Rent regulation

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Protest sign at a rally for tenants rights in New York City

Rent regulation is a system of laws, administered by a court or a public authority, which aim to ensure the affordability of housing and tenancies on the rental market for dwellings. 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[1]:1 [2]:1
  • obligations on the landlord or tenant regarding adequate maintenance of the property
  • a system of oversight and enforcement by an independent regulator and Ombudsman

The loose term "rent control" covers a spectrum of regulation which can vary from setting the absolute amount of rent that can be charged, with no allowed increases, to placing different limits on the amount that rent can increase; these restrictions may continue between tenancies, or may be applied only within the duration of a tenancy.[3]

Rent regulation is one of several classes of policies proposed to improve housing affordability, alongside subsidies (including vouchers and tax credits) and policies aimed at expanding the housing supply.[4]

As of 2016, at least 14 of the 36 OECD countries have some form of rent control in effect,[5] including four states in the United States.[6][7]

Forms of rent regulation[edit]

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).[8]

Economics[edit]

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

Rent 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.[citation needed] (Economists note that the land value tax is a way to capture this un-earned value.)[9] Modern rent controls (sometimes called rent leveling or rent stabilization) are 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.

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.[10][11] This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan, or elsewhere in the United States.

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".[12]

Empirical studies[edit]

Historically, there have been two types of rent control - vacancy control (where the rent level of a unit is controlled irrespective of whether the tenant remains in the unit or not) and vacancy decontrol (where the rent level is controlled only while the existing tenant remains in the unit). In California prior to 1997, both types were allowed (the Costa/Hawkins bill of that year phased out vacancy control provisions). A 1990 study of Santa Monica, CA showed that vacancy control in that city protected existing tenants (lower increases in rent and longer stability). However, the policy potentially discouraged investors from building new rental units.[13]

A 2000 study that compared the border areas of four California cities having vacancy control provisions with the border areas of adjoining jurisdictions (two of which allowed vacancy decontrol and two of which had no rent control) showed that existing tenants in the vacancy control cities had lower rents and longer tenure than in the comparison areas. Thus, the ordinances helped protect the existing tenants and, therefore, increased community stability. However, there were fewer new rental units created in the border areas of the vacancy controlled cities over the 10 year period.[14]

A study that compared the effects of local rent control measures (both vacancy control and vacancy decontrol) with other local growth management measures in California cities and countries showed that rent control was stronger than individual land use restrictions (but not the aggregate effect of all growth restrictions) in reducing the number of rental units constructed between 1980 and 1990. [15] The measures (both rent control and growth management) helped displace new construction from the metropolitan areas to the interiors of the state with low income and minority populations being particularly impacted.

2017 study of the San Francisco housing market[edit]

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 less units, built prior to 1980. (about 30% of the city's rental housing stock at the time). [16]:7 [17]:1 [18]:1 In 2017, Stanford economics researcher Rebecca Diamond and others published a study which examined the effects of this specific rent control law on the rental units newly controlled compared to similar style units (multi-unit apartments with four or less units) not under rent control (built after 1980), as well as this law's effect on the total city rental stock, and on overall rent prices in the city, covering the years from 1995 to 2012. [17][18][19] [20]:1 [21]:1 [22]

They found that while San Francisco's rent control laws benefited tenants who had rent controlled units, it also resulted in landlords removing 30% of the units in the study from the rental market, (by conversion to condos or TICs) which led to a 15% citywide decrease in total rental units, and a 7% increase in citywide rents. [16]:1,44 [17] [18]:1 [19][20]

The authors stated that "This substitution toward owner occupied and high-end new construction rental housing likely fueled the gentrification of San Francisco, as these types of properties cater to higher income individuals." [16]:3 [17] [18]:1 [19][20] [21]:1

The authors also noted that "...forcing landlords to provide insurance against rent increases leads to large losses to tenants. If society desires to provide social insurance against rent increases, it would be more desirable to offer this subsidy in the form of a government subsidy or tax credit. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire." [16]:44 [17]:1 [18]:1 [19]:1 [20]:1 [21]:1 [22]:1

Economists' views[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."[23]:204 [24]:1

A 2009 review of the economic literature[11]:106[better source needed] 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".[11]:105 [25]:1 [26]:1 [27]:1[better source needed]

In a 2012 poll of the 41 members of the Initiative on Global Markets (IGM) 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.[28] [2]:1 [29]:1

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." [25]:1 [2]:1 [30]:1

Many economists suggest housing subsidies as a way to make housing more affordable to renters without distorting the housing market as much as rent control, but expanding the existing subsidy programs would require sharp increases in government spending.[4]

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.[24]

Thomas Sowell writes that rent control reduces the supply of housing,[31]:4 and has stated that rent control increases urban blight.[31]:5 [32]:1

History[edit]

Early modern Europe[edit]

Rent control was used in Rome as early as 1470 to protect Jewish residents from price gouging. Since Jews in the Papal States were forbidden to own property, they were dependent on Christian landlords, who charged them high rents. In 1562, Pope Pius IV granted Jews the right to own property worth up to 1500 Roman scudi and enacted rent stabilization. In 1586, Pope Sixtus V issued a bull ordering landlords to rent out houses to Jewish tenants at reasonable rates.[33]

Politics[edit]

California[edit]

A survey conducted in 2018 by the Los Angeles Times and the University of Southern California found that 28% of eligible California voters believed that the lack of rent control was the main contributing factor to California's housing affordability crisis. 24% of respondents believed that the most significant cause of the housing crisis was insufficient funding of low-income housing; only 13% believed it was insufficient new housing.[34]

In 2018, a statewide initiative (Proposition 10) attempted to repeal the Costa-Hawkins Rental Housing Act, which, if passed, would have allowed cities and municipalities to enact "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.)[35]:1 The proposition failed, 59% to 41%.[36][37]

Rent regulation by country[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 percent each year, or a lower figure fixed by a government minister.

Germany[edit]

German rent regulation is found in the "Civil Code" (the Bürgerliches Gesetzbuch) in §§ 535 to §§ 580a, and particular rights for tenants on termination are in §§568 ff.[38] The increases of rental price are required to follow a "rental mirror" (Mietspiegel), which is a database of local reference rent prices. This collects all rent prices in 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.[39]

Tenants may be evicted against their will through a court procedure for a good reason, and in the normal case only with a minimum of three months' notice.[40] Tenants receive unlimited duration of their rental agreement unless the duration is explicitly halted. In practice, landlords have little incentive to change tenants as rental price increases beyond inflation are constrained. During the period of the tenancy, a person's tenancy may only be terminated for very good reasons. A system of rights for the rental property to be maintained by the landlord is designed to ensure quality of housing. Many states, such as Berlin, have a constitutional right to adequate housing, and require buildings to make dwelling spaces of a certain size and ceiling height.[citation needed]

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 rent regulation. Regulation for all new tenancies was abolished by the Housing Act 1988, leaving the basic regulatory framework was "freedom of contract" by the landlord to set any price. 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[41] 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[42] 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 number of states adopted rules.[citation needed] In the 1986 case of Fisher v. City of Berkeley,[43] the US Supreme court held that there was no incompatibility between rent control and the Sherman Act.

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).[6][7] 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.[6][7] 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) [44]:1 in the District of Columbia in 2014, just over 50% of rental units were rent controlled, [45]:1 in San Francisco, as of 2014, about 75% of all rental units were rent controlled, [46]:1 and in Los Angeles in 2014, 80% of multifamily units were rent controlled. [47]:1

In 2019 Oregon's legislature passed a bill which made the state the first in the nation to adopt a state-wide rent control policy. This new law limits annual rent increases to inflation plus 7 percent, includes vacancy decontrol (market rate between tenancies), exempts new construction for 15 years, and keeps the current state ban on local rent control policies (state level preemption) intact. [48]:1 [49]:1

See also[edit]

References[edit]

  1. ^ Branco, Marc (20 February 2011). "Rent and Eviction Control Laws". marcbrancolaw.com. Archived from the original on 2012-03-31. Retrieved 2018-08-19.
  2. ^ a b c 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.
  3. ^ See the section on Rent_regulation#Forms_of_rent_regulation for more detail.
  4. ^ a b Dougherty, Conor (October 12, 2018). "Why Rent Control Is a Lightning Rod". The New York Times. Retrieved March 26, 2019.
  5. ^ "PH6.1 RENTAL REGULATION" (PDF). OECD.org - Organisation for Economic Co-operation and Development. 2016-12-21. Archived (PDF) from the original on 2017-02-16. Retrieved 2018-11-26.
  6. ^ a b c "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.
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  8. ^ Cruz, Christian (19 January 2009). "The pros and cons of rent control". Global Property Guide. Archived from the original on 2010-02-27. Retrieved 2018-08-05.
  9. ^ "The time may be right for land-value taxes - Beloved of liberals and economists, they have so far never caught on". The Economist. 2018-08-09. Archived from the original on 2018-08-27. Retrieved 2018-09-09.
  10. ^ C Rapkin,The Private Rental Housing Market in New York City (1966) and G Sternlieb, The Urban Housing Dilemma (1972)
  11. ^ a b c 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.
  12. ^ Fraser Nelson (2 May 2014). "Low-rent Labour is positioning itself as the Ukip of the Left". The Daily Telegraph. Retrieved 29 October 2016.
  13. ^ Levine, Ned; Grigsby, J. Eugene; Heskin, Allan D. "Who Benefits from Rent Control? Effects on Tenants in Santa Monica, California". Journal of the American Planning Association. 56 (2): 140–152 – via Taylor & Francis Online.
  14. ^ Heskin, Allan D.; Levine, Ned; Garrett, Mark. "The Effects of Vacancy Control: A Spatial Analysis of Four California Cities". Journal of the American Planning Association. 66 (2): 162–176 – via Taylor & Francis Online.
  15. ^ Levine, Ned (November 1, 1999). "The Effects of Local Growth Controls on Regional Housing Production and Population Redistribution in California". Urban Studies. 36 (12): 2047–2068 – via SAGE Journals.
  16. ^ a b c d Diamond, Rebecca; McQuade, Tim; Qian, Franklin (2017-10-11). "The Effects of Rent Control Expansion on Tenants,Landlords, and Inequality: Evidence from San Francisco" (PDF). National Bureau of Economic Research. Archived (PDF) from the original on 2018-08-03. Retrieved 2018-08-07.
  17. ^ a b c d e Murphy, Katy (2017-11-02). "Rent-control policy `likely fueled the gentrification of San Francisco,' study finds - As California debates rent caps, economists offer a cautionary note". The San Jose Mercury News. Archived from the original on 2018-01-04. Retrieved 2018-08-07.
  18. ^ a b c d e Truong, Kevin (2017-11-09). "Rent control linked to gentrification in San Francisco, Stanford study says". American City Business Journals. Archived from the original on 2018-12-02. Retrieved 2018-12-01.
  19. ^ a b c d Robertson, Michelle (2017-11-03). "Rent-control policies likely 'fueled' SF gentrification, Stanford economists say". San Francisco Chronicle. Archived from the original on 2017-12-03. Retrieved 2018-08-07.
  20. ^ a b c d Delgadillo, Natalie (2018-02-14). "Does Rent Control Do More Harm Than Good? - A new study suggests that policies meant to keep rents down actually jack them up overall, reduce the rental stock and fuel gentrification". Governing. Archived from the original on 2018-02-22. Retrieved 2018-08-07.
  21. ^ a b c Misra, Tanvi (2018-01-29). "Rent Control: a Reckoning". CityLab. Archived from the original on 2018-02-01. Retrieved 2018-11-30.
  22. ^ a b Andrews, Edmund (2018-02-02). "Rent Control's Winners and Losers - With rents going through the roof in hot cities, the hunt is on for a better way to protect tenants from being priced out of their homes". Stanford Graduate School of Business. Archived from the original on 2018-03-09. Retrieved 2018-12-11.
  23. ^ Alston, Richard M.; Kearl, J. R.; Vaughan, Michael B. (1 May 1992). "Is There a Consensus Among Economists in the 1990's?" (PDF). The American Economic Review. 82 (2): 203–209. JSTOR 2117401. Archived (PDF) from the original on 2006-09-01.
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  29. ^ Matthews, Dylan (2013-08-20). "Which economist do you agree with most? Take this quiz to find out!". The Washington Post. Archived from the original on 2018-08-16. Retrieved 2018-08-15.
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  31. ^ a b Sowell, Thomas. 2008. Economic Facts and Fallacies. Basic Books, ISBN 0-465-00349-4.
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  34. ^ Dillon, Liam (October 21, 2018). "Experts say California needs to build a lot more housing. But the public disagrees". Los Angeles Times. Retrieved March 25, 2019.
  35. ^ 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.
  36. ^ "State Ballot Measures" (PDF). Secretary of State of California. Archived (PDF) from the original on 2019-01-08. Retrieved 2019-03-03. State Totals 4,949,543 7,251,443 Percent 40.6% 59.4%
  37. ^ https://ballotpedia.org/California_Proposition_10,_Local_Rent_Control_Initiative_(2018)
  38. ^ English translation available: BGB §§568 ff
  39. ^ M Haffner, M Elsinga and J Hoekstra (2008). "Rent Regulation: The Balance between Private Landlords and Tenants in Six European Countries". International Journal of Housing Policy. 8 (2): 217–233. doi:10.1080/14616710802037466.
  40. ^ BGB §573c
  41. ^ 256 U.S. 135 (1921)
  42. ^ 264 U.S. 543 (1924)
  43. ^ 475 U.S. 260 (1986)
  44. ^ 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.
  45. ^ 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.
  46. ^ 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.
  47. ^ 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.
  48. ^ Ingber, Sasha (February 27, 2019). "Oregon Set To Pass The First Statewide Rent Control Bill". NPR.org. Archived from the original on 2019-03-06. Retrieved 2019-03-06.
  49. ^ Njus, Elliot (February 28, 2019). "Oregon Gov. Kate Brown signs nation's first statewide rent control law". OregonLive. Archived from the original on 2019-03-05. Retrieved 2019-03-06.

Further reading[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

External links[edit]