The cost of housing has been on the rise for decades, often at a faster rate than wage increases. This disparity has led cities and states to enact laws limiting the maximum amount rents can increase annually. Many people have heard of this phenomenon, but unless you currently live in an area with this type of policy, you are probably wondering exactly what is rent control?
Rent control policies are one way that state and local governments attempt to keep the cost of living reasonable for lower to middle-income residents. If you are a renter, it is important to familiarize yourself with rent control and other housing laws before signing a lease in a new place. For property owners and landlords, it is crucial to understand and follow these regulations accordingly. Keep reading to learn more about rent control and how it might impact you.
What Is Rent Control?
Rent control is a type of regulatory policy enacted to keep housing costs affordable for residents. Many large cities experience consistently high demand for housing, which causes average rents and purchase prices to increase accordingly. Rent control aims to regulate these increases, so residents can still afford the cost of living. Rent control is commonly used alongside the term rent stabilization, which refers to a similar type of policy.
In the United States, rent control dates back to the early 1900s in Washington D.C. These laws became more common in the 1950s as states began to actively regulate their housing markets. Rent control laws are frequently enacted following times of economic downturn. Today, these regulations are still most common in large urban areas like New York City or San Francisco; though, four other states and Washington D.C. have some form of rental control.
[ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]
How Does Rent Control Work?
Rent control legislation will typically do two things: regulate monthly rent for active tenants and limit how much rent can be raised between tenants. These two types of policy are set on a state and local level and look slightly different in practice:
-
Vacancy Control: This policy is typically what people picture when looking at rent control. Vacancy control limits the amount rents can be raised between tenants, often as a maximum percentage above the previous rent. In these areas, there is also often an annual limit on rental increases.
-
Vacancy Decontrol: Decontrol allows landlords to raise the rent up to the market average between tenants. The rent is then regulated once tenants move into the property, with a maximum percentage increase per year. Vacancy decontrol means your rent cannot rise more than a certain amount as long as you live in the property.
Consider rent control in San Diego as an example of vacancy decontrol. Landlords can set monthly rent at the property’s market value when renting a property for the first time. The rent control laws focus on current tenants and limit the maximum rent increase at five percent annually, plus the inflation rate (which is determined by the California Consumer Price Index). The total rent ceiling is ten percent, meaning even if inflation were determined to be 7 percent, the maximum rental increase would still only be ten percent that year.
Tenant Protections
The main goal of rent control regulations is to protect the residents of a locality from being priced out of the area. These laws prevent landlords from enacting steep rental increases between lease terms, which could prevent tenants from living there. While people moving into a new area may be able to afford more expensive rents, rent control laws aim to prevent people from being displaced from their homes due to market activity. Rent control laws are also often coupled with eviction regulations — which are aimed to further protect tenants from a steep rental increase. Many rent control laws will ban evictions without just cause to prevent landlords from kicking out tenants so they can increase the rent.
New Construction
Rent control laws are not exclusive to older buildings; they can also be applied to new construction. In many cities, real estate developers must set aside certain units for below market value rent to get the construction plans approved. This is another way for cities to protect residents from being forced out of an area as it is developed.
Rent Control & Landlords
Rent control has a bad reputation among landlords and property owners. A common concern is that by capping the rent at a certain rate, landlords will lose income on the property from month to month. Landlords are still responsible for maintaining the same amount of amenities and repairs, regardless of whether or not the property is rent-controlled. If these costs surpass the maximum rental amount, it can undermine a landlord’s bottom line. Keep in mind that the most common type of rent control law allows landlords to raise the rent to whatever they want in between tenants. If you consider how most rental properties have multiple units, there are ways to make up for any lost income between tenants on rent-controlled buildings.
Pros & Cons Of Rent Control
As you might expect, there are arguments both for and against rent control regulations. The deciding factor often comes down to which side of the equation you are on: landlord or tenant. However, it is still important to do independent research within the real estate industry and stay informed on all aspects of regulatory housing policies. Not only can this practice help you improve your living situation, but it can also guide your future investment choices. Here are some of the pros and cons of rent control:
Advantages Of Rent Control
If you have ever rented an apartment in a large city, you may already be familiar with the benefits of rent control. After all, these policies can keep popular market areas accessible to existing residents. Here are a few pros to consider when looking at rent control policies:
-
Rent control helps ensure that tenants will still be able to afford the cost of living, even in areas where income does not rise at the same rate as housing costs.
-
These policies can protect tenants from evictions without cause, preventing them from losing housing unexpectedly.
-
Low to moderate-income families, the elderly, and other vulnerable populations can live without fear of displacement due to rent increases.
-
Limits on rent prices allow tenants to stay in neighborhoods long-term, creating more stability within communities.
Disadvantages Of Rent Control
There are two sides to every story, and the same applies when it comes to policy regulations. Rent control is associated with a few major disadvantages that can impact both landlords and tenants. Be sure to consider the following potential downsides of rent control:
-
Landlords may be tempted to neglect regular maintenance to increase profit margins on rent controlled properties.
-
Many rent control policies only regulate older buildings, often leaving tenants who are searching for affordable housing without up-to-date amenities.
-
Real estate investors may be discouraged from building or renovating properties in a rent controlled area, leading to less development.
-
Rent control can reduce the housing supply if building owners attempt to convert the property to maintain profits, for example converting residential properties to commercial.
How To Find Rent Controlled Apartments
Rent control is a well-known but not exactly widespread form of public policy. While there are a few states with some form of rent control laws, there are even more states that have banned them altogether. Essentially, searching for rent-controlled housing probably only applies to you if you live within a large urban area. That being said, within these cities, there are a few ways you can find a rent-controlled apartment:
-
Inherit a Rent Controlled Unit: The best way to secure a rent-controlled apartment is by taking over the lease from a previous tenant, a situation that is unfortunately hard to come by. Most people in rent-controlled units pass them down within their families. You may be required to show that you are family or have close ties with the original tenant before permitting you to take over the lease. Further, you may be required to live in the unit with the original tenant for a designated amount of time.
-
Search for Older Buildings: Many rent control policies regulate buildings built before a certain year. For example, in New York City, many rent stabilization laws apply to properties built before 1964. Research the rent control laws in your area to determine whether this applies to your city. Then, search for rental listings that meet the requirements to find out if they are rent-controlled.
-
Check for a City Database: Look online to see if your city or state has a database of all the rent-controlled properties. This information is typically available on the local housing board’s website, and it should be available through a quick internet search. While it may be hard to sift through when looking for available units, this is your best shot for finding a rent-controlled apartment without connections to a current tenant.
Summary
Answering “what is rent control?” is a relatively straightforward process. However, deciding whether or not these policies are beneficial to a community is where it gets more complicated. Rent control policies were initially created to protect tenants from rising housing costs, a concern that is becoming increasingly more important to address. Since their creation, these policies have gotten harder to enact as many people do not see the benefit of interfering with the housing market. Regardless of whether you support rent control or not, the concept can still be helpful to understand as you venture into the world of real estate investing.
Have you ever owned or lived in an apartment unit with rent control? Share your experience in the comments below.
Ready to start taking advantage of the current opportunities in the real estate market?
Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!
