What Is Rent Control And Does It Work?

The cost of housing has been on the rise for quite some time now and most times at a faster rate than wages. This incongruity has led many cities and states to enforce laws to maintain affordable housing in specific areas.

This idea is known as rent control. Rent control is a regulation created by the government to keep rental housing affordable for middle- to low-income renters. Let’s explain what rent control is and how it’s meant to work.

Rent Control Definition

Rent control, or rent regulation, is meant to limit the maximum amount that a landlord can charge for a rental unit. It is a government program intended to maintain affordable living for those with lower incomes, though its effectiveness varies by city and state.

Many large cities face high demand for housing. This results in average rents and purchase prices increasing accordingly. Rent control regulates these increases to ensure that renters can still afford the cost of living. Rent control is often confused with the term rent stabilization, which refers to a similar type of policy.

Rent control in the U.S. dates back to the early 1900s in Washington, D.C. These laws were seen more in the 1950s as states began to actively regulate their housing markets. Historically, rent control laws have followed periods of economic inflation or severe housing supply shortage. Today, regulations such as these are still most frequently implemented in large urban areas. Types of properties that are exempt from rent control include condos, single-family homes and newer buildings.

What Is A Rent-Controlled Apartment?

Rent-controlled apartments are pretty much the holy grail of the New York City rental market. The other type of rent regulation in New York City is rent stabilization. Rent control and rent stabilization both regulate apartment prices to protect tenants from unfair rent increases, while still allowing property owners to increase rent at a regulated, fair rate.

As a tenant in a rent-controlled apartment you’re entitled to eviction protections and you may continue to live in your apartment indefinitely even if your landlord doesn’t offer lease renewals. Keep in mind, these apartments are known to be quite difficult to find. 

States With Rent Control Laws

Rent control is not widespread in the U.S. In fact, 37 states have laws that forbid local governments from enacting rent regulation. According to a study conducted in 2019 by the Urban Institute, 182 municipalities in the U.S. have rent control laws.

The states with rent control laws include New York, New Jersey, California, Maryland and Washington, D.C. In 2019, the state of Oregon enacted a statewide rent control regulation making them the first state to do so.

How Does Rent Control Work?

Rent control is meant to regulate the housing market and protect renters from getting priced out of their current homes if the area becomes more popular. For example, in New York City, rent controlled apartments operate under the Maximum Base Rent (MBR) system.

Under this system, the Division of Housing and Community Renewal (DHCR) determines a maximum base rent and a maximum collectible rent for each individual apartment. Adjustments to the maximum base rent are made every two years to reflect changes in operating costs.

Though rent control is meant to solve the issue of affordable housing for middle- to lower-income families, it is enacted by municipalities and varies from state to state.

The first set of rent control laws were introduced in the 1920s. Following World War II, the economy spurred dynamic labor market growth in several cities, forcing rents to increase. This caused local policymakers, most notably those in New York City, to implement price ceilings and rent freezes.

During the 1950s housing boom, most cities abandoned this strict version of rent control, commonly known as first-generation rent control and made new efforts to enact a newer policy that took off in the 1970s.

When an apartment is rent controlled, the landlord is not allowed to increase the rent past a certain amount, which is usually below market value. Any rent increase must be in line with guidelines established by the city or state. Within these outlines different kinds of rent control are formed.

Vacancy control also known as “true rent control” is when a tenant moves out and the landlord can only raise the rent to the limit set by a rent control board. The rent can only be raised by a limited amount each year.

Vacancy decontrol is when a tenant moves out, the landlord can increase the rent up to whatever the market will bear. In certain places, the new rent is restricted at a certain percentage over the previous rent. When the new tenant is in place, they will only pay a limited increase each year.

What Does Rent Control Mean For The Housing Market?

Rent control, as mentioned earlier, is meant to regulate the housing market. From a tenant’s perspective, rent control seems like a pretty good deal. However, like a lot of wide-reaching economic policy, it’s not so straightforward in practice. There are some unintended consequences of rent control that many economists think outweigh the positive effects.

Rent control in the short run seems helpful, especially for renters who might not be ready to buy a house just yet. But in the long run, rent control potentially decreases affordability, fuels gentrification and creates negative spillovers on the surrounding neighborhood.

Sometimes landlords with limited profits may let their rental properties diminish in quality through a lack of investment in maintenance and improvements until it reaches a level supported by the below-market rents. They also might convert an apartment into a condo to get around rent control laws entirely.

Pros And Cons Of Rent Control

Though rent control has its many advantages, it also comes with some drawbacks. 

Pros

• Rent regulation can allow low-income residents or families to live comfortably without the fear of large rent increases.
• Rent-controlled apartments can encourage existing tenants to stay long term, thereby stabilizing the neighborhood community.
• With rental rates rising faster than the average work wages for moderate-to-low-income residents and families, rent control can keep rental housing prices fair and affordable.

Cons

• Landlords can see smaller profits, and the quality of their rental properties can diminish from it.
• Some landlords may convert their rental property to condos to get around rent control laws, removing the property from the rental market and further limiting available housing.
• Rent control can discourage people from investing in real estate in certain cities.

The Bottom Line

All in all, rent control can be beneficial because it protects vulnerable lower- to moderate-income families from expensive rent prices. Many economists argue that rent control can be destructive because they create housing shortages and discourage investment.

It’s important to think about whether you are looking for something long-term or short-term when browsing property in a rent-controlled area. Make sure to read more about whether you should rent or buy so that you can weigh your options and choose which housing situation will better benefit you.