Rent control in the United States

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Rent control in the United States refers to laws or ordinances that set price controls on the renting of American residential housing. They function as a price ceiling.[1]

The loose term "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 (rent is typically frozen at the rate existing when the law was enacted)
  • "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 (a new tenant pays almost the same rent as the previous tenant) 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 (new tenants pay market rate rent, but increases are limited as long as they remain).[1]

As of 2018, four states (California, New York, New Jersey, and Maryland) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes).[2][3] Thirty-seven states either prohibit or preempt rent control, while nine states allow their cities to enact rent control, but have no cities that have implemented it.[2][3] For the localities with rent control, it often covers a large percentage of that city's stock of rental units: For example, in some of the largest markets: in New York City in 2011, 45% of rental units were either "rent stabilized" or "rent controlled", (these are different legal classifications in NYC) [4]:1 in the District of Columbia in 2014, just over 50% of rental units were rent controlled, [5]:1 in San Francisco, as of 2014, about 75% of all rental units were rent controlled, [6]:1 and in Los Angeles in 2014, 80% of multifamily units were rent controlled. [7]:1

History[edit]

In the United States during World War I, rents were "controlled" through a combination of public pressure and the efforts of local anti-rent-profiteering committees. Between 1919 and 1924, a number of cities and states adopted rent- and eviction-control laws. Modern 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 or have been reintroduced in some cities with large tenant populations, such as New York City, San Francisco, Los Angeles, Washington, D.C., and Oakland, California. Many smaller communities also have rent control — notably the California cities of Santa Monica, Berkeley, and West Hollywood[8] — along with many small towns in New Jersey. In the early 1990s, rent control in some cities, such as Boston and Cambridge, Massachusetts, was ended by state referenda.[9]

New York[edit]

New York State has had the longest history of rent controls, since 1943. New York City contains the majority of units covered by rent control. Rent control laws have stayed on the books for decades in New York because of an inadequate supply of "decent, affordable housing".[10] The worsening in the rental market led to the enactment of the Rent Stabilization Law of 1969, which aimed to help increase the number of available rental units. The current system is very complicated, and most of the protected renters are elderly.[11]

California[edit]

In California, municipal enactment of rent controls followed the high inflation of the 1970s (causing rents to continually rise)[12]:1 and the 1979 statewide Proposition 13, which set property tax rates at 1%, and capped yearly increases at 2%. Leading the campaign to enact Proposition 13, California politician Howard Jarvis tried to get tenants to vote for Prop 13 by claiming that landlords would pass tax savings along to tenants; when most failed to do so, it became an additional motivating factor for rent control.[12]:2

In 1985, California adopted the Ellis Act, eliminating municipalities' ability to prohibit the removal of properties from rental activities after the California Supreme Court in Nash v. City of Santa Monica[13] ruled that municipalities could prevent landlords from "going out of business" and withdrawing their properties from the rental market.[1]

"Strong" or "vacancy control" rent control laws were in effect in five California cities (West Hollywood, Santa Monica, Berkeley, East Palo Alto and Cotati) in 1995, when AB 1164 (known as the Costa-Hawkins Rental Housing Act) preempted some elements of municipal rent control ordinances and completely eliminated strong rent-control in California (except in special cases like mobile home parks).[14][15][16]

In 2018, a statewide initiative (Proposition 10) attempted to repeal the Costa-Hawkins law, which, if passed, would have allowed cities and municipalities to enact "strong" or "vacancy control" systems, allowed rent control to be applied to buildings newer than 1995, and would have allowed rent control on single-family homes. (All currently prohibited by Costa-Hawkins.)[17]:1 The proposition failed, 62% to 38%.[18] See Proposition 10

Mobile homes[edit]

In some regions, rent control laws are more commonly adopted for mobile home parks. Reasons given for these laws include residents owning their homes while renting the land the home sits on, 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.[citation needed] No new mobile home parks have been built in California since 1991.[citation needed]

Law[edit]

Rent control laws define which rental units are affected, and may only cover larger complexes, or units older than a certain date. To attempt to not disincentivise investment in new housing stock, rent control laws often exempt new construction. For example, San Francisco's Rent Stabilization Ordinance exempts all units built after 1979.[19] New York State generally exempts units built after 1974 anywhere in the state (although owners can agree to rent stabilization in exchange for tax benefits).[20]

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, up to a maximum 7%.[21]

Rent control laws are often administered by nonelected rent control boards. Officers in city government assign members of the board, which will ensure mixed numbers of tenants and property owners to balance out their benefits. As stated in Goodman's research, a typical rent control board in New York is structured by two tenants, two landlords, and one homeowner.(Gilderbloom & Markham,1996).[22]

Federal law[edit]

Rent regulation in the United States is an issue for each state. In 1921, the US Supreme Court case of Block v. Hirsh[23] held by a majority that regulation of rents in the District of Columbia as a temporary emergency measure was constitutional, but shortly afterwards in 1924 in Chastleton Corp v. Sinclair[24] the same law was unanimously struck down by the Supreme Court. After the 1930s New Deal, the Supreme Court ceased to interfere with social and economic legislation, and a growing number of states adopted rules.[citation needed] In the 1986 case of Fisher v. City of Berkeley[25], the US Supreme court held that there was no incompatibility between rent control and the Sherman Act.

State law[edit]

As of 2018, four states (California, New York, New Jersey, and Maryland) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes).[2][3] Thirty-seven states either prohibit or preempt rent control, while nine states allow their cities to enact rent control, but have no cities that have implemented it.[2][3]

Arguments for[edit]

Economic[edit]

The rental-accommodation market suffers from information asymmetries and high transaction costs. Typically, a landlord has 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 could conceal defects and, if the tenant complains, threaten to raise the rent at the end of the lease. With rent control, tenants can request that hidden defects, if they exist, be repaired to comply with building code requirements, without fearing retaliatory rent increases. Rent control could thus compensate somewhat for inefficiencies of the housing market.[1]:1 [26]

In older buildings, rent control may broaden incentives to renovate individual units: tenants may invest sweat equity and their own money to improve their homes if they are protected from landlords trying to capture the added value,[27][28][citation needed] while vacancy decontrol preserves landlords' financial incentive to renovate vacant units because it allows them to re-rent at market value.

Moral[edit]

Tenants' rights activists argue that rent control is necessary in times of long term housing shortages (See California housing shortage) to reduce the human suffering caused by increasing rents and the homelessness which results when people who can no longer afford the rent increases get evicted.[29]:1

Arguments against[edit]

Writing in 1946, economists Milton Friedman and George J. Stigler said: "Rent ceilings, therefore, cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction and indefinite continuance of rent ceilings, or subsidization of new construction and a future depression in residential building."[30] Although those paying lower than market rent are "protected," most economists argue that newer residents actually pay higher rent due to reduced supply.

Economic[edit]

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."[31]:204 [32]:1

A 2009 review of the economic literature[33]:106 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”.[33]:105 [34]:1 [35]:1 [36]:1

In a 2013 analysis of the body of economic research on rent control by Peter Tatian at the Urban Institute (a think tank described both as "liberal"[37] and "independent"[38][39]), 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." [34]:1 [40]:1 [41]:1

Two economists from opposing sides of the political spectrum, Nobel Laureate Paul Krugman (who identifies as an American liberal or European social democrat),[42] and Thomas Sowell, (who stated that "libertarian" might best describe his views)[43]:1 have both criticized rent regulation as poor economics, which, despite its good intentions, leads to the creation of less housing, raises prices, and increases urban blight.[32]:1 [44]:4 [43]:1

Price ceilings can create shortages and reduce quality when they are less than the equilibrium price. By capping the price of housing, rent control can increase demand and reduce available supply, causing a shortage.[45][irrelevant citation] It is argued that rent control also reduces the quality of available housing, deters investment, and raises rents on tenants who are excluded from its protections (for example, in jurisdictions with vacancy decontrol, tenants who move or arrive later).[verification needed] When property owners are restricted in the rents they can charge, they are less willing to construct more housing (a form of capital strike).[46]:1 Since supply is low, landlords worry less about tenants leaving and have little incentive to maintain the property.[citation needed] For example, unless owners can reasonably expect that punitive action will be taken against them, they might let building maintenance deteriorate in order to mitigate the lower rental income.[verification needed] People moving into the city have difficulty finding housing because of the shortage created by rent control.[47]

When housing is limited, it must be rationed in some way. After the San Francisco earthquake of 1906, the number of houses relative to the number of people who needed housing fell by 40%, but a shortage was avoided because the market price mechanism effectively rationed housing and provided an incentive for new housing to be built. In 1946, however, a far less extreme situation was dealt with via chance and favoritehood.[30]

Social[edit]

Some, such as William Tucker of the Cato Institute, a leading libertarian thinktank,[48] have argued that rent control laws are 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. Tucker has argued that rent control has the perverse effect of creating less affordable housing.[48]

Areas with rent-controlled housing are blamed for difficulty of finding vacant housing and the resulting power imbalance between landlords and tenants as tenants may "game the system" to impose onerous conditions on the landlord, forcing long cycles of judicial action, leading to considerable economic hardship for the landlord. Likewise, new tenants have serious difficulty finding housing, so they are seriously disadvantaged if they must move. As a result, landlords can impose numerous conditions and requirements.[47]

Moral[edit]

Rent control restricts the property rights of property owners,[30] as it limits what they may do with their property, requiring petitioning and other processes by law, prior to taking action against a renter.

Because enacting rent control on a building reduces the investment return that can be expected from that building, it thereby reduces the present value of the building, which can be viewed as a partial expropriation of private property.[49]

See also[edit]

People

  • Don A. Allen, member of the California State Assembly and of the Los Angeles City Council in the 1940s and 1950s, urged lifting of wartime rent controls in Los Angeles

Notes[edit]

  1. ^ a b c Cruz, Christian (2009-01-19). "The pros and cons of rent control". Global Property Guide. Archived from the original on 2010-02-27. Retrieved 2018-08-05.
  2. ^ a b c d "RENT CONTROL BY STATE LAW" (PDF). National Multifamily Housing Council. 21 March 2018. Archived (PDF) from the original on 2018-08-03. Retrieved 2018-08-03.
  3. ^ a b c d "Residential Rent Control Law Guide By State". LandLord.com. Archived from the original on 2018-06-13. Retrieved 2018-08-03.
  4. ^ Pereira, Ivan (2015-01-11). "Battle looms over NYC rent stabilization law". Newsday. Archived from the original on 2015-02-21. Retrieved 2018-12-04.
  5. ^ Weiner, Aaron (2014-12-12). "Losing Control - D.C.'s rent control laws are supposed to keep housing affordable. So how do landlords keep getting around them?". Washington City Paper. Archived from the original on 2016-05-26. Retrieved 2018-12-04.
  6. ^ Cutler, Kim-Mai (2014-04-14). "How Burrowing Owls Lead To Vomiting Anarchists (Or SF's Housing Crisis Explained)". TechCrunch. Archived from the original on 2014-04-30. Retrieved 2018-12-04.
  7. ^ Bergman, Ben (2014-09-12). "LA Rent: Has rent control been successful in Los Angeles?". Southern California Public Radio. Archived from the original on 2014-09-13. Retrieved 2018-12-04.
  8. ^ California, Department of Consumer Affairs, State of. "Landlord/Tenant Book - California Department of Consumer Affairs". www.dca.ca.gov.
  9. ^ Massachusetts Election Statistics 1994: Ballot Question #9. [Boston?] : The Division. 1994.
  10. ^ "History of Rent Regulation". www.tenant.net.
  11. ^ "Rent Control Fact Sheet".
  12. ^ a b Forbes, Jim; Sheridan, Matthew (1999-06-01). "The Birth of Rent Control in San Francisco". San Francisco Apartment Association. Archived from the original on 2008-07-20. Retrieved 2018-08-05.
  13. ^ "Nash v. City of Santa Monica (1984)". Justia. 1984-10-25. Archived from the original on 2015-12-02. Retrieved 2018-08-05.
  14. ^ "AB1164 Bill Text". Retrieved 2007-12-01.
  15. ^ "California Civil Code Sections 1954.50-1954.535". Retrieved 2007-12-01.
  16. ^ Peter Dreier (May 14, 1997). "Rent Deregulation in California and Massachusetts: Politics, Policy, and Impacts – Part II".
  17. ^ Murphy, Katy (2018-11-06). "California's rent-control measure defeated". San Jose Mercury News. Archived from the original on 2018-11-17. Retrieved 2018-11-25.
  18. ^ Liam Dillon, "California voters reject Prop. 10", Los Angeles Times, November 6, 2018. Accessed 2018-11-6.
  19. ^ "San Francisco Rent Board: Fact Sheet 1 – General Information".
  20. ^ http://www.dhcr.state.ny.us/ora/pubs/html/orafac1.htm
  21. ^ "CITY AND COUNTY OF SAN FRANCISCO RESIDENTIAL RENT STABILIZATION AND ARBITRATION BOARD Section 1.12". Retrieved 2015-03-29.
  22. ^ Gilderbloom, John I.; Markham, John P. (2016). "Moderate Rent Control: Sixty Cities over 20 Years". Journal of Urban Affairs. 18 (4): 409–430. doi:10.1111/j.1467-9906.1996.tb00388.x.
  23. ^ 256 U.S. 135 (1921)
  24. ^ 264 U.S. 543 (1924)
  25. ^ 475 U.S. 260 (1986)
  26. ^ Raess, Pascal; von Ungern-Sternberg, Thomas (2002). "A model of regulation in the rental housing market". Regional Science and Urban Economics. 32 (4): 475–500. doi:10.1016/S0166-0462(01)00093-X.
  27. ^ Čapek, Stella M (1992). Community versus Commodity: Tenants and the American City. ISBN 9780791498439.
  28. ^ "Background history". Lower Manhattan Loft Tenants. 2002-01-01. Archived from the original on 2012-06-29. As early as the mid-1960s, artists began pioneering the economically-depressed manufacturing zone of lower Manhattan known as SoHo where they found affordable "raw" or "as is" spaces large enough to both live and work (ie: lofts). Delighted to receive rent for these often abandoned, derelict spaces, commercial property owners welcomed and encouraged the residential occupancy of their buildings. Using sweat equity, artists renovated their leased lofts converting them into habitable living/working studios, installing plumbing and electrical fixtures along with other improvements--generally at their own expense. The City, which was equally delighted by the stabilization of the property tax base, turned a blind eye to the fact that none of these buildings had a residential Certificate of Occupancy.
  29. ^ Bautista, Rafael (2018-05-02). "In California, rent control is needed to protect working families". The San Diego Union-Tribune. Archived from the original on 2018-05-03. Retrieved 2018-08-09.
  30. ^ a b c Friedman, Milton D. (21 February 2011). "Roofs or Ceilings? The Current Housing Problem - Milton D. Friedman".
  31. ^ Alston, Richard M.; Kearl, J. R.; Vaughan, Michael B. (1992-05-01). "Is There a Consensus Among Economists in the 1990's?" (PDF). The American Economic Review. 82 (2): 203–209. doi:10.2307/2117401 (inactive 2018-10-09). JSTOR 2117401. Archived (PDF) from the original on 2006-09-01.
  32. ^ a b Krugman, Paul (7 June 2000). "Reckonings; A Rent Affair". The New York Times. Archived from the original on 2009-04-06. Retrieved 2018-08-10.
  33. ^ a b Jenkins, Blair (1 January 2009). "Rent Control: Do Economists Agree?" (PDF). American Institute for Economic Research. Archived (PDF) from the original on 2017-09-29. Retrieved 2018-08-14.
  34. ^ a b Tatian, Peter (2013-01-02). "Is Rent Control Good Policy?". Urban Institute. Archived from the original on 2015-07-03. Retrieved 2018-08-19.
  35. ^ Beyer, Scott (2015-04-24). "How Ironic: America's Rent-Controlled Cities Are Its Least Affordable". Forbes. Archived from the original on 2015-07-19. Retrieved 2018-09-11.
  36. ^ Valdez, Roger (2017-12-18). "Rent Control Doesn't Help Renters: Some In Washington State Want To Try It Anyway". Forbes. Archived from the original on 2017-12-23. Retrieved 2018-09-13.
  37. ^ Rich, Spencer (1988-06-12). "Urban Institute, Leading Liberal Think Tank, Marks 20th Birthday". Los Angeles Times. Archived from the original on 2010-07-01. Retrieved 2018-08-20.
  38. ^ Cohen, Rick (2014-12-12). "The Inner Workings of Think Tanks: Transparify Gives Us a Good Look". Nonprofit Quarterly. Archived from the original on 2016-05-31. Retrieved 2018-08-20.

    ...the Urban Institute, and others are typically considered nonpartisan or middle of the road.

  39. ^ McLean, Jim (2014-11-20). "Kansas hospitals continue campaign for Medicaid expansion". Kansas Health Institute. Archived from the original on 2014-12-16. Retrieved 2018-08-20.

    ...the nonpartisan Urban Institute,...

  40. ^ Pender, Kathleen (10 September 2016). "Rent control spreading to Bay Area suburbs, to economists' dismay". The San Francisco Chronicle. Archived from the original on 2016-10-08. Retrieved 2018-08-18.
  41. ^ Jaffe, Eric (2013-04-09). "Some People Will Do Crazy Things for a Rent-Controlled Apartment in NYC". CityLab - The Atlantic. Archived from the original on 2018-09-12. Retrieved 2018-09-11.
  42. ^ "Nobelpristagaren i ekonomi 2008: Paul Krugman", speech by Paul Krugman (Retrieved December 26, 2008)
  43. ^ a b Sawhill, Ray (1999-11-10). "Black and right - Thomas Sowell talks about the arrogance of liberal elites and the loneliness of the black conservative". Salon. Archived from the original on 2011-12-07. Retrieved 2018-09-22.
  44. ^ Sowell, Thomas. 2008. Economic Facts and Fallacies. Basic Books, ISBN 0-465-00349-4.
  45. ^ Mankiw, Gregory. Principles of Economics. 4th ed. p. 31.
  46. ^ Hart, Angela; Murphy, Katy (2018-09-28). "Will rent control kill California housing production? Not necessarily, data shows". San Jose Mercury News. Archived from the original on 2018-09-28. Retrieved 2018-10-17.
  47. ^ a b Krugman, Paul (June 7, 2000). "Reckonings; A Rent Affair". The New York Times.
  48. ^ a b Tucker, William (May 21, 1997). "How Rent Control Drives Out Affordable Housing" (PDF). Cato Policy Analysis (274).
  49. ^ "By enacting rent control legislation and thereby restricting investors in future rentals, a city may actively reduce the present value of a property. This is essentially community expropriation in favor of tenants." "The Cities' Wealth", an influential activist tract quoted in Collier, Peter and David Horowoitz, 1996. Destructive Generation: Second Thoughts About the '60s. Free Press, ISBN 0-684-82641-0, p. 223

References[edit]

  • Baar, Kenneth K. (1983). "Guidelines for Drafting Rent Control Laws: Lessons of a Decade." Rutgers Law Review, Vol. 35 No. 4 (Summer 1983).
  • Baar, Kenneth K. (1992). "The Right to Sell the "Im"mobile Manufactured Home in Its Rent Controlled Space in the "Im"mobile Home Park: Valid Regulation or Unconstitutional Taking?" The Urban Lawyer, Vol. 24 pp. 157–221.
  • 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.
  • Downs, Anthony (1996). A Reevaluation of Residential Rent Controls. Washington, D.C. : Urban Land Institute, ISBN 0-87420-801-7.
  • Friedman, Milton, and George J. Stigler (1946). Roofs or Ceilings? The Current Housing Problem. Irvington-on-Hudson, N.Y.: Foundation for Economic Education.
  • Gilderbloom, John I., editor (1981). Rent Control: A Source Book. Center for Policy Alternatives; 3rd edition, June 1, 1981. ISBN 0-938806-01-7.
  • Keating, Dennis, editor (1998). Rent Control: Regulation and the Housing Market. Center for Urban Policy Research, ISBN 0-88285-159-4.
  • McDonough, Cristina (2007). "Rent Control and Rent Stabilization as Forms of Regulatory and Physical Taking." Boston College Environmental Affairs Law Review, Vol. 34 pp. 361–85.
  • Niebanck, Paul L., editor (1986). The Rent Control Debate. University of North Carolina Press, ISBN 0-8078-1670-1.
  • Tucker, William (1991). Zoning, Rent Control and Affordable Housing. ISBN 0-932790-78-X.
  • Turner, Margery Austin (1990). Housing Market Impacts of Rent Control. Washington, D.C.: Urban Institute Press, ISBN 0-87766-443-9.
  • Gilderbloom, J. I., & Markham, J. P. (1996). Moderate rent control: sixty cities over 20 years. Journal of Urban Affairs, 18(4), 409-410. {{doi:10.1111/ j.1467-9906.1996.tb00388.x}}

External links[edit]