Rent control 419900 222915474 2008-07-01T18:51:24Z Rsradford 1057047 /* Further reading */ added recent publication {{Refimprove|date=October 2007}} :''This article is about a rent ordinance. For the movie of the same name, see [[Rent Control (film)]].'' '''Rent control''' refers to laws or ordinances that set [[price control]]s on the [[rent]]ing of residential housing. It functions as a [[price ceiling]]. ==History of Rent Controls in America== In the [[United States]] during [[World War I]], rents were "controlled" through the efforts of local rent anti-profiteering committees and public pressure. Between 1919 and 1924, a number of cities and states adopted rent and eviction control laws. Modern rent controls were first adopted in response to [[World War II|WWII]]-era shortages, or following [[Richard Nixon]]'s 1971 wage and price controls. They remain in effect or have been reintroduced in some cities with large [[tenant]] populations, such as [[New York, New York|New York]], [[San Francisco, California|San Francisco]], Los Angeles, [[Washington, DC]], and [[Oakland]], [[California]]. Many smaller communities also have rent control, notably [[Santa Monica]], [[Berkeley, California|Berkeley]], and [[West Hollywood]], [[California]][http://www.dca.ca.gov/publications/landlordbook/appendix2.shtml] along with many small towns in [[New Jersey]]. In recent years, rent control in some cities, such as [[Boston, Massachusetts]] and [[Cambridge, Massachusetts]], has been ended by state [[referendum|referenda]]. New York has had the longest experience of rent controls, since 1943, with most residents being unable to remember a time beforehand. The period has been marked by the lack of an "adequate supply of decent... housing".<ref>http://www.tenant.net/Oversight/50yrRentReg/history.html</ref> The worsening in the rental market led to the enactment of the Rent Stabilization Law of 1969, which aimed to help increase the number of places put up for rent. The current system is very complicated, which is especially troublesome as most of the protected renters are elderly, <ref>http://www.metcouncil.net/factsheets/rentcontrol.htm</ref> and understanding the city's complex rent-control regulations is difficult even for experienced lawyers.<ref>http://www.metcouncil.net/campaigns/rentregs.htm</ref> In some regions rent control laws are more commonly adopted for [[mobile home]] parks. Reasons given for these laws include residents owning their homes (and renting the land), the high cost of moving mobile homes, and the loss of home value when they are moved. [[California]], for example, has only 13 local apartment rent control laws but over 100 local mobile home rent control laws. No new mobile home parks have been built in [[California]] since 1991.<ref>Presentation to Ceres City Council, Ceres, California, by staff in rent control study, 2005, I think.{{Fact|date=October 2007}}</ref> ==Purpose and scope== Although the political debate over rent control is far-reaching, as described below, the purposes and provisions of such laws are intended to be limited in scope. They define which rental units are affected, and may have only larger or older rental complexes covered by the law. The frequency and degree of rent increases are limited, usually to the rate of inflation defined by the [[Consumer Price Index]] or to a fraction thereof. (San Francisco, for example, allows annual rent increases of 60% of the CPI, up to a maximum 7%.[http://www.sfgov.org/site/rentboard_page.asp?id=4143]) Unregulated rent increases may be allowed when a tenant moves ("vacancy decontrol"). Rent-control laws that don't include vacancy decontrol are called '''strong rent-control''' laws. Such laws were in effect in five [[California]] cities ([[West Hollywood, California|West Hollywood]], [[Santa Monica, California|Santa Monica]], [[Berkeley, California|Berkeley]], [[East Palo Alto, California|East Palo Alto]] and [[Cotati, California|Cotati]]) in 1996, when AB 1164 (known as the Costa/Hawkins Bill) made strong rent-control unenforceable in [[California]] (except in special cases like [[Trailer park|mobile home parks]]).<ref>{{cite web |url=http://www.leginfo.ca.gov/pub/95-96/bill/asm/ab_1151-1200/ab_1164_bill_950804_chaptered.html |title=AB1164 Bill Text |accessdate=2007-12-01 }}</ref><ref>{{cite web |url=http://www.leginfo.ca.gov/cgi-bin/waisgate?WAISdocID=54466513106+0+0+0&WAISaction=retrieve |title=California Civil Code Sections 1954.50-1954.535 |accessdate=2007-12-01 }}</ref><ref>{{cite web |url=http://www.tenant.net/Alerts/Guide/papers/dreier/dreier2.html |title=Rent Deregulation in California and Massachusetts: Politics, Policy, and Impacts - Part II |author=Peter Dreier |date=[[May 14]] [[1997]] }}</ref> Governments consider the adoption of rent controls when conditions such as low vacancy rates, inadequate maintenance and large rent increases already exist.{{Fact|date=June 2008}} The community will have either a large tenant population or a tenant population which is considered by the community to be especially vulnerable.{{Fact|date=June 2008}} The creation of new rental housing may already be limited by geography, hazardous conditions (such as flood zones or earthquake faults), or by general economic conditions.{{Fact|date=June 2008}} Housing inspection programs, rental mediation and information services, and efforts by the rental industry itself to lower rents may have been attempted with only limited success.{{Fact|date=June 2008}} A significant number of landlords have reacted to an existing scarcity by raising prices, providing substandard goods and services or other behavior the Government believes is improper.{{Fact|date=June 2008}} Conditions have already deteriorated and substantial portions of the community believe a solution is needed for an urgent problem.{{Fact|date=June 2008}} Rent control aims initially to protect tenants, and ultimately to protect broader community interests. ==Arguments In favor== ===Economic=== The rental-accommodation market suffers from [[asymmetrical information|information asymmetries]] and high [[transaction costs]]. Typically, a landlord has much more information about a home than a prospective tenant can reasonably detect. Moreover, once the tenant has moved in, the costs of moving again are very high. Unscrupulous landlords can thus conceal defects and, if the tenant complains, threaten to raise the rent at the end of the [[lease]]. With rent control, tenants can ensure that hidden defects at least be repaired to comply with [[building code]] requirements, without fearing retaliatory rent increases. Rent control may thus compensate somewhat for inefficiencies of the housing market. [[Income tax]] codes often provide benefits for [[housing]], and rent control allows tenants to share in some of those benefits. In the [[United States]], the [[Internal Revenue Code]] allows landlords to claim [[depreciation]] deductions for rental property even while increasing rents.[http://www.irs.gov/publications/p527/ar02.html#d0e2483] Homeowners may also deduct property taxes and [[mortgage]] [[interest]], and exclude [[capital gains]], from their [[taxable income]]. Tenants pay income tax but get none of these housing-related deductions or exclusions. By limiting the extent to which landlords can raise rent on purportedly depreciated property, rent control restores balance to tax benefits that would otherwise become concentrated solely in the hands of landlords. Although some opponents contend that rent control decreases housing investment, in reality rent control laws often exempt new construction. For example, San Francisco's Rent Stabilization Ordinance exempts all units built after 1979.<ref>http://www.sfgov.org/site/rentboard_page.asp?id=54501</ref> [[New York State]] generally exempts units built after 1974 anywhere in the state (although owners can agree to rent stabilization in exchange for tax benefits).<ref>http://www.dhcr.state.ny.us/ora/pubs/html/orafac1.htm</ref> In jurisdictions where rent stabilization has exempted new construction for so long, construction trends in more recent decades must be related to other factors (for example [[zoning]] and other [[regulations]] related to [[urban planning]]).[http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/22/MNGN11CMN0.DTL&type=realestate] In older buildings, rent control may actually broaden incentives to renovate individual units: tenants may invest [[sweat equity]] and their own money to improve their homes if they are protected from landlords trying to capture the added value, while vacancy decontrol preserves landlords' financial incentive to renovate vacant units because it allows them to re-rent at market value.<!--see the definition of vacancy decontrol above--> The economic arguments against rent control are often based on its oldest versions, i.e. strong rent control applied to virtually the entire rental housing supply. In many jurisdictions, rent control has since been reformed to address these arguments, for example adding vacancy decontrol and exempting new construction. Thus, arguments and surveys based on previous versions of rent control may no longer apply to current versions. Rent control may influence housing investment either positively or negatively, depending on how it affects the local [[economy]] and public services (both of which may benefit from retaining [[key worker|key workers]]), and [[tax]] burden (which can increase if rent instability increases turnover among municipal employees), in addition to myriad other voter-driven regulations. If [[regulation]] were the only factor driving investment in housing, and if regulation were a purely negative factor, then investment would be highest in the areas with the least regulation, for example desolate rural areas; in fact, the opposite is true, as the largest and most prosperous municipalities tend to have more regulation, including rent control. ===Social=== Rent control is considered necessary[http://public.leginfo.state.ny.us/menugetf.cgi?COMMONQUERY=LAWS] to protect the public and to prevent [[landlord]]s from imposing rent increases that cause [[key worker]]s or vulnerable people to leave an area. Maintaining a supply of affordable housing is believed to be essential to sustaining the local society.[http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/22/MNJJ10NPSK.DTL] Homeowners who support rent control point to the neighborhood instability caused by high or frequent rent increases and the effect on schools,[http://www.nytimes.com/2008/06/24/us/24move.html?_r=1&hp&oref=slogin] youth groups, and community organizations when tenants move more frequently. In certain instances the term rent "stabilization" is used instead of rent "control," for example, in some cities in [[California]], such as [[San Francisco]]. With rent stabilization and vacancy de-control landlords are free to set prices of vacant units at market prices, but once rented to a tenant, subsequent increases are capped based on the rate of inflation or a regulated percentage. This is considered a basic form of consumer protection: once tenants move into a vacant unit at market rents they can afford and establish lives in these homes, they won't have to renegotiate. (Without rent regulation, landlords can demand any amount and tenants must either pay or move. Thus, tenants can become vulnerable to arbitrary and extortionate increases above market value. For example, elderly or disabled tenants may be unable to move, and families risk disrupting children's educations by moving in the middle of a school year.) Advocates insist that finding a new home is not a trivial matter, and tenants should have some assurance that they can maintain some stability in their housing situation.{{Fact|date=June 2008}} Some [[property tax]] measures also promote the societal goals of community stability and allowing people to continue renting the same property even in times of [[inflation]]. In [[California]], [[Proposition 13]] generally caps real estate tax increases at 2% per year. Leading the campaign to enact Proposition 13, [[California]] [[politician]] [[Howard Jarvis]] claimed that landlords would pass tax savings along to tenants; when most failed to do so, it became an argument for rent control, to allow tenants to share in the benefit of the property tax control.[http://www.sfaa.org/0406forbes.html] ===Moral=== It has been contended that housing is a [[Positive right|positive human right]]<ref>http://www.socialistinternational.org/viewArticle.cfm?ArticleID=31 |Socialist International Principle 57 - the right to decent housing</ref> that equals or exceeds the property rights of landlords. Therefore the needs of the tenant should equal or override the needs of the landlord.{{Fact|date=June 2008}} Without rent control, even tenants paying full rent can be forced unexpectedly from their homes through no fault of their own; for example, if their landlords mortgaged excessively and the property goes into [[foreclosure]], tenants may be evicted even in the middle of a lease.<ref>http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/02/07/MN4NUOE27.DTL</ref> ==Arguments Against== Speaking in 1989, [[Vietnam]]'s Foreign Minister [[Nguyen Co Thach]] said: "The Americans couldn't destroy [[Hanoi]], but we have destroyed our city by very low rents. We realized it was stupid and that we must change policy."<ref>http://www.econlib.org/Library/Enc/RentControl.html</ref> Writing in 1946, [[Milton Friedman]] and [[George J. Stigler]] said, :"Rent ceilings, therefore, cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction and indefinite continuance of rent ceilings, or subsidization of new construction and a future depression in residential building."<ref>http://www.fee.org/library/books/Roofs_or_Ceilings.asp</ref> ===Economic=== Most economists believe that a ceiling on rents reduces the quality and quantity of housing available.<ref>Principles of Economics, by Gregory Mankiw. 4th edition. Chapter 2, Page 31. Chart shows that 93% of economists agree with the statement: "a ceiling on rents reduces the quality and quantity of housing available"</ref> This view is based on analysis of empirical evidence as well as the understanding generated by theoretical models.<ref>Principles of Economics, by Gregory Mankiw. 4th edition. Chapter 2, Page 31.</ref> Even such liberal economists as [[Paul Krugman]] have cited rent regulation as poor economics which despite its good intentions leads to the creation of less housing, raises prices, and increases urban blight.<ref name=Krugman>{{Citation | last = Krugman | first = Paul | title = Reckonings; A Rent Affair | newspaper = The New York Times | date = June 7, 2000 | url = http://query.nytimes.com/gst/fullpage.html?res=9F02E4DF153FF934A35755C0A9669C8B63}}</ref> Price ceilings can create [[shortages]] and reduce [[quality]]. By capping the price of accommodation, rent control may increase demand and reduce available supply, causing a shortage.<ref>Principles of Economics, by Gregory Mankiw. 4th edition. Chapter 2, Page 31. Chart shows that 93% of economists agree with the statement: "a ceiling on rents reduces the quality and quantity of housing available"</ref> It is argued that rent control also reduces the quality of available housing, deters investment, and raises rents on tenants who are excluded from its protections (for example, in jurisdictions with vacancy decontrol, tenants who move or arrive later). If a price is forcibly kept low, there will be higher demand. When demand outpaces supply, there is a shortage. However, where builders are restricted in the rents they may charge, they are less willing to construct more housing. Since supply is perpetually low, landlords also do not have to worry about tenants leaving, and there is little or no incentive to maintain the property. For example, unless owners can reasonably expect that [[punitive]] action will be taken against them, they might let building maintenance deteriorate in order to mitigate the lower rental income. People moving into the city would have difficulty finding housing because of the shortage created by rent control. By preventing redevelopment, rent controls reduce property values, preventing communities from enjoying the increased revenue for educational and safety, thus contributing to declining schools. This problem is particularly acute in [[California]], where Proposition 13 limits the ability of localities to reassess value. ===Social=== [[Libertarians]], such as William Tucker of the [[Cato Institute]],<ref name=Cato>{{Citation | last = Tucker | first = William | title = How Rent Control Drives Out Affordable Housing | journal = Cato Policy Analysis | issue = 274 | date = May 21, 1997 | url = http://www.cato.org/pubs/pas/pa-274.html}}</ref> have argued that rent control laws are a textbook example of the problems that arise in trying to artificially reduce prices. The natural consequence in a [[free-market]] economy is a reduction in supply and consequent shortages. Tucker has argued that rent control has the perverse effect of creating ''less'' affordable housing.<ref name=Cato/> By artificially lowering rents on some units with long term tenants, even in some cases forcing landlords to maintain that at a loss, rent control forces landlords to recoup this lost income on newly vacated units, thus increasing rent for new tenants beyond what is necessary. They also argue that, by creating a disincentive to move from units where they enjoy artificially low rent, such rent regulation will actually limit individuals’ mobility, and thus either prevent them from taking advantage of employment opportunities that may require relocation, or force them into longer commute times, with all of the financial, environmental, and personal impacts thus created. Such economists point to policies such as housing vouchers as both more equitable and more successful in ensuring housing for poorer renters, without many of the damaging externalities created by imposing price regulation on landlords.{{Fact|date=June 2008}} Furthermore, rent control may not be effective at lowering rents in the area under control. A rent control board or regulatory agency may be captured or politically influenced by the land owners or "landlords", and may be able to influence the regulatory process or "game the system" to the extent that the rent-controlled increases are more than what they would have been in the free market without the rent control law.{{Fact|date=June 2008}} Areas with rent-controlled housing are blamed for difficulty of finding vacant housing and the resulting power imbalance between landlords and tenants as tenants may "game the system" to impose onerous conditions on the landlord, forcing long cycles of judicial action, leading to considerable economic hardship for the landlord. Likewise, new tenants have serious difficulty finding housing, so they are seriously disadvantaged if they must move. As a result, landlords can impose numerous conditions and requirements.{{Fact|date=June 2008}} In the case of mobile home rent control, that state is actually transferring the value of the property from the owner of the land to the owner of the mobile home. Thus, mobile homes in certain highly desirable locations in [[California]] sell for an excess of a million dollars, even as the owner of the site which allows for that high price enjoys none of that increase in value as it is realized entirely by the owner of the mobile home.{{Fact|date=June 2008}} In jurisdictions that do not already have rent control, introducing it may reduce the resale value of affected property. The benefits of rent control can accrue disproportionately to wealthy and well-connected tenants. Affordable housing can be more efficiently made available to the poor and middle income through rent subsidies (see [[affordable housing]]) making use of the [[free market]] for distribution. Such programs allow the community to better target those requiring assistance, have a less distorting effect on rents and development, and distribute affordable housing cost over the community instead of unfairly burdening property owners in the effort to achieve a social good (see [[externality]]). ===Moral=== Moreover, it is argued that rent control violates the [[property right]]s of the property owners.<ref>http://www.fee.org/library/books/Roofs_or_Ceilings.asp</ref> Owners are limited in what they may do with their property. When housing is limited it must be rationed in some way. After the San Francisco earthquake of 1906, the number of houses relative to the amount of people who needed housing fell by 40%, but a shortage was avoided because the price mechanism effectively rationed housing and provided an incentive for new housing to be built. In 1946 however, a far less extreme situation was dealt with via chance and favouritehood.<ref>http://www.fee.org/library/books/Roofs_or_Ceilings.asp</ref> ==Enforcement issues== Some landlords use extralegal means to evade rent controls and attempt to take advantage of housing conditions. Some landlords may step up [[discrimination]] against any group they dislike if they believe there is a surplus of prospective tenants. Jurisdictions that implement rent controls may have to pass laws in response such as those forbidding landlords from compelling new tenants to hire the landlord's moving company. In some areas with especially strict rent controls, landlords may require "[[key money]]" (a non-refundable deposit). Demanding key money is illegal in most of [[North America]], but since the landlord will invariably demand it in [[cash]], it is very difficult to trace and nearly impossible to prove in court. Rent control enforcement may likewise create considerable bureaucratic hurdles for the repair and improvement of properties, creating a disincentive for landlords to carry out such actions. ==References== <references/> == See also == *[[Price ceiling]] *[[Just cause eviction controls]] *[[Affordable housing]] *[[West Hollywood]] *[[Santa Monica]] *[[Rent control in New York]] *[[Subsidized housing]] *[[Section 8 housing]] ---- == Further reading == * Baar, Kenneth K. (1983). "Guidelines for Drafting Rent Control Laws: Lessons of a Decade." Rutgers Law Review, Vol. 35 No. 4 (Summer 1983). * Baar, Kenneth K. (1992). "The Right to Sell the “Im”mobile Manufactured Home in Its Rent Controlled Space in the “Im”mobile Home Park: Valid Regulation or Unconstitutional Taking?" The Urban Lawyer, Vol. 24 pp. 157-221. * Downs, Anthony (1996). ''A Reevaluation of Residential Rent Controls''. Washington, D.C. : Urban Land Institute, ISBN 0874208017. * Friedman, Milton, and George J. Stigler (1946). ''Roofs or Ceilings? The Current Housing Problem''. Irvington-on-Hudson, N.Y.: Foundation for Economic Education. * Gilderbloom, John I., editor (1981). ''Rent Control: A Source Book''. Center for Policy Alternatives; 3rd edition, June 1, 1981. ISBN 0-938806-01-7. * Keating, Dennis, editor (1998). ''Rent Control: Regulation and the Housing Market''. Center for Urban Policy Research, ISBN 0-88285-159-4. * McDonough, Cristina (2007). "Rent Control and Rent Stabilization as Forms of Regulatory and Physical Taking." Boston College Environmental Affairs Law Review, Vol. 34 pp. 361-85. * Niebanck, Paul L., editor (1986). ''The Rent Control Debate''. University of North Carolina Press, ISBN 0-8078-1670-1. * Tucker, William (1991). ''Zoning, Rent Control and Affordable Housing''. ISBN 0-932790-78-X. * Turner, Margery Austin (1990). ''Housing Market Impacts of Rent Control''. Washington, D.C.: Urban Institute Press, ISBN 0877664439. == External links == * [http://www.dca.ca.gov/publications/landlordbook/appendix2.shtml California cities with rent control] * [http://www.fee.org/library/books/Roofs_or_Ceilings.asp Milton Friedman on Rent Control] * [http://www.dhcr.state.ny.us/ora/pubs/html/orafac1.htm New York communities with rent control] * [http://www.tenant.net/Oversight/50yrRentReg/history.html Pro-rent control article from tenant.net] * [http://www.ontariotenants.ca/rent-controls.phtml Rent Control History in Ontario and Canada] * [http://www.ontariotenants.ca/research/rentcontrols-th-sum.phtml Testing Hypotheses About Rent Control in Canada] Commissioned by Canada Mortgage and Housing Corporation - Dispels many myths * [http://www.pkarchive.org/column/6700.html Anti-rent control article by economist Paul Krugman] * [http://www.newyorkmetro.com/nymetro/realestate/features/6128/index.html New York Magazine article on Rent Control including interviews with tenants] * [http://www.nhi.org/online/issues/117/KeatingKahn.html Rent Control in the New Millennium by Dennis Keating] * [http://www.policyalmanac.org/directory/Economic_Issues-Rent_Control.shtml Almanac of Policy Issues - Rent Controls] * [http://www.manhattan-institute.org/html/cr_36.htm Rent Controls and Housing Investment] * [http://www.dollarsandsense.org/archives/2003/0303dollar.html Pro-rent control article from Dollars & Sense magazine] * [http://www.mises.org/story/1962 Four Thousand Years of Price Control - Mises Institute] [[Category:Affordable housing]] [[Category:Renting]] [[Category:Real estate]] [[Category:Urban studies and planning]] [[fr:Contrôle des loyers]] [[ja:家賃統制]]