Throughout its history, rent control legislation in the United States has been used to help control prices in the rental market -- and act as a safety net for those in need.

Detractors of rent control argue that it has the opposite effect, diverting funds from those most in need while resulting in an apartment shortfall in the rental market, while also reducing future supply.

Read on as we take a look at rent control across the United States and examine whether or not it’s an effective tool...

 

History of Rent Control

 

Rent control as we know it was first introduced in the 1920s, as a post-WWI economic boom saw New York City rents rise dramatically. In response, the local government implemented sweeping rent control regulations in an attempt to curb the rising rents and prevent residents from being displaced.

These laws remained in place in New York City (with similar regulations enacted in Los Angeles, the Bay Area and a few other areas on the east coast) -- until the mass exodus to the suburbs in the 1950s saw the regulations removed in many cities. It wasn’t until the 1970’s that the next wave of rent control laws was introduced in the US.

Unlike the first generation laws, newer rent control laws focused only on certain building types and for that reason, a new term “rent stabilization” was coined.

These days, the particulars of rent control vary by city, and even by neighborhood. In New York City, there’s an interesting mix of rent control laws in place: apartments in some buildings falling under the original rent control regulations, and other apartments that are governed by the comparatively more relaxed rent stabilization laws.

 

Types of rent control


First and foremost, rent control laws seek to help existing tenants and those looking to move to or remain in certain areas. The laws do this by helping encourage the availability of affordable housing while also providing a sense of stability by preventing against sudden rent increases and unlawful eviction.


Let’s break down the main forms of rent control laws and look at what they seek to achieve:

 

1. First Generation Rent Control


The original rent control laws, first popularized in New York City are what comes to mind when many people think of rent control. Among other restrictions, these laws often set an upper limit on rent for an apartment. With standard annual increases, when the upper limit for the apartment was hit, that’s where it would remain, at least until the original tenant leaves the apartment.


Many of the original rent control laws mandate that once the original tenant leaves the apartment, the space can be deregulated, leaving the landlord free to charge rent in line with the market rate. For this reason, apartments governed by first-generation rent control laws are becoming something of a rarity in NY and other areas.

2. Rent Stabilization


Rent stabilization, also known as “vacancy control” works by allowing landlords to make incremental rent increases for current and future tenants -- meaning that even when a tenant vacates an apartment, the next tenant can expect to pay similar rent.

The laws are in place to cap the amount a landlord can increase the rent for tenants both annually and at the end of the contract period when tenants are looking to re-sign. Generally, this amount takes into consideration inflation in the local area.

In some areas (like San Francisco), landlords are also able to petition for additional rent increases to fund either improvements to the property (up to 10% annually) or increased operating or maintenance costs (up to 7% annually).

3. Second Generation Rent Control


Also known as “vacancy decontrol," the latest form of rent control seeks to satisfy both long term tenants and landlords. These regulations prevent overly large rental increases for existing tenants, ensuring landlords stay within the annual limit.

The biggest difference here is that when a tenant leaves the property, landlords are free to increase the rent in line with the market rate for the next tenant. From there, the landlord is obliged to maintain annual increases in line with rent control regulations.

 

Aims of Rent Control


Since their introduction, rent control laws have evolved to meet the needs of society. Here’s a breakdown of the major goals rent control laws seek to achieve:

Prevent Displacement


Traditionally, rent control laws have been used as an anti-displacement tool to prevent low-income earners and marginalized communities from being priced out of desirable neighborhoods and other areas of growth.

Stop unlawful eviction


As a way of skirting original rent control regulations, landlords have been known to unjustly evict tenants and bring in new occupants at a significantly increased rate. In response to this practice, rent control laws have evolved to govern the reasons landlords are legally able to evict a tenant, and what they can charge the next tenant for the apartment.

Give security to tenants


At its core, rent control seeks to provide a level of security to tenants. Rather than living on edge and risking begin hit by a large rent increase out of the blue, tenants in rent-controlled apartments instead have more predictability in that they can expect manageable, yearly rent increases.

 

Which cities have rent control laws?


Over the years, rent control has failed to spread beyond the coasts of the United States, with only four states (and Washington DC) enforcing rent control laws. Today, the largest cities with rent control or rent stabilization laws in place are New York City, San Francisco, Los Angeles, and Oakland.

Thirty-seven other states either prohibit or preempt rent control, while a further nine states officially allow rent control laws, but have none in place.

Rent control for landlords

While rent control is a big win for tenants across the country, landlords historically haven’t felt the benefits. Depending on the apartment and the area, rent control may mean a landlord has to rent an apartment to a tenant for well below the market rate.

As with traditional rental agreements, landlords of rent-controlled apartments are still responsible for paying all costs related to the maintenance and upkeep of the apartment. For this reason, there are instances of rent-controlled apartments actually costing the landlords money.

 

Options for landlords

As we mentioned above, there have been many instances of landlords trying to (often unjustly) evict tenants to allow them to charge more for apartments. As laws have evolved to prevent this, they have also incorporated regulations to be as fair as possible for landlords.

Automatic deregulation

Many apartments governed by first-generation rent control laws are automatically deregulated when the original tenant moves out. This leaves the landlord free to charge the market rate for rent.

Income

Some regions have built in regulations that when a tenant reaches a certain income level for two consecutive years, their rent increases to the market rate.

Primary residence

Many areas allow an apartment to be deregulated if a landlord plans to move into it as their primary residence.

Buy out


Some owners have attempted to get around rent control laws by buying out their former tenants, allowing them to hike the rent in line with the market rate.

Regional differences


As you might have guessed, rent control laws vary dramatically by region. While some cities and states have blanket regulations, things like the age of the building and your income level can influence the amount landlords can charge. The good news is, most cities and states have information readily available that outlines your rights in regards to rent control legislation.

Arguments against rent control


For all its benefits, rent control is not without its detractors. Here are some of the major arguments against rent control:

  • It creates a shortfall


One of the biggest arguments against rent control is that it creates a shortfall in the property market. Economists argue that price ceilings, typical or first-generation rent control increase demand in a city’s rental market while also reducing supply.

  • It can promote gentrification


Some economists claim that rent control actually helped to accelerate the gentrification of the Mission district in San Francisco, by encouraging landlords to remodel buildings as a way of legally evicting their tenants, while others entering the property market in the city chose to develop high-end, luxury condominiums in order to ensure they avoided the rent control trap and turned a profit.

  • It reduces availability

Some have argued that blanket rent control regulations actually decrease housing supply by discouraging landlords and developers from constructing new affordable housing.

  • It ignores those in need

Some also say that rent control diverts funding away from those most in need (low-income households and those at risk of homelessness) with middle-class individuals that can afford apartments benefiting instead.

  • It causes a reduction in building quality

Critics of rent control have claimed that by reducing the rental income collected by landlords, building with rent-controlled apartments are more likely to fall into disrepair as landlords either can’t afford to carry out maintenance and make repairs or don’t see the benefit in doing so.

The Future

Across the county, rent control regulations are at a crossroads. While some states and cities look to expand regulations to cover more of the population, others are looking at scaling them back. Here are a few recent developments that stand to affect the future of rent control.

 

Proposition 10

 

In California, a growing number of residents are currently pushing for Proposition 10, seeking to repeal the Costa-Hawkins Rental Housing Act. Originally voted in by the people, the act places limitations on the types of properties that can be rent controlled. According to the act, single occupancy residential homes and apartments built after 1995, among others, aren’t eligible for rent control.

In California, the act also prevents vacancy control, meaning that even in rental controlled apartments, if the former tenant leaves, landlords are able to hike the price to reflect the current market rent.

While Proposition 10 itself doesn’t include any new legislation, if it were to pass, local governments within the state of California would be free to enact laws of their own to extend the benefits of rent control to more properties and residents across the state.

One thing those on both sides of the debate can agree on is that the ultimate solution here is for governments to build more, not just high-end properties, but also affordable housing stock to ensure there is adequate housing in our growing cities.

 

Rent control in Oregon

Oregon lawmakers made history in February by imposing state-wide rent control legislation effectively protecting tenants throughout the whole state. The law was in response to unsustainable rental increases in Portland and other cities, where residents are increasingly being priced out of the city.

In a nutshell, the legislation limits landlords to annual rent increases in line with inflation plus an additional 7%. The laws also protect tenants from unjust eviction by placing a rental freeze on apartments when a tenant has been evicted. The state is also doing their best to encourage the creation of new housing stock by providing a rent control exemption for all buildings 15 years old or newer.

While there are differing opinions on the effectiveness of rent control legislation, it remains an important tool in the fight to prevent displacement and ensure housing availability for those in need. The success of new legislation on the west coast will be an interesting test that will no doubt influence the future of rent control laws across the country.

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