Rent regulation

"Rent control" redirects here. 

from ’Rent Control’ show at FringeNYC 2016

Overview

"Rent regulation is a system of laws, administered by a court or a public authority, which aim to ensure the quality and affordability of housing and tenancies on the rental market for land. Comprehensive rent regulation is common in Commonwealth and European Union countries, including Canada, Germany, Ireland, Cyprus and Sweden, and also some states in the United States. Generally a system of rent regulation involves:

• price controls, limits on the rent that landlord may charge, with rent control and rent stabilization
• standards by which a landlord may terminate a tenancy (an equivalent of unfair dismissal from employment in tenancies)
• obligations on the landlord or tenant regarding adequate maintenance of the property
• a system of oversight and enforcement by an independent regulator and Ombudsman

The classic objective is to limit the price that would result from the market, where an inequality of bargaining power between landlords and tenants produces continually escalating prices without any stable market equilibrium."

- Wikipedia, "Rent regulation." 

 

Vacancy control or decontrol

A key difference between different rent-regulation regimes is whether, or how, they regulate rent of an apartment after it is vacated by a tenant.  The rent might be allowed only the same increment as if still occupied, it might be allowed a higher increment (e.g. as in New York City), or it may be allowed to revert to full market rate (as in San Francisco). 
 

Deferred rent stabilization 

The idea that a unit may come under rent-stabilization guidelines only a certain length of time after it is built, for example 10 or 20 years. 
 

Current rent regulations

California 'Costa-Hawkins' law repeal initiative

See main article: Costa-Hawkins_Rental_Housing_Act_reform

 

 

References

• Arnott, Richard. “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."
   
• Diamond, Rebecca, Tim McQuade, & Franklin Qian (2017). “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” NBER working paper, October 11, 2017. http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf.
  "Abstract: 
  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."
   
• East Bay For Everyone. "RE: AB 1506 - Residential Rent Control: Costa-Hawkins Rental Housing Act." (letter). 2017. https://www.scribd.com/document/350029454/Ab-1506-Support#from_embed.
   
• Heskin, Allan D., Ned Levine & Mark Garrett. “The Effects of Vacancy Control: A Spatial Analysis of Four California Cities.” Journal of the American Planning Association, Volume 66, 2000 - Issue 2, Pages 162-176. DOI: 10.1080/01944360008976096. 
  https://doi.org/10.1080/01944360008976096
  “Abstract: 
  This article examines changes between 1980 and 1990 in the number of rental units and the demographic composition of tenants in four California cities that adopted rent control with vacancy control provisions. Six border areas within the four cities were compared to border areas of adjoining cities that did not have vacancy control. A spatial lag regression model was constructed to estimate the changes in regional and neighborhood components in addition to vacancy control policies. Vacancy control contributed to lower rents and longer tenure by tenants compared to non-vacancy-controlled areas. There were also fewer rental units in part because of a shift from rental housing to owner-occupied housing.”
   
• Initiative on Global Markets (at University of Chicago Booth School) [IGM 2012]. “Rent Control” [poll of economic experts]. 
  February 7th, 2012. http://www.igmchicago.org/surveys/rent-control. 
  Poll statement:  “Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them.” 
  40 respondents. 
  0 Strongly Agree
  2% Agree
  7% Uncertain
  49% Disagree
  32% Strongly Disagree
  2% No Opinion
   
• Kurtek, Sanela. "Why Rent Controls are Such a Problem for Toronto." Torontoism, December 18, 2017.
  https://torontoism.com/toronto-news/2017/12/rent-controls-toronto.
   
• Legislative Analysts Office (California). Review of proposed statutory initiative pertaining to rent control (A.G. File No. 17-0041). 12 Dec 2017. http://www.lao.ca.gov/ballot/2017/170629.pdf.
   
• McFarlane, Alastair. “Rent stabilization and the long-run supply of housing.” Regional Science and Urban Economics, Volume 33, Issue 3, May 2003, Pages 305-333. DOI: 10.1016/S0166-0462(02)00031-5
  https://doi.org/10.1016/S0166-0462(02)00031-5.
  "Abstract: 
  This paper examines the impact of moderate rent controls on the construction and replacement of urban housing. It studies a common form of rent regulation that limits rent growth to below-market increases but permits landlords to set the base rent at free market levels and allows them to re-set rents when the incumbent tenant vacates, after which rents are re-controlled (‘vacancy decontrol–recontrol’). One of the primary insights is that neither the timing nor the density of construction is affected by rent stabilization when base rents are perfectly flexible. Allowing landlords to set the initial contract rent lets them capture the benefits to the renter of rent stabilization. Perfect capitalization of rent stabilization into a higher base rent provides the landlord with a free market rate of return and thus does not distort development activity. However, redevelopment of land will be hastened because rent stabilization complemented by vacancy decontrol–recontrol increases the difference between rents before and after redevelopment, increasing the opportunity costs of postponing redevelopment. Extensions include an analysis of other common rent regulations and the impact of rent stabilization on the urban rent gradient."
   
• Niemietz, Kristian. "How Germany Made Rent Control "Work": Rent Control "Works" when It ... Doesn't Control Rents." FEE.org, June 03, 2016. https://fee.org/articles/how-germany-made-rent-control-work/. 
   
• Tenants Together. "Making the Case for Rent Control."  Medium, Jan 22 2018.
  https://medium.com/@tenantstogether/making-the-case-for-rent-control-c598740f5ce8.
   
• Wikipedia. "Rent regulation." 
   
• Willis, John W. “Short History of Rent Control Laws,” 36 Cornell L. Rev. 54 (1950). http://scholarship.law.cornell.edu/clr/vol36/iss1/3.