Rent regulation

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Rent regulation is a system of laws for the rental market of dwellings, with controversial effects on affordability of housing and tenancies. Generally, a system of rent regulation involves:

Contents

The loose term "rent control" covers a spectrum of regulation which can vary from setting the absolute amount of rent that can be charged, with no allowed increases, to placing different limits on the amount that rent can increase; these restrictions may continue between tenancies, or may be applied only within the duration of a tenancy. [3] As of 2016, at least 14 of the 36 OECD countries have some form of rent control in effect, [4] including four states in the United States. [5] [6]

Rent regulation is implemented in many diverse forms. It is one of several classes of policies intended to improve housing affordability. Its efficacy and collateral impacts have been the subject of disagreement and controversy. [7] There is consensus among economists that rent control reduces the quality and quantity of housing units. [7] : 1  [8] [9] [10] [11] [12] [13] [14]

Forms

Producer surplus decreases due to price ceiling, consumer surplus can increase but does not have to, quantity decreases and demand increases Binding-price-ceiling.svg
Producer surplus decreases due to price ceiling, consumer surplus can increase but does not have to, quantity decreases and demand increases

The loose term "rent control" can apply to several types of price control:

Effectiveness

Rent price controls remain the most controversial element of a system of rent regulation. Modern rent controls (sometimes called rent leveling or rent stabilization) are intended to protect tenants in residential properties from excessive rent increases. This is usually done by mandating gradual rent increases or rent freezes, while at the same time ensuring that landlords receive a return on their investment that is deemed fair by the controlling authority.[ citation needed ]

There is consensus among economists that rent control reduces the quality and quantity of rental housing units. [7] : 1  [8] [9] [10] [11] [13] [14] [16] [17] However, some economists challenge this consensus and argue that controls do not have a statistically significant impact on quantity and quality of housing units. [18] [19] [20]

One historical example of widespread rent control occurred in the US during World War II. Roughly 80% of rental housing was put under rent control in 1941. The observed result was that landlords opted to sell their units at uncontrolled prices rather than renting at controlled prices, leading to an increase in home ownership and a decrease in rental units. [21]

A number of neo-classical and Keynesian economists say that some forms of rent control regulations create shortages and exacerbate scarcity in the housing market by discouraging private investment in the rental market. In addition, there would be a dead weight loss and inefficiency since some of the loss due to price ceilings is never gained again. [22] [23] This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan, or elsewhere in the United States.[ citation needed ]

In a 1992 stratified, random survey of 464 US economists, economics graduate students, and members of the American Economic Association, 93% "generally agreed" or "agreed with provisos" that "A ceiling on rents reduces the quantity and quality of housing available." [24] : 204  [25] : 1 

A 2009 review of the economic literature [23] : 106  by Blair Jenkins through EconLit covering theoretical and empirical research on multiple aspects of the issue, including housing availability, maintenance and housing quality, rental rates, political and administrative costs, and redistribution, for both first generation and second generation rent control systems, found that "the economics profession has reached a rare consensus: Rent control creates many more problems than it solves". [23] : 105  [26] : 1  [27] : 1  [28] : 1 .

In a 2012 poll of 41 economists by the Initiative on Global Markets (IGM) Economic Experts Panel, which queried opinions on the 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," 13 members said they strongly disagreed, 20 disagreed, 1 agreed, and 7 either did not answer, were undecided, or had no opinion. [29] [2] : 1  [30] : 1 .

A 2021 Columbia Business School study found that there are benefits to rent regulation, [31] arguing that "the housing stability they provide disproportionately benefits low-income households. These insurance benefits trade off against the aggregate and spatial distortions in housing and labor markets that accompany such policies."

In David Sims's 2007 study of the deregulation of the housing market in Cambridge, Massachusetts, he found that "rent control had little effect on the construction of new housing but did encourage owners to shift units away from rental status and reduced rents substantially." [32]

In a 2013 analysis of the body of economic research on rent control by Peter Tatian at the Urban Institute, he stated that "The conclusion seems to be that rent stabilization doesn't do a good job of protecting its intended beneficiaries—poor or vulnerable renters—because the targeting of the benefits is very haphazard.", and concluded that: "Given the current research, there seems to be little one can say in favor of rent control." [26] : 1  [2] : 1  [33] : 1 

Many economists suggest housing subsidies as a way to make housing more affordable to renters without distorting the housing market as much as rent control, but expanding the existing subsidy programs would require sharp increases in government spending. [7]

Paul Krugman writes that rent control inhibits construction of new housing, creates bitter tenant–landlord relations, and in markets with not all apartments under rent control, causes an increase in rents for uncontrolled units. [25]

Thomas Sowell writes that rent control reduces the supply of housing, [34] : 4  and has stated that rent control increases urban blight. [34] : 5  [35] : 1 

The Swedish economist Assar Lindbeck, a housing expert, said that "rent control appears to be the most efficient technique presently known to destroy a city – except for bombing". [36] [37]

A study by NYU's Furman Center takes a more positive view on rent regulation, especially as a tool to slow gentrification: "Although rent regulation is ill-targeted if viewed as a purely redistributional program," write the three authors of the study, "as a program to promote longer-term lower rent tenancies for the tenants who benefit from it, even in hot rental markets, it seems to succeed." [38]

California studies

In 1994, San Francisco voters passed a ballot initiative which expanded the city's existing rent control laws to include small multi-unit apartments with four or fewer units, built prior to 1980 (about 30% of the city's rental housing stock at the time). [39] : 7  [40] : 1  [41] : 1  A 2019 study found that San Francisco's rent control laws reduced tenant displacement from rent controlled units in the short-term, but resulted in landlords removing 30% of the rent controlled units from the rental market (by conversion to condos or TICs) which led to a 15% citywide decrease in total rental units, and a 7% increase in citywide rents. [42] [40] [41] [43] [44] : 1  [45] : 1  [46]

History

A 1945 comic explaining rent control under the U.S. Office of Price Administration JayJackson.png
A 1945 comic explaining rent control under the U.S. Office of Price Administration

Early modern Europe

Rent control was used in Rome as early as 1470 to protect Jewish residents from price gouging. Since Jews in the Papal States were forbidden to own property, they were dependent on Christian landlords, who charged them high rents. In 1562, Pope Pius IV granted Jews the right to own property worth up to 1,500 Roman scudi and enacted rent stabilization. In 1586, Pope Sixtus V issued a bull ordering landlords to rent out houses to Jewish tenants at reasonable rates. [47]

Politics

By country

Australia

Rental regulations are administered by the state and territory governments. Rent control and freezes were features of the First and Second World War, the Great Depression, and the early stages of the COVID-19 pandemic. [48]

Australian Capital Territory

The Australian Capital Territory (ACT) is currently the only jurisdiction with regulation specifying maximum rent increases. Rents can only be increased for sitting tenants once a year by a maximum of 110% of the consumer price index for the cost of rent in the ACT. [49] [50] [51] Rents between tenancies are not regulated, and are allowed to rise to market rate upon vacancy (vacancy decontrol). [50] [52] Rent increases above the amount prescribed by regulation may be disputed by application to the ACT Civil and Administrative Tribunal (ACAT). [53] [54] Other Australian jurisdictions allow for rent increases every six to twelve months with variable notice periods. [55]

New South Wales

New South Wales has a small number of tenants who are not covered by the Residential Tenancies Act 2010 (NSW), [56] but rather continuing provisions of the repealed Landlord and Tenant (Amendment) Act 1948 (NSW) . [57] [58] [59] [60] Such ‘protected tenants’ pay a regulated ‘fair rent’ set either through a Section 17A agreement registered with NSW Fair Trading, or a magistrate sitting as the Fair Rents Board (NSW). [58] [61]

Canada

In Canada, there are rent regulation laws in each province. For example, in Ontario the Residential Tenancies Act 2006 requires that prices for rented properties do not rise more than 2.5 percent each year, or a lower figure fixed by a government minister.

China

China announced in August 2021 new nationwide rent regulations that cap maximum yearly rent increases to 5% in all urban areas, which comprise over 2/3 of the population and include most of the ~250 million renters in the country. [62]

France

Rent regulations are determined in France based on the Rent Reference Index, which serves as the basis for what landlords can increase yearly rents by. [63] In July 2022, France introduced a new cap on yearly rent increase of a maximum of 3.5% for one year. [64]

Germany

German rent regulation is found in the "Civil Code" (the Bürgerliches Gesetzbuch ) in § 535 to § 580a. [65] As common in German law, regulations are structured into an abstract, more general part that applies to all contracts of a certain type, followed by a more specific section for individual fields of application of this type of contract. Specific regulations for rental contracts governing apartments range from §§ 549 - 577a BGB.

The German law differentiates between the rental price at the starting point of the contract and rent increases throughout the duration of the contract. Generally, the rental price at the starting point of the contract is determined by the contractual agreement between the parties. Only in designated regions with a strained housing market, the rental price at the beginning of the rental agreement are capped by law. Increases in the rental prices throughout the duration of a rental contract are required to follow a "rent level" (Mietspiegel), which is a database of local reference rent prices. This collects all rent prices of new rental contracts of the past four years, and landlords may only increase prices on their property in line with rents in the same locality. Usury Rents are prohibited altogether, so that any price rises above 20 per cent over three years are unlawful. [66]

Tenants may be evicted against their will through a court procedure for a good reason, and in the normal case only with a minimum of three months' notice. [67] Tenants receive unlimited duration of their rental agreement unless the duration is explicitly halted. In practice, landlords have little incentive to change tenants as rental price increases beyond inflation are constrained. During the period of the tenancy, a person's tenancy may only be terminated for very good reasons. A system of rights for the rental property to be maintained by the landlord is designed to ensure quality of housing. Many states, such as Berlin, have a constitutional right to adequate housing, and require buildings to make dwelling spaces of a certain size and ceiling height.[ citation needed ]

In 2020, Berlin implemented a rent freeze, which was unprecedented in the German housing market. It benefitted sitting renters, but it substantially reduced the supply of new housing, harming those looking for a dwelling. The rent freeze was repealed in 2021. [68]

Netherlands

Yearly rent increases in the Netherlands are capped at a maximum of inflation + 1%, calculated as 3.3% in 2022. [69]

Spain

The Catalonia region of Spain passed a rent-regulation law in September 2020. [70]

United Kingdom

UK house prices 1975-2006. Graph-house-prices-1975-2006.gif
UK house prices 1975–2006.

Rent regulation covered the whole of the UK private sector rental market from 1915 to 1980. However, from the Housing Act 1980, it became Conservative Party policy to deregulate and dismantle rent regulation. Regulation for all new tenancies was abolished by the Housing Act 1988, leaving the basic regulatory framework was "freedom of contract" by the landlord to set any price. Rent regulations survive among a small number of council houses, and often the rates set by local authorities mirror escalating prices in the non-regulated private market.

United States

Rent regulation in the United States is an issue for each state. In 1921, the US Supreme Court case of Block v. Hirsh [71] held by a majority that regulation of rents in the District of Columbia as a temporary emergency measure was constitutional, but shortly afterward in 1924 in Chastleton Corp v. Sinclair [72] the same law was unanimously struck down by the Supreme Court. After the 1930s New Deal, the Supreme Court ceased to interfere with social and economic legislation, and many states adopted rules.[ citation needed ] In the 1986 case of Fisher v. City of Berkeley , [73] the US Supreme court held that there was no incompatibility between rent control and the Sherman Act.

Rent control existed in several Massachusetts communities from 1970 to 1994. During this time, at least 20% of all rent-controlled apartments in Cambridge housed the rich. [74] The vast majority housed middle- and high-income earners. [74] They included Frederik, Crown Prince of Denmark. [74]

As of 2018, 4 states (California, New York, New Jersey, and Maryland) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes). [5] [6] 37 states either prohibit or preempt rent control, while 9 states allow their cities to enact rent control, but have no cities that have implemented it. [5] [6] For the localities with rent control, it often covers a large percentage of that city's stock of rental units: For example, in some of the largest markets: in New York City in 2011, 45% of rental units were either "rent-stabilized" or "rent-controlled", (these are different legal classifications in NYC) [75] : 1  in the District of Columbia in 2014, just over 50% of rental units were rent-controlled, [76] : 1  in San Francisco, as of 2014, about 75% of all rental units were rent-controlled, [77] : 1  and in Los Angeles in 2014, 80% of multifamily units were rent controlled. [78] : 1 

In 2019 California passed a statewide rent cap for the next 10 years which limits yearly rent increases to 5% plus regional inflation. [79]

In 2019 Oregon's legislature passed a bill which made the state the first in the nation to adopt a state-wide rent control policy. This new law limits annual rent increases to inflation plus 7 percent, includes vacancy decontrol (market rate between tenancies), exempts new construction for 15 years, and keeps the current state ban on local rent control policies (state level preemption) intact. [80] : 1  [81] : 1 

In November 2021, voters in Saint Paul, Minnesota passed a rent control ballot initiative which capped annual rent increases at 3 percent, included vacancy control, and did not exempt new construction, nor allow inflation to be added to the allowable rate increase. [82] [83] This was followed by an 80% reduction in requests for new multifamily housing permits, while in neighboring Minneapolis, where voters authorized the city council to craft a rent control ordinance, yet to be enacted—which may exempt new construction from the rent control caps—permits were up 68%. [82] [84]

See also

Related Research Articles

In the United States, rent control refers to laws or ordinances that set price controls on the rent of residential housing to function as a price ceiling. More loosely, "rent control" describes several types of price control:

<span class="mw-page-title-main">Landlord</span> Owner of a rented building, land or real estate

A landlord is the owner of a house, apartment, condominium, land, or real estate which is rented or leased to an individual or business, who is called a tenant. When a juristic person is in this position, the term landlord is used. Other terms include lessor and owner. The term landlady may be used for the female owners. The manager of a pub in the United Kingdom, strictly speaking a licensed victualler, is referred to as the landlord/landlady. In political economy it refers to the owner of natural resources alone from which an economic rent, a form of passive income, is the income received.

<span class="mw-page-title-main">Lease</span> Contractual agreement in which an assets owner lets someone else use it in exchange for payment

A lease is a contractual arrangement calling for the user to pay the owner for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment are also leased. In essence, a lease agreement is a contract between two parties: the lessor and the lessee. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. The lessee also agrees to abide by various conditions regarding their use of the property or equipment. For example, a person leasing a car may agree to the condition that the car will only be used for personal use.

Section 8 of the Housing Act of 1937, commonly known as Section 8, provides rental housing assistance to low-income households in the United States by paying private landlords on behalf of these tenants. Approximately 68% of this assistance benefits seniors, children, and individuals with disabilities. The Department of Housing and Urban Development (HUD) oversees Section 8 programs, which are administered locally by public housing agencies (PHAs).

Property management is the operation, control, maintenance, and oversight of real estate and physical property. This can include residential, commercial, and land real estate. Management indicates the need for real estate to be cared for and monitored, with accountability for and attention to its useful life and condition. This is much akin to the role of management in any business.

Subsidized housing is government sponsored economic assistance aimed towards alleviating housing costs and expenses for impoverished people with low to moderate incomes. In the United States, subsidized housing is often called "affordable housing". Forms of subsidies include direct housing subsidies, non-profit housing, public housing, rent supplements/vouchers, and some forms of co-operative and private sector housing. According to some sources, increasing access to housing may contribute to lower poverty rates.

Local Housing Allowance (LHA) was introduced by the government of the United Kingdom on 7 April 2008 to provide Housing Benefit entitlement for tenants renting private-sector accommodation in England, Scotland and Wales. The LHA system introduced significant changes to the way Housing Benefit (HB) levels are restricted and how benefit is paid. It did not replace Housing Benefit - it is just a different way of calculating entitlement under the existing Housing Benefit scheme: the Local Housing Allowance is based on the 30th percentile of local rented accommodation, while the 50th percentile or median was used from the introduction of the policy until 2011. LHA rates relate to the area in which the housing-benefit claim is made. These areas are called "Broad Rental Market Areas", defined as "where a person could reasonably be expected to live taking into account access to facilities and services", and a selection of rents in the area are used to determine the LHA for each category of housing in the area.

Rent control in Ontario refers to a system of rent regulation in Ontario, Canada which limits the amount by which the rent paid by tenants for rental accommodation can increase. It applies to any unit that was first occupied for residential purposes before November 15, 2018.

Landlord harassment is the willing creation, by a landlord or their agents, of conditions that are uncomfortable for one or more tenants in order to induce willing abandonment of a rental contract. This is illegal in many jurisdictions, either under general harassment laws or specific protections, as well as under the terms of rental contracts or tenancy agreements.

Rent regulation in New York is a means of limiting the amount of rent charged on dwellings. Rent control and rent stabilization are two programs used in parts of New York state. In addition to controlling rent, the system also prescribes rights and obligations for tenants and landlords.

<span class="mw-page-title-main">Landlord and Tenant Act 1985</span> United Kingdom legislation

The Landlord and Tenant Act 1985 is a UK act of Parliament on English land law. It sets minimum standards in tenants' rights against their landlords.

The Ellis Act is a 1985 California state law that allows landlords to evict residential tenants to "go out of the rental business" in spite of desires by local governments to compel them to continue providing rental housing.

The history of rent control in England and Wales is a part of English land law concerning the development of rent regulation in England and Wales. Controlling the prices that landlords could make their tenants pay formed the main element of rent regulation, and was in place from 1915 until its abolition by the Housing Act 1988.

<span class="mw-page-title-main">Subdivided flat</span> Type of flat

Subdivided flats are flats divided into two or more separate units to house more people. The flats' original partition walls are usually removed, and new ones are erected. New toilets and kitchens are installed, and internal drains are added or altered. These updates can compromise the building's safety and hygiene.

Rent regulation in Canada is a set of laws and policies which control the amount by which rental prices for real property can increase year to year. Each province and territory can pass legislation, where the purpose is to limit rent prices increasing beyond what is affordable for most home dwellers.

Rent regulation in England and Wales is the part of English land law that creates rights and obligations for tenants and landlords.

The Costa–Hawkins Rental Housing Act ("Costa–Hawkins") is a California state law enacted in 1995, placing limits on municipal rent control ordinances. Costa–Hawkins preempts the field in two major ways. First, it prohibits cities from establishing rent control over certain kinds of residential units, such as single-family dwellings, condominiums, and newly constructed apartment units. Second, it prohibits "vacancy control", also called "strict" rent control. The legislation was sponsored by Democratic Senator Jim Costa and Republican Assemblymember Phil Hawkins.

<span class="mw-page-title-main">Housing Act 1988</span> United Kingdom legislation

The Housing Act 1988 is an act of Parliament in the United Kingdom. It governs the law between landlords and tenants. The act introduced the concepts of assured tenancy and assured shorthold tenancy. It also facilitated the transfer of council housing to not-for-profit housing associations, which was then carried out partly through the system of Large Scale Voluntary Transfer.

<span class="mw-page-title-main">Gentrification of San Francisco</span>

The gentrification of San Francisco has been an ongoing source of tension between renters and working people who live in the city as well as real estate interests. A result of this conflict has been an emerging antagonism between longtime working-class residents of the city and the influx of new tech workers. A major increase of gentrification in San Francisco has been attributed to the Dot-Com Boom in the 1990s, creating a strong demand for skilled tech workers from local startups and close by Silicon Valley businesses leading to rising standards of living. As a result, a large influx of new workers in the internet and technology sector began to contribute to the gentrification of historically poor immigrant neighborhoods such as the Mission District. During this time San Francisco began a transformation eventually culminating in it becoming the most expensive city to live in the United States.

The Model Tenancy Act, 2019 is a proposed tenancy law by the Government of India, designed to overhaul the tenancy market in India.

References

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  44. ↑ Delgadillo, Natalie (14 February 2018). "Does Rent Control Do More Harm Than Good? - A new study suggests that policies meant to keep rents down actually jack them up overall, reduce the rental stock and fuel gentrification". Governing . Archived from the original on 22 February 2018. Retrieved 7 August 2018.
  45. ↑ Misra, Tanvi (29 January 2018). "Rent Control: a Reckoning". CityLab. Archived from the original on 1 February 2018. Retrieved 30 November 2018.
  46. ↑ Andrews, Edmund (2 February 2018). "Rent Control's Winners and Losers - With rents going through the roof in hot cities, the hunt is on for a better way to protect tenants from being priced out of their homes". Stanford Graduate School of Business. Archived from the original on 9 March 2018. Retrieved 11 December 2018.
  47. ↑ Willis, John W. (1950). "Short History of Rent Control Laws". Cornell Law Review. 36 (1): 54–94. Retrieved 7 March 2019– via Cornell University Law Library.
  48. ↑ z5076905 (29 August 2022). "Is it time to talk about rent control in Australia?". UNSW Newsroom. Retrieved 4 November 2022.{{cite web}}: CS1 maint: numeric names: authors list (link)
  49. ↑ ACT Government (1 April 2023). "Part 5, Residential Tenancies Act 1997 (ACT)". ACT Legislation Register. Retrieved 25 June 2023.
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  52. ↑ Clun, Rachel (25 June 2023). "The one place in Australia with rent control". The Sydney Morning Herald. Retrieved 25 June 2023.
  53. ↑ Legal Aid ACT (25 June 2023). "Tenancy: Rent Increases" (PDF). Legal Aid ACT. Retrieved 25 June 2023.
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  55. ↑ "How Much Is Rent Allowed to Increase (And How Often)?". Property Update. 24 October 2022. Retrieved 4 November 2022.
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  65. ↑ English translation available: §§ 535 ff. BGB
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  67. ↑ BGB §573c
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  72. ↑ 264 U.S. 543 (1924)
  73. ↑ 475 U.S. 260 (1986)
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  79. ↑ Dillon, Liam (8 October 2019). "California will limit rent increases under bill signed by Gov. Gavin Newsom". Los Angeles Times .
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  82. 1 2 Britschgi, Christian (22 March 2022). "America's Most Controversial Rent Control Law Is Getting a Hasty Makeover - A collapse in new development activity followed St. Paul voters' approval of a strict, vaguely written rent control ordinance. City and state officials are scrambling over how best to fix the new law". Reason . Tomorrow the St. Paul City Council will discuss the details of implementing Question 1, a brief, voter-passed ordinance that caps annual rent increases at 3 percent and which includes none of the typical exemptions or allowances for new construction, vacant units, or inflation. ... California and Oregon policies also include a number of other exemptions to their state-level rent control laws. They allow property owners, up to a point, to add inflation to allowable rent increases. They both allow landlords to raise rents as high as they want between tenants and have higher caps on rent increases: 5 percent in California and 7 percent in Oregon.
  83. ↑ Galioto, Katie (20 November 2021). "Fearing a spike, tenant advocates keep a close eye on St. Paul rents". Star Tribune . More than 30,000 St. Paul residents — about 53% of voters — approved an ordinance by referendum earlier this month that will cap annual rent increases at 3%. The city has yet to hammer out the finer points of its new policy, which has been pegged as one of the most stringent rent control measures in the nation because it does not allow landlords to raise rents once a tenant moves out, does not exempt new construction and is not tied to inflation.
  84. ↑ Callaghan, Peter (16 March 2022). "Minnesota Senate committee moves bill to retroactively cancel rent control measures passed by voters in Minneapolis, St. Paul". MinnPost . Draheim also cited Census Bureau statistics that show requests for housing permits has fallen 80 percent in St. Paul since the passage of the referendum. In Minneapolis, which hasn't drafted an ordinance yet and where new buildings could be exempt from caps, permits are up 68 percent.

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