Rent regulation: Difference between revisions
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== Overview ==
'''
*price controls: limits on the rent that landlord may charge, with '''rent control''' or '''rent stabilization''' (rents can change more flexible and/or upon change of tenant).
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*a system of oversight and enforcement by an independent regulator and [https://en.wikipedia.org/wiki/Ombudsman Ombudsman]
The classic objective is to limit the price that would result from the market, where an [https://en.wikipedia.org/wiki/Inequality_of_bargaining_power inequality of bargaining power] between [https://en.wikipedia.org/wiki/Landlord landlords] and [https://en.wikipedia.org/wiki/Leasehold_estate tenants] produces continually escalating prices without any stable [https://en.wikipedia.org/wiki/Market_equilibrium market equilibrium].
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The price regulation aspect of rent regulation can be done in varying ways and degrees, with likely different effects. Therefore studies or or conclusions about "rent control" need to carefully consider what forms of regulation were in effect for the study subject, and to what degree they are generalizable to other systems. Three main factors in how price may be regulated:
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The incapability of the state or municipalities to impact rent in any fashion has been a point of discussion amidst the COVID-19 fallout, as citizens and advocacy organizations learn that emergency rent forbearance/moratoriums could not be enacted, even if there were sufficient political will to do so.
== Common perspectives ==
Market-favorable writers generally take a negative outlook on rent stabilization, and argue that resurgent demand for such policies is merely a symptom of an underlying distortion in the housing market. [https://freakonomics.com/podcast/rent-control-rebroadcast/ See this Freakonomics episode for a fair summary of “why”]. In this view:
* Pros:
** It does provide benefit to renters in apartments at the moment rent control is implemented.
** If used correctly, as a short-term policy to allow construction of housing supply to catch up to demand), the benefits of rent control will arise with nearly no negative externalities.
** Rent stabilization reduces mobility: when viewed through the positive lens, this means reduced displacement. However, data isn’t clear on how much of this reduced mobility is a reduction of involuntary displacement, and how much is a reduction in financially viable moves (as persons cannot leave their controlled apartment and find another for similar rates, if a move is desired)
*** ''“We find that rent control increased the probability a renter stayed at their address by close to 20 percent.”''<ref name=":0">[https://cepr.org/sites/default/files/McQuade,%20Tim%20DMQ_Paris.pdf The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco]</ref>
* Cons:
** A permanent policy of rent stabilization restricts the construction of new apartment buildings, because potential investors realize that their revenues on such apartments will be artificially capped. This reduces overall apartment supply, increasing prices for those who were not already in a controlled apartment at the time of rent control’s passage.
** A permanent policy of rent stabilization also encourages the conversion of apartment buildings to condos, again because potential investors realize that their revenues on such apartments will be artificially capped. This reduces overall apartment supply, increasing prices for those who were not already in a controlled apartment at the time of rent control’s passage.
** The pool of residents who initially received stabilized housing at the time of policy passage shrinks over time, meaning fewer and fewer persons are receiving the benefits of the policy, while the situation worsens for the modern “class” of persons in need
** Rent stabilization reduces mobility: when viewed through the negative lens, this means reduced capability for renters to make moves they desire, as persons cannot leave their controlled apartment and find another for similar rates. However, data isn’t clear on how much of this reduced mobility is a reduction in financially viable moves vs. a reduction of involuntary displacement.
*** ''“We find that rent control increased the probability a renter stayed at their address by close to 20 percent.”''<ref name=":0" />
** Incentives for property maintenance and improvements by landlords are largely removed by rent stabilization, as an apartment with a low rent ceiling, in any condition, will have a long list of eager tenants. This leads to degradation of stabilized properties over time.
** Permanent stabilization of some units tends to create a black market for rent of those units.
** Overconsumption and misallocation of space is encouraged with stabilized units. Instead of persons continually right-sizing their homes, they are likely to keep overly-large spaces for themselves, as they could not depart the unit without a significant increase in rental fees, even if downsizing.
Advocates for rent control respond to these assertions by the following means:
* The conversion of apartments to condos is a political issue, not an academic one<ref name=":1">[https://shelterforce.org/2018/03/28/rent-control-works/ Dear Business School Professors: You’re Wrong, Rent Control Works]</ref>. It is argued that this impact on supply, at least, could be eliminated through sound policymaking.
* The relationship between rent control enactment and reductions in supply are not well-supported in data<ref name=":1" />, and that studies like the Stanford paper<ref name=":0" /> over-index benefits to certain groups and underindex benefits to others.
* Most modern implementations of rent control aren’t a hard freeze on rent. Rather, profits to landlords are guaranteed through:
** cost pass-through provisions which permit landlords to apply for rent increases above the automatic rent increase, if justified by cost increases;
** hardship provisions, which allow discretionary increases to assure that landlords do not have cash-flow problems;
** and rate-of-return provisions, which permit discretionary rent increases to ensure landlords a "fair" or "reasonable" rate of return.<ref>Arnott, Richard. “[https://www.aeaweb.org/articles?id=10.1257/jep.9.1.99 Time for Revisionism on Rent Control?]” The Journal of Economic Perspectives, 1995: Vol. 9, №1: 99–120.
https://www.aeaweb.org/articles?id=10.1257/jep.9.1.99.
Abstract: "Economists' traditional hostility to rent contols is based on models that treat the housing market as perfectly competitive and on the experience with 'hard' controls in New York City and many European countries following World War II. The current 'soft' rent control systems in North America are varied and qualitatively different from earlier hard controls. The theoretical case against them is weak, particularly when the housing market is viewed as imperfectly competitive. The empirical case against them is weak, too. Economists should reconsider their blanket opposition to current rent control systems and evaluate them on a case-by-case basis."</ref>
* In some jurisdictions, rent control includes vacancy decontrol, whereby the unit becomes completely decontrolled when it is vacated. This allows landlords to “catch up to market profits” whenever a tenant leaves a property.
* Traditional economic analyses of rent control’s impacts fail because housing is not a perfectly competitive market.
== Comparative analyses ==
It can be useful to look to other countries’ actions regarding rent control to learn what works well and poorly under different market conditions.
=== The Netherlands ===
* Affords tenants rent stabilization across all units, after signing a market contract at market rates. In other words, the initial price is market rate, but the rate of increase in subsequent years is stabilized.
* Strong eviction protections in place, including free representation.
* All publicly-supported units built by Housing Associations have rent caps based not on age, but rather on a points system representing the quality of the unit.
** Housing Associations provide for around 60% of the country’s population. Social housing accounts for 37% of the total stock across the country, and as much as 75% of the total rented stock.<ref>[https://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_457_en.pdf The Housing Market in the Netherlands]</ref>
== SF rent control study by Diamond, McQuade, Qian (2017) ==
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*11 October, 2017. NBER working paper. [http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf].<br/> ''"Abstract: <br/> In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual’s migration over time, '''we find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% '''and caused $5 billion of welfare losses to all renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. We find that '''rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $390 million annually.''' The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."''<br/>
*29 November 2017 version. [https://drive.google.com/open?id=13pzS8XOAHXgvWdT6ddeoFy123Y_hoJ4y PDF]. <br/> Abstract:<br/> "In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual's migration over time, we find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 5.1% and caused $2.9 billion of total loss to renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with the present discounted value of aggregate benefits totaling $2.9 billion. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."<br/> <br/> "We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $214 million annually, with present discounted value of $2.9 billion. These effects are counterbalanced by landlords reducing supply in response to the introduction of the law. We conclude that this led to a city-wide rent increase of 5.1%. At a discount rate of 5%, this has a present discounted value of $2.9 billion dollars lost by tenents."
== California 'Costa-Hawkins' law repeal initiative ==
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See main article: [[Costa-Hawkins_Rental_Housing_Act_reform|Costa-Hawkins Rental Housing_Act reform]]
== Resources ==
*Ambrosius, Joshua D. et al [2015]. “Forty years of rent control: Reexamining New Jersey’s moderate local policies after the great recession,” Cities, 49, pp. 121–133. December 2015. [https://doi.org/10.1016/j.cities.2015.08.001 https://doi.org/10.1016/j.cities.2015.08.001].<br/>
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