Beware the Comeback of Rent Control

The U.S. rental housing market has come under increasing strain recently. As homeowners with unsustainable mortgages have to leave their homes and fewer home buyers are able to qualify for new mortgages, more people are looking for places to rent. As a result, rental vacancy rates have fallen from 11.1 percent in the third quarter of 2009 to 8.6 percent in the third quarter of 2012. With affordable housing already in short supply, there is growing concern that stronger protections are needed to prevent rents from rising too fast, pricing more low-income and vulnerable renters out of the market.

One idea to protect renters that may be getting renewed interest is rent control. Rent control policies have been tried in a number of cities, first during World War II and later again in the 1960s and 1970s. Relatively few places have rent control today though and most states have laws prohibiting the practice. Given the challenges in today’s rental market, does rent control deserve a second look?

 

A scan of the research literature revealed very little evidence that rent control is a good policy. Arguments against rent control go back as far as the 1970s and the RAND housing allowance experiments in New York City. More recently, a MIT study of the 1995 repeal of rent control in Cambridge, Massachusetts, found that investment in housing increased after rent control ended, leading to “major gains in housing quality.” A National Bureau of Economic Research paper also examined the Cambridge experience and concluded that “elimination of rent control added about $1.8 billion to the value of Cambridge’s housing stock between 1994 and 2004, equal to nearly a quarter of total Cambridge residential price appreciation in this period.” These findings have been used to argue for removal of rent control in New York and other places.

In a comprehensive overview of the research literature, Blair Jenkins examined studies of different aspects of first-generation rent control (strict price ceilings) and second-generation (limits on increases, also referred to as rent stabilization). The upshot is that, at best, rent control does little harm but probably not much good and, at worst, it has negative impacts on landlords and tenants. There is near universal agreement that strict price ceilings, such as the kind imposed in New York City in the 1940s, are always bad because they severely inhibit housing production and investment. Even those most sympathetic to rent control seem to agree with this.

 

 

 

 

That leaves the softer, rent stabilization policies, like those currently in place in New York City and Washington, D.C. These regulations place limits on how much landlords can raise rents on sitting tenants, but generally allow much larger rent increases for new tenants. They also often allow exceptions for landlords to pass along certain costs to tenants, such as capital improvement costs or utility charges.

On rent stabilization, the strongest finding in Jenkins’s overview appears to be that tenants in noncontrolled units pay higher rents than they would without the presence of rent control; one reason being that landlords need to make up the difference for lower rents in controlled units. Interestingly, one study found that New York City tenants in controlled units also had higher rents initially, because they were willing to pay more to get into a rent-controlled unit with the understanding that they would have smaller rent increases in the future. The net effect, however, is that tenants don’t save much in the long run—they simply trade higher rents now for lower rents later.

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. A study of rent stabilization in Cambridge, for example, concluded that “the poor, the elderly, and families—the three major groups targeted for benefits of rent control—were no more likely to be found in controlled than uncontrolled units.” And, as noted earlier, those in uncontrolled units tend to pay higher rents, so they are actually hurt by rent control.

Given the current research, there seems to be little one can say in favor of rent control. What, then, should be done to help renters obtain affordable, decent housing? A better approach may be adopting policies that encourage the production of more diverse types of housing (different densities, tenure types, unit sizes, etc.), implementing strong regulations and practices to ensure housing quality and to protect tenants from abuses; and providing targeted, direct subsidies to people who need help paying their rents.

 

Source: The Atlantic Cities

Attempts to Re-Establish Rent Controls In Boston Never Died

Rents North of Boston Up 9 Percent in 5 Years; Rent Control Needed?

By John List, Esq. on August 31, 2012 3:08 PM

If there’s one thing that a recession does, especially when there is a housing crisis, it’s to increase rent. In the communities north of Boston, rents increased by 8.9% to an average of $1,427, while vacancy rates dropped from 7.8% to 4% in the same amount of time, according to the Boston Globe.

These factors have led to a shortage of housing for low- to moderate-income renters, reports the Globe. If this trend continues, should Boston or other locales reconsider rent control or rent stabilization?

Rent control is a law or regulation that controls the amount of rent that can be chargedand limits how much rent can increase over time. Some states specifically forbid rent control, while others allow municipalities to enact rent control laws at their option.

In 2003 and 2004, the Boston City Council considered a rent control law. The proposed Rent Stabilization legislation would have applied to all buildings with four or more units, as well as non-owner-occupied three-unit dwellings. The main goal was to limit the times when rent could be increased and the amount that it could be increased.

But the legislation fell through, and so Boston is still without any rent control laws. However, it is unlikely that the law would have kept rent from rising less than it did over the past five years. The law would have allowed for a maximum 5% increase per year for low- to moderate-income, elderly and disabled tenants, and a maximum rent increase of 10% per year for everyone else.

While rent control laws are meant to help people keep lower rents, from this recent report it does not seem like there has been any abuse of renters, at least in the communities north of Boston. Perhaps rent control will come up again in the future if evidence of massive abuse comes to light.

 

Source: Boston Real Estate Law News