What is rent control, how it works, and how it affect your housing market
A monthly rent payment or mortgage is easily the biggest expense in most personal budgets: The average American spends 37% of their take-home pay on housing costs. Especially for renters who live in high-cost cities, having an affordable home can make a huge difference in your quality of life, freeing up extra cash for concert tickets, restaurant meals, or that perfect new jacket.
Finding a rent controlled apartment is one way to keep your housing cost low; but these rental units are increasingly hard to find, and in some, you have to live there for a long period of time to really reap the financial rewards of rent control. Read on to learn the ins and outs of rent control and how it could impact you.
Table of contents
What is rent control?How does rent control work? Who determines rent increases? Renter protections New constructionArguments for and against rent control Where can you find rent controlled apartments?
What is rent control?
Rent control is a broad term for legislation that limits rental rates in a city or state. Rent control laws vary by municipality, but they generally put a ceiling on the maximum rent that can be charged for a unit, as well as the amount that the rent can be increased per year. Rent control laws are one way cities regulate the housing market.
The aim of these price controls is to maintain a base of affordable rental housing for low- and moderate-income tenants. Rent control is more common in cities where competition for limited housing stock raises market rate prices (the price determined by the free market, rather than set by the government) out of reach for these residents.
Rent control laws often follow affordable housing shortages, for instance, amid wars or economic downturns. New York City has the longest-running rent regulations in the country, beginning in 1943. These early laws came from the federal government and initially completely froze rent in the city to prevent inflation in housing prices. The state took over rent regulation in 1950, and has adjusted the rules as necessary since then, most recently in 2019.
If you’re looking at apartments in New York City, note that the terms rent controlled and rent stabilized are used for two similar rent regulation programs.
How does rent control work?
Rent control is most common in cities where housing is limited or extremely expensive, or both (looking at you, San Francisco!). When an apartment is rent controlled, the landlord cannot raise the rent past a certain limit, which is usually much lower than the market rate.
Any rent increase must be in line with guidelines established by the city or state. Within these broad outlines are different kinds of rent control.
- Vacancy control (“true rent control”): In this scenario, when a tenant moves out, 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: When a tenant moves out, the landlord can increase the rent up to whatever the market will bear. In some places, the new rent is capped at a certain percentage over the previous rent. When the new tenant is in place, he or she will only pay a limited increase per year.
New York City has slightly different terminology for its two main types of rent regulation, both of which can cover individual units or whole buildings.
- Rent control: These units are rare (only about 1% of rental units) because the current tenant must have been living in the same apartment since 1971. The rent increases incrementally and cannot exceed a “maximum base rent” that basically just covers the landlord’s cost for upkeep of the unit. When the tenant moves out, these apartments usually convert to rent stabilization.
- Rent stabilization: This program applies to buildings constructed before 1974 that have six units or more, and covers about 44% of rental units. Rent stabilized tenants see a limited annual rent increase.
Who determines rent increases?
Either the city or the state. In New York City, the Rent Guidelines Board votes every year on how much landlords will be allowed to raise the rent. For the last ten years the percentage increase has been between 0% and 4.5% for a one-year lease. In Oregon, where rent control laws apply statewide, the yearly allowed increase is 7% plus inflation.
Renter protections
A side benefit of rent control laws is that they protect tenants from eviction without cause. If you signed a lease on a rent-controlled apartment, your landlord is obligated to renew it each year.
New construction
Most rent controlled units are older, but the laws can apply to new construction too. In order to get new rental buildings approved, real estate developers in some cities have to guarantee that a certain number of units will be rented for below market rates. This is sometimes paired with income guidelines for the tenants to make sure that the benefits are going to the people who need them most.
Keep in mind that rent control laws are local, so research the specific laws of your city before making a decision about renting an apartment.
Arguments for and against rent control
From a tenant’s perspective, rent control seems like a good deal, right? Rent control is supposed to protect renters, but like every 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.
To get a better understanding of the whole picture, let’s start with the benefits of rent control:
- Affordability. The most obvious benefit! The lower prices of rent-controlled apartments make housing affordable to low- and moderate-income people. This is important because in expensive cities, workers’ wages often do not keep pace with rising rents.
- Prevents displacement. Many people living in rent-controlled apartments are elderly, and may not be able to afford market-rate housing in the same area. This also applies to younger people who grew up in a city that rapidly becomes more expensive.
- Neighborhood stability. Areas with a high proportion of rent-controlled units tend to have less turnover. Long-term tenants form strong community ties and are invested in the safety and prosperity of the neighborhood.
Economists have argued that rent control is not actually as beneficial for renters as it appears. These are a few of the reasons why:
- Poor housing conditions. If landlords cannot raise rents to meet their maintenance costs, they have less money to reinvest in their buildings, leading to decrepit conditions. Sometimes landlords will purposefully (and illegally) withhold necessary repairs from the apartments of existing tenants to force them out.
- Less available rental housing. One way landlords deal with lost income from rent-controlled apartments is to convert those units into market-rate condos, taking them out of the rental market entirely.
- Disincentivizes new rental development. Land developers are more likely to build condos than apartments if some or all of the units in the apartment building would be subject to rent control.
- Higher rents overall. When landlords make less profit from rent-controlled units, they compensate by raising the rents on their market-rate units. This artificially increases the going rate for housing units, negatively impacting market-rater renters.
Where can you find rent controlled apartments?
Rent control is so controversial that 37 states actually prohibit rent control laws. Rent control regulations are enacted in five states, plus the District of Columbia: New York, New Jersey, California, Maryland, and Oregon. In California and Oregon, the rent control laws apply to the whole state, while in the other areas, rent regulation is in place only in specific cities.
New York City has the majority of the rent controlled or rent stabilized apartments in the US: about a million units, or over half of the city’ rental housing. Washington, D.C., San Francisco, and Los Angeles are all cities where rent controlled units make up at least half of rentals.
Even in the handful of cities where they exist, rent controlled apartments are hard to find because renters tend to stay put in them. If you’re searching for a rent controlled apartment, keep your eye on older buildings. Your city’s rent or housing board website may have a database of rent controlled units that you can check against rental listings.
The push and pull of landlord versus tenant is an ongoing struggle in any city with more aspiring renters than there are places to live. Rent control may not be a perfect solution, but it does favor renters who are able to find those rare regulated units. If you understand the system, you can use rent control to your advantage to help you find and keep an apartment in an expensive city.
Rent controlled apartments are often hard to come by. Bungalow offers an alternative: affordable private rooms in shared homes that cost an average of 30% less than market-rate studio apartments in the same neighborhoods. Wifi, utilities, and monthly cleaning are set up before you move in, and all roommates are vetted, so that coliving is seamless. Find a Bungalow near you.
Source: bungalow
