HousingWiki

Rent regulation

Revision as of 06:33, 1 October 2019 by imported>Tmccormick

"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 or rent stabilization (rents can change more flexible and/or upon change of tenant). 
  • 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." 

 

 


Price regulation variant forms

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: 

1) Control of permitted rent change for a current tenant:  

    a) fixed. (rare, but exists e.g. in old New York City rent control on some remaining buildings). 

    b) fixed increase per year.

    c) change based on objective metric such as CPI (consumer price index) 

    d) change based on political/regulatory decision, e.g. municipal Rent Board decision.
   [when permitted rent change is adjustable this way, and/or it is unregulated upon vacancy, the system is sometimes called 'modern' or 'second-generation' rent controls.]

    e) possibly (and typically), other changes are permitted by landlord petition or e.g. to "pass through" expenses such as tax increase or renovation costs.

2) Control of permitted rent change during change of tenant

   a) same as within a tenant's tenure, in one of the ways above.
 [sometimes referred to as 'strong' rent control]. 

   b) unregulated, i.e. "resets to market rate," aka there is vacancy decontrol. 

3) Regulation of which and when units may fall under or exist price regulation. Price regulation may apply: 

    a) Only to units built before a certain date; and/or

    b) Only to units in buildings that reach a certain age (see "Deferred rent stabilization" below).  [This is uncommon (unknown?) in practice but often proposed].

    c) Only to units in buildings above a certain size. 

    d) not when a building is allowed to exit regulation for specified reasons, possibly including: 

    e) owner move-in. (as permitted by the "Ellis Act" in California). 

    f) conversion of unit from rental to ownership housing

        i. "condo conversion" - from rental apartment to owned apartment. See also Condomium

        ii. Conversion to "Tenancy in Common" (TIC) unit, i.e. shared ownership.  

    g) when unit rent increases above a certain point. (called "luxury decontrol" in NYC rent stablization law). 

        i. Condemnation (?) 

        ii. Demolition

        iii. Lndlord buy-out of tenant.

 

 

 

 

Rent control vs Rent stabilization

In stricter usage, rent control and "strong rent control" are typically used to refer to rental price regulation that is a) fixed price, and/or b) applies equally within and between tenancies, i.e. does not have vacancy decontrol. 

Rent stabilization typically refers to price regulation in which a) permitted rent adjusts variably, e.g. based on a price index, and/or b) permitted rent for new tenants is unregulated, i.e. there is vacancy decontrol. 

 

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 

San Francisco

Oakland

San Jose
 

SF rent control study by Diamond, McQuade, Qian (2017)

Diamond, Rebecca, Tim McQuade, & Franklin Qian (2017). “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.”

Key total benefit/loss figures from this paper seem to have changed by large factors across the three versions of this working paper so far released, which are linked and excerpted below. 

from: Joe Rivano Barros‏ @jrivanob 10:38 AM - 30 Jan 2018
"Can someone who's paid closer attention to this than I tell me why Stanford study changed results from $5B in losses from rent control to $2.9B & from $7B in gains from rent control to $2.9B? That change makes the losses and gains cancel out where they didn't before. c/@tmccormick." 

We reviewed the paper versions he cites from September 26 and November 29, and also one from October 11. It appears to me, that the change results from a recalculation of both the estimated welfare benefits and welfare losses into the same Present Discounted Value terms. (Whereas before people were e.g. taking a figure of $423M/yr benefit and multiplying by 17 years of study period to get $7.19B in benefit). 

We emailed the three paper co-authors on Tues 30-1-2018 to ask them if this explained the difference or if there was another explanation. 
 

  • 26 September, 2017 version. PDF.
    Abstract
    "In this paper, we exploit quasi-experimental variation in the assignment of rent control due to a 1994 ballot initiative to study the welfare impacts of rent control on its tenant bene􏰁ciaries as well as the impact on landlords' responses and the rental market as a whole. Leveraging new micro data which tracks an individual's migration over time, we fi􏰁nd that rent control increased the probability a renter stayed at their 1994 address by close to 20 percent. At the same time, using data on the history of individual parcels in San Francisco, we 􏰁find that treated landlords 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 eff􏰀ects. We 􏰁find that rent control off􏰀ered large bene􏰁fits to impacted tenants during the 1995-2012 period, averaging between $3100 and $5900 per person each year, with aggregate bene􏰁ts totaling over $423 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."

    "We fi􏰁nd that rent control o􏰀ffered large benefi􏰁ts to impacted tenants during the 1995-2012 period, averaging between $3100 and $5900 per person each year, with aggregate benefi􏰁ts totaling over $423 million annually. These e􏰀ects 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 7% and caused $5 billion of welfare losses to all renters."
     
  • 11 October, 2017. NBER working paper. 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."
     
  • 29 November 2017 version. 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 fi􏰁nd 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 eff􏰀ects. We 􏰁nd that rent control o􏰀ffered large bene􏰁fits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with the present discounted value of aggregate benefi􏰁ts 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."

    "We fi􏰁nd that rent control off􏰀ered large bene􏰁fits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate bene􏰁fits totaling over $214 million annually, with present discounted value of $2.9 billion. These e􏰀ffects 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

See main article: Costa-Hawkins Rental Housing_Act reform

 

 

References

"Multiple longitudinal studies of rent control in New Jersey have found no discernible impact on construction rates.(73) After the repeal of rent control in Boston, construction rates decreased for multifamily buildings, even as rents nearly doubled in eight years.(74)

(73) "As have studies in the Bay Area, Berkeley, Los Angeles, Washington DC, and elsewhere.  
Ambrosius et al., “Forty Years of Rent Control”; 
Gilderbloom and Ye, “Thirty Years of Rent Control”; 
Gilderbloom, “Moderate Rent Control”; 
Zuk, “Rent Control: The Key to Neighborhood Stabilization?”; 
Planning & Development Department, “Rent Control in the City of Berkeley, 1978 to 1994”; 
Baar, Burns, and Flaming, “San Jose ARO Study,” 177; 
Keating, Teitz, and Skaburskis, eds., Rent Control.

(74) Chen, “When Rent Control Just Vanishes; Both Sides of Debate Cite Boston’s Example”; 
Collins, “Rent Regulation in New York”; 
Dreier, “Rent Deregulation in California and Massachusetts.”

"We model rent control (RC) as mandatory inclusionary housing, a policy that requires developers to set aside a fraction of rental housing to low-income households at below market rates and is allocated by lottery. "

"We also find a lower housing stock and higher rents from a RC expansion, but an aggregate welfare gain for the entire MSA in spatial equilibrium."

"Direct measurement on the number of mandatory inclusionary housing units is not available. Nor is it appropriate given that there are many more af- fordable housing units from a range of programs. We de ne RC housing as all housing units that are (i) rent controlled, (ii) public housing, (iii) Mitchell Lama housing, (iv) all other government-assisted or regulated housing."

Gilderbloom, John I. [1981]. "Moderate Rent Control: Its Impact on the Quality and Quantity of the Housing Stock." Urban Affairs Quarterly 17, no. 2 (Dec 1981).

Gilderbloom, John I., and Richard P. Appelbaum. [1988]. Rethinking Rental Housing (Temple University Press, 1988).

Gilderbloom, John I., and Lin Ye. [2007]. "Thirty Years of Rent Control: A Survey of New Jersey Cities." Journal of Urban Affairs 29, no. 2 (2007): 207–20. DOI: https://doi.org/10.1111/j.1467-9906.2007.00334.x. PDF: https://drive.google.com/open?id=1cBR_YmIhhljXBWF2nm2W09TOPBxQn6s3.

  • Gordon, Leslie. “Strengthening Communities through Rent Control and Just-Cause Evictions: Case Studies from Berkeley, Santa Monica, and Richmond.” Urban Habitat (Oakland, CA), January 2018. 
    http://urbanhabitat.org/sites/default/files/UH%202018%20Strengthening%20Communities%20Through%20Rent%20Control.pdf.
     
  • 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
     
  • Jenkins, Blair [2009]. "Rent Control: Do Economists Agree?" Econ Journal Watch [American Institute for Economic Research], Vol 6, No 1, January 2009. pp 73-112. 
    https://econjwatch.org/articles/rent-control-do-economists-agree.
     
  • Keating, Teitz, and Skaburskis, eds. Rent Control: Regulation and the Rental Housing Market. Center For Urban Policy Research, 1998.
    Available for online line from Internet Archive: https://archive.org/details/rentcontrolregul00keat. 
     
  • 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."
     

Montojo, Nicole, Stephen Barton, and Eli Moore, “Opening the Door for Rent Control: Toward a Comprehensive Approach to Protecting California’s Renters,” (Haas Institute for a Fair and Inclusive Society, 2018). 
https://haasinstitute.berkeley.edu/opening-door-rent-control.

"numerous empirical studies, as well as housing production trends in cities with rent control, show no negative effect on housing production." (111)(112).

111  Zuk, Miriam (September 2015). “Rent Control: The Key to Neighborhood Stabilization?” Accessed at https://haasinstitute. berkeley.edu/rent-control-key-neighborhood-stabilization.
112  Arnott, Richard (1995). “Time for Revisionism on Rent Control?” The Journal of Economic Perspectives 9(1), pp. 99–120. 

Ambrosius, Joshua D. et al. “Forty years of rent control: Reexamining New Jersey’s moderate local policies after the great recession,” Cities, 49, pp. 121–133. 

Gilderbloom, John and Richard Appelbaum (1988) Rethinking Rental Housing, pp. 134-136. 

Ken Baar, “Facts and Fallacies in the Rental Housing Market”, Western City, Sept. 1986, 49 - 50. as cited by Abood, Maya, Vanessa Carter, and Manuel Pastor (forthcoming) “Rent Regulations: A Literature Summary”. USC Program for Environmental and Regional Equity.
[apparently not available online]. 

National Multifamily Housing Council. "The High Cost of Rent Control." [undated]. https://www.nmhc.org/news/articles/the-high-cost-of-rent-control/. 

"Inhibition of New Construction:
"By forcing rents below the market price, rent control reduces the profitability of rental housing, directing investment capital out of the rental market and into other more profitable markets. Construction declines and existing rental housing is converted to other uses.

"Studies have shown, for example, that the total number of rental units in Cambridge and Brookline, Massachusetts, fell by 8 percent and 12 percent respectively in the 1980s, following imposition of stringent rent controls. Rental inventories in most nearby communities rose during that period.(2) Similarly, in California the total supply of rental units dropped 14 percent in Berkeley and 8 percent in Santa Monica between 1978 and 1990, even though the rental supply rose in most nearby cities.(3) And in the United Kingdom, which has imposed rent control since the Second World War, the share of all housing provided through privately owned rental units dropped from 53 percent in 1950 to less than 8 percent in 1986, reflecting the flight of investment from the regulated market.(4)

2. Rolf Goetze, Rent Control: Affordable Housing for the Privileged, Not the Poor. Report prepared for the Small Property Owners Association of Cambridge, 1994.

3. St. John and Associates, Rent Control in Perspective -- Impacts on Citizens and housing in Berkeley and Santa Monica Twelve Years Later. (Berkeley: Pacific Legal Foundation, 1993).

4. R.N. Chubb, Position Paper: United Kingdom. Report UP/L(87)28 (Paris: Organization for Economic Cooperation and Development, 1987).

  • 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/.
     
  • Olsen, Edgar [1972].  An Econometric Analysis of Rent Control. Journal of Political Economy 80(6):1081-100. DOI: https://doi.org/10.1086/259959. PDF: https://drive.google.com/openid=1AKUdayTtyQTObdLRTb7v2r5sOkHj1I-a.
    [an early and seemingly often-cited paper]. 

    "The cost of producing a unit of housing service in a controlled apartment will be higher than the cost of producing a unit in the uncontrolled market.  The argument is as follows. From the viewpoint of technical efficiency in the production of housing service, there is an optimal path of deterioration for each dwelling. The operation of a competitive housing market results in the attainment of this optimal path. Rent control results in a faster-than-optimal rate of deterioration. Therefore, rent control results in a higher unit cost of producing housing service in the controlled market."

    "It seems quite likely that the cost of producing housing service in the uncontrolled market is higher than it would have been had rent control been terminated in New York City shortly after the Second World War.  The existence of rent control in New York City probably makes the owners of uncontrolled rental housing sensitive to the possibility of changes in the rent-control law which would inflict capital losses on them. Indeed, in 1969 a mild form of rent control was extended to more than half of the then-uncontrolled rental stock...Therefore, it is reasonable to expect that investors in rental housing in New York City will demand and receive a higher-risk premium. If this argument is correct, then contrary to one of the assumptions underlying the empirical results in this paper, the long-run supply price of housing service in the uncontrolled market in 1968 was greater than it would have been had rent control never gone into effect in New York City. This implies that the occupants of uncontrolled housing were worse off than they would have been in the absence of rent control."
     
  • Painter, Gary. "Op-Ed: No, rent control doesn’t always reduce the supply of housing." LA Times, Oct 31, 2018. https://www.latimes.com/opinion/op-ed/la-oe-painter-rent-control-economist-20181031-story.html. 
    cites USC Pastor study.
     
  • Pastor, Manuel, Vanessa Carter, and Maya Abood. "Rent Matters: What Are the Impacts of Rent Stabilization Measures?" (USC Program for Environmental & Re- gional Equity, 2018), https://dornsife.usc.edu/assets/sites/242/ docs/Rent_Matters_PERE_Report_Final_02.pdf.

Q: Do rent regulations decrease housing production and supply?
A: On balance, rent regulations do not impact new housing construction. 

"Gilderbloom and Ye (2007) used regression analysis of 76 New Jersey cities with rent stabilization and found that there was little to no statistically significant effect of moderate rent control on new construction after controlling for population, racial demographics, population change, income, the percentage of units that were renter occupied, vacancy rates, and unit age. Similarly, Sims (2007), in an analysis of Boston, Cambridge, and Brookline, MA, found that while building construction permits did rise after the repeal of rent stabilization in 1995, multifamily building permits actually reached their height in the mid to late 1980s—during rent stabilization. In short, there is not much evidence to support the notion that moderate rent stabilization impacts new construction."

"Berkeley Housing Director Dr. Stephen Barton has suggested that rent control could actually boost the construction market noting that in a hot real estate market, without rent stabilization or tenant protection, wealthy incoming tenants will crowd out lower-income renters."

 

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