The cost of renting has increased significantly over the past few years in major urban communities, so to many, the idea of rent control will sound appealing. Placing a cap on rent increase could be the solution to the problem of the supply and demand of housing, but a deeper look reveals both sides of the coin. Here we’ll look a little deeper into the issue, plus explain more about what rent control is, plus how it differs from state to state.

Photo by Fas Khan on Unsplash

What is rent control?

In its most fundamental sense, rent control sets limits on either rent itself or rent increase. Rent regulations place a cap on the landlord’s price on a home lease or even on a lease renewal acting like a rent ceiling. Rent control laws vary not just by state, but by the municipality, and they do so extensively. Rent control laws are meant for lower-income residents to keep living costs (or at least one aspect of it) affordable.

Out of 39,000 municipalities in the United States, only 182 have rent control regulations — all of them in major cities found in New York, California, Maryland, and Washington D.C. Statewide rent control is starting to happen with Oregon as the first to enact the law that restricts annual rent increase to 7% including the inflation in March 2019. California is the second state to enforce a statewide rent control law which restricts annual rent increase to 5% plus inflation.

On the other hand, 37 states have policies that prohibit its local governments from enacting policies on rent control including Nevada, Pennsylvania, and Virginia, a few of which have experienced persistent rent hikes since 2014. And with the oncoming gentrification brought about by Amazon’s second headquarters in Northern Virginia, which does not have any form of rent control, local realtors are forecasting that rent prices are about to hike up very soon in the area and in its neighboring communities.

What is Bernie Sander’s proposed policy?

Buzzing cities like New York and San Francisco have appalling rent rates that increase on an annual basis. The Democratic Party presidential candidate is proposing a nationwide cap on annual rent increase to 3% or one and a half times the inflation rate, whichever is higher.

Sander’s $2.5 trillion housing plan which he unveiled in September of last year not only includes nationwide rent control but also includes plans to end homelessness with billions of dollars in investment, build mixed-income housing projects, repair public housing stock, and establish community land trusts across the country. To fund these changes, Sanders intends to implement a wealth tax on the top one-tenth of 1% of US households.

Is nationwide rent control a good idea?

Rent control policies are meant to protect lower and middle-income groups including the elderly from rent increases brought about by gentrification. However, in a study about rent stabilization by Cambridge, it was found that the three target groups of rent control, the poor, the elderly, and families, still rented in both controlled and uncontrolled units.

A landlord may increase rent for a number of reasons. One of which is if the surrounding rentals in the area raise prices in which the landlord may need to compete in the fair market. Another is if the landlord has done major improvements or renovations, which in some cases, he may even increase rent mid-lease. An increase in operating expenses including utility bills and property taxes can also be a reason for a rent hike. However, rent control may mean less maintenance on the units and can even affect the surrounding area.

Even internationally, rent prices are rising and rent control seems to be a solution from rate inflation. In London, rent prices increased by 1.2% in December. With many tenants unable to afford their own homes and tax reforms deterring landlords, there is an increasing amount of vacancies. And rent keeps rising. Londoners can expect to pay 15% more for rent by 2023.

Canada is also experiencing an increase in rent rates, especially in big cities like Vancouver and Toronto. According to Real Estate experts Buttonwood, Canada has experienced an annual increase of 9.4% in its rent in 2019 and the market doesn’t seem to be slowing down.

Why are some opposed to rent control?

Areas that sport a number of rent-stabilized or rent-controlled buildings and units can deter new construction in the area. New construction typically requires higher rent. With numerous rent-stabilized properties in the surrounding area, it may be difficult to attract new tenants especially with the competition of lower rent.

Plus, with landlords receiving lower rent than market value because of the municipality’s rent control policies, many will cut costs to make a profit or even pay the bills. As a general effect, there is an increased rate in the deterioration of such buildings.

Photo by Christian Wiediger on Unsplash

Where does rent control work?

Historically, New York has been one of the first cities to implement a form of rent control policy. Stemming as an effect of World War 2, legislators implemented the War Emergency Tenant Act as a means of protecting tenants from housing shortages brought about by the war. Economists argue that it is a bad idea, constraining the supply of affordable housing. But removing rent control completely can actually lead to less affordable housing.

However, looking at San Francisco, New York, and Washington D.C., rent control seems to thrive in its high urban areas. Rent-controlled areas allow tenants some protection against the “prohibitive cost of living in a housing market where affordable options are quickly vanishing”. Given that these are considered some of the best cities to live in, rent control can actually attract a higher quality of tenants while allowing original tenants to live comfortably.

What’s your view on rent control or nationwide rent control? Let us know in the comments below!