. For the movie of the same name, see Rent Control (film).

Rent control refers to laws or ordinances that set price controls on residential housing. It functions as a price ceiling.

In the United States, rent controls were first adopted in response to WWII-era shortages, or following Richard Nixon's 1971 wage and price controls. They remain in effect in some cities with large tenant populations, such as New York, San Francisco, and Washington, DC. Smaller communities also have rent control, notably Santa Monica, Berkeley, and West Hollywood California along with many small towns in New Jersey. In recent years, rent control in some cities, such as Boston and Cambridge, Massachusetts, has been ended by state ballot.

In some regions rent control laws are more commonly adopted for mobile home parks (sometimes called manufactured home communities). Reasons given for these laws include residents owning their homes (and renting the land), the high cost of moving "mobile" homes and the loss of home value when they are moved. California, for example, has only 13 local apartment rent control laws, but over 100 local mobile home rent control laws.

Purpose and scope

Although the political debate over rent control is far-reaching, as described below, the purposes and provisions of such laws are intended to be limited in scope. They define which rental units are affected, and may have only larger or older rental complexes covered by the law. The frequency and degree of rent increases are limited, usually to the rate of inflation defined by the Consumer Price Index or to a fraction thereof. (San Francisco, for example, allows annual rent increases of 60% of the CPI.) Unregulated rent increases may be allowed when a tenant moves ("vacancy decontrol"). Landlords have an opportunity to show that they are not receiving a fair return, for example by proving an increase in costs (such as capital improvements) that should be passed on to tenants. Tenants may be able to claim that decreased services or the lack of necessary repairs offset such additional increases or justify a rent reduction. Landlords may be required to register current rent levels or provide other information on rent increases and/or terminations of tenancy. (Since rent control laws vary considerably from jurisdiction to jurisdiction, landlords and tenants who may be affected should contact their local jurisdiction to obtain information on which law, if any, which applies to them.)

The Argument For

It is necessary to prevent landlords from imposing rent increases that force key-workers or vulnerable people to leave an area. Maintaining a supply of affordable housing is essential to sustaining the economy. Homeowners who support rent control point to the neighborhood instability caused by high or frequent rent increases and the effect on schools, youth groups and community organizations when tenants move more frequently.

Morally it can be contended that housing is an inalienable human right that equals or exceeds the property rights of landlords. Therefore the needs of the tenant should supersede the needs of the Landlord.

The rental-accommodation market suffers from information asymmetries and high transaction costs. Typically, a landlord has much more information about a home than a prospective tenant can reasonably detect. Moreover, once the tenant has moved in, the costs of moving again are very high. Unscrupulous landlords can thus conceal defects and, if the tenant complains, threaten to raise the rent at the end of the lease. With rent control, tenants can ensure that hidden defects at least be repaired to comply with code requirements, without fearing retaliatory rent increases. Rent control may thus compensate somewhat for inefficiencies of the housing market.

The Argument Against

Like all price ceilings, rent control is criticized for creating a shortage of housing, reducing its quality, detering investment and raising the price of unaffected rental units. Opponents of rent control claim that its benefits accrue disproportionately to wealthy and well-connected tenants. They argue that the goal of making housing affordable and available to the poor can be accomplished by the same free market that created the affordable units in the first place or by government construction or subsidy.

Rent control laws are frequently used in Economics courses as a textbook example of the problems that arise in trying to artificially reduce prices. The natural consequence in a free-market economy is a reduction in supply and consequent shortages.

Areas with rent controlled housing are notable for difficulty of finding vacant housing, and the resulting power imblance between landlords and tenants. Tenants have serious difficultly finding housing, so are seriously disadvantaged if they are forced to move. As a result, landlords can impose numerous conditions and requirements. This has led to an ever escalating arms race where new tactics by landlords exploiting their power are detected and outlawed. Examples include the Just Eviction style laws, and laws prohibiting 'key money'. These issues are generally absent in non-rent controlled areas, even in high density, expensive housing locations.

Rent Control has been discredited by some unlikely governments. Speaking of rent control in 1989 Vietnam's Foreign Minister Nguyen Co Thach said: "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."

Moreover, critics see rent control as a violation of property rights since landlords are told what they may and may not do with their property. Some also claim that rent control limits people's ability to sell their rent-controlled property, thus essentially forcing them to put their property to work for the state without recourse.

Enforcement issues

Some landlords use extralegal means to evade rent controls and attempt to take advantage of housing conditions. Some landlords may step up discrimination against certain groups if they believe there is a surplus of prospective tenants. Jurisdictions which implement rent controls may have to pass laws in response, such as forbidding landlords from compelling new tenants to hire the landlord's moving company. In some areas with especially strict rent controls, landlords may require key money (a non-refundable deposit). Demanding key money is illegal in most of North America, but since the landlord will invariably demand it in cash, it is very difficult to trace and nearly impossible to prove in court.

External links

Pro-rent control article from tenant.net
Rent Control History in Ontario and Canada
Testing Hypotheses About Rent Control in Canada Commissioned by Canada Mortgage and Housing Corporation - Dispels many myths
Anti-rent control article by economist Paul Krugman
New York Magazine article on Rent Control including interviews with tenants
Rent Control in the New Millenium by Dennis Keating
Almanac of Policy Issues - Rent Controls
Rent Controls and Housing Investment
Pro-rent control article from Dollars & Sense magazine
How Rent Control Drives Out Affordable Housing by William Tucker
Coalition For Economic Survival