Rent prices are on the rise. According to the latest data from Rent.com, in August 2023, the national median rent ticked up to $2,052 per month. That has many people wondering, what is rent control, and can it help curb prices?
Rent control is a term used to describe price controls implemented by local governments on apartment units. Rent control limits the amount a property owner can increase rent prices during a certain period of time. It’s also usually accompanied by tenant protections allowing for lease renewals and protecting against unwarranted evictions. Rent control is more common in larger, expensive population centers like New York and San Francisco.
How does rent control work? Read on to find out.
What Is Rent Control?
Rent control is a government regulation that puts a ceiling on the amount of rent that can be charged to a tenant. This means landlords can’t charge the market rate for a rental in rent-controlled jurisdictions. Rent increases may be allowed, but they are limited and regulated by law.
How does rent control work in NYC? In New York, rent control can also refer to the Emergency Tenant Protection Act. This act was first enacted in the demilitarization period following World War II when housing shortages resulted from the large number of soldiers returning home from the war.
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How Does Rent Control Work?
Your local government has the final say when it comes to rent control — unless they’re prohibited by law to enact price controls on housing units, as is the case in 33 states.
There’s often a rent board appointed, which is a mix of property owners, tenants, and other community members. The board has a say about rent adjustment amounts and other housing-related issues.
Rent control is usually applied to a specific area or building. For example, in New York, rent stabilization applies to buildings that were built between February 1, 1947 and December 31, 1973. (Pre-war, rent-controlled buildings revert to the newer rent stabilization program once a tenant moves out.)
The maximum price a landlord can charge can be set by the regulating agency. In New York City, rents are subject to the Maximum Base Rent Program, which is a formula for rents based on real estate taxes, utilities, operating and maintenance expenses, and vacancy allowances.
The economics of rent control can create a large demand. Because the supply of rent-controlled apartments is low, most tenants who want an apartment with rent control will wait on a list or enter a lottery system for many months or years.
History of Rent Control
New York City first enacted rent control when housing units were scarce following the end of World War II. It was called the War Emergency Tenant Protection Act and was later replaced by a different rent control method called rent stabilization. Rent stabilization has been in place since 1974 in New York City, and 1979 in San Francisco.
Rent Control vs Rent Stabilization
Discussions of rent control vs. rent stabilization are usually in reference to regulation in New York City.
In New York City, rent control generally applies to buildings constructed before 1947 with tenants in place prior to July 1, 1971. That date is important as it refers to a change in regulation laws where rent control gave way to rent stabilization.
Rent stabilization generally refers to price controls on buildings with six or more units constructed between 1947 and 1974. It can also include buildings removed from rent control that were constructed prior to 1947, as well as some other buildings that enjoy special tax advantages. Rent stabilization does not apply to co-ops or condos vs apartments. Tenants in rent-stabilized apartments have the right to renew their lease.
Today, the terms “rent control” and “rent stabilization” typically refer to the same thing: rent regulation.
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Pros and Cons of Rent Control
While rent control can protect tenants from large rent increases, it also means property owners have little incentive to maintain the property or create more housing units for the rent-controlled area. Here are some of the pros and cons of rent control.
Pros:
• Tenants have some stability in the cost of their housing unit over time
• Tenants usually also have some eviction protections
Cons
• Landlords don’t have incentive to re-invest in other apartments or upgrade their current rentals
• Unit size is not always a match for a family’s size
• May contribute to housing shortages
Example of Rent Control
Rent control is determined by the local rent board or commission. That includes price increases. For example, if you started renting an apartment for $2,000 last year, and the maximum allowable amount for a yearly rent increase is 7.5%, the most your yearly rent would increase would be $150. That would bring your new rent to $2,150.
How to Find a Rent-Controlled Apartment
If you’re looking for a rent-controlled or rent-stabilized apartment, your city’s rent regulation authority is usually one of the best places to find them.
New York City’s government website has a list of rent-stabilized buildings, as well as guidelines on how to know if an apartment is rent-controlled. It’s even possible to submit the building’s address in an online form to find out if rent is stabilized.
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States With Rent Control
Only seven states have rent control laws in place. They are:
• Oregon
• California
• New York
• Maine
• Maryland
• Minnesota
• New Jersey
• District of Columbia
Thirty-three states have laws that preempt (or prevent) local governments from implementing some form of rent control.
One of the reasons states may outlaw rent control regulation has to do with housing supply. Economists note that while rent control affords price control and some protection for tenants, it also negatively affects the housing supply. That’s because limiting how much a property owner can make discourages housing investment, such as investing in duplexes, as well as housing development in areas where rent control exists.
If a property owner is limited on the money they can make on their unit, they will invest in other areas that do not have these restrictions and where they may even be able to rent out extra rooms. This, in turn, exacerbates housing affordability because there are fewer units with more people to compete for them.
The Takeaway
Rent control has benefits, especially in high-density areas where expansion is limited and long-term tenants need some affordability. However, it does come with downsides, including possibly limiting the housing supply.
In addition, rent-controlled properties can be difficult to come by because there aren’t a lot of them. In this case, or if you’re simply ready to move on from apartment life into something you own, you may want to look into buying a house, including checking out first time homebuyer programs.
Or, if you’re an investor, perhaps you’re thinking of investing in single family rental homes. Either way, whether you want to buy a house to live in, or buy it to rent it out, you can explore your mortgage options. There are many different types of mortgages available, so you’ll have plenty to choose from.
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FAQ
Who benefits most from rent control?
Tenants already in place may benefit from living in an apartment where price increases are limited or controlled. Rent-controlled apartments are typically reserved for individuals and families that need affordable housing.
What is an example of rent control?
One example of rent control is this: If you signed a lease on a rent-controlled apartment for $1,700 per month and the maximum allowable rent increase is 3.5%, then the most your landlord could increase your rent would be by $59.50. That would bring your new monthly rent to $1,759.50.
What are the negative effects of rent control?
Economists say rent control creates housing shortages and doesn’t incentivize landlords to maintain or repair their rental units.
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