Rent Control and Renter Stability

Introduction

Today’s pressing concerns about mounting housing costs in the aftermath of the COVID pandemic have made rent control increasingly prominent in recent discussions. Rent control policies, it is argued, might stabilize housing expenses, offer greater safeguards for tenants, and not substantially disincentivize new affordable housing construction. Could such measures help realize housing as a human right for all residents?

During 2017-2021, over 40% of renter households in the US (approximately 19 million) spent more than 30% of their income on housing¹. They are “cost burdened” according to U.S.HUD’s standards. Moreover, the vulnerability of these renters is underscored by the fact that landlords file around 3.6 million eviction cases every year². This alarming statistic emphasizes that even tenants who consistently pay their rent on time are at risk of sudden rent increases and potential displacement.

Many observers view rent control policies as a possible solution to housing instability by placing limits on rental increases and establishing eviction regulations amidst an unpredictable market. This policy remains contentious, however, with proponents highlighting its advantages while critics raise concerns about potential negative impacts on the housing market. As housing affordability continues to be a central issue for millions, the conversation around rent control becomes ever more significant.

The Economics 101 View of Rent Control

Economists often use the model of supply and demand in a perfectly competitive marketplace as a framework within which to analyze rent control. They argue that rent control caps on rental housing prices inevitably constrain the supply of housing (Rajasekaran, et al., 2019). Using New York City to as an example (see Figure 1), they argue that landlords often find themselves in a situation where their expenses rise at a rate twice that of the government-imposed limits on rent increases. In this scenario, rental price growth is tightly restricted, but costs are not similarly controlled. As a result, rental income may fail to keep up with rising expenses. Since rental properties primarily rely on rental income for operations and maintenance, this mismatch can discourage landlords from maintaining or reinvesting in their buildings. They might even convert these properties for other purposes, exit the rental market altogether, or struggle to adequately maintain them due to financial constraints. At the same time, because rent control policies do not include means-testing, they often benefit households with high incomes instead of the intended renters, thus limiting available housing options for those seeking housing at an affordable rate (Richardson, 2023). Such dynamics, argue some economists, coupled with other factors that have the potential to reduce housing availability, undermine the very objectives of rent control.

Figure 1

 

 

Source: Valdez, 2020

There is a limit to the logic of Economics 101 arguments because the housing market does not approximate a perfect competition. Housing firms include, among others, oligopolistic behemoths, 4-unit family-owned rental properties, and single-family rental homes. As a result, the findings from recent studies on rent control reveal more complex outcomes (Rajasekaran, et al., 2019 and Diamond, 2018) than can be explained by a simple supply and demand analysis.

Let us consider the possible benefits of rent control, especially the advantages of bridging the gap between rent increases and wage stagnation and reducing displacement pressures.

Bridging the Gap Between Rent and Wages

The steady increase of rent prices since 1985 have outpaced income growth. This growing gap between wages/income and rent puts immense pressure on renters, whether they are struggling to afford their current homes or searching for new housing within their budget. The graph below illustrates the widening disparity between incomes and rental costs.  Although there has been some income growth, it has not kept pace with skyrocketing rent prices, making it increasingly challenging for many to find affordable housing. This significant disparity underscores the potential advantages of implementing rent control measures.

Real-world data support this potential argument. CoStar data for Washington, D.C. show that the median rent across all units of rent-controlled buildings is $1,442 per month. This is only about 60% of the rent charged for the median unit in the uncontrolled properties, which is $2,554 per month (Taylor, 2020).  Given the increasing gap between housing costs and income, implementing rent control could offer a much-needed corrective by helping renters find and remain in affordable homes.

Figure 2

 

Source: Data: Moody's Analytics CRE; Chart: Axios Visuals

Reducing Displacement

With rent prices increasing faster than income growth, an alarming number of tenants are being compelled to move due to unaffordability. Eviction not only takes a toll on a household’s finances, but its aftermath also deeply affects emotional and physical well-being of family members. Losing a home can have wide ranging negative impacts: adults may face both financial setbacks and health problems, while children may struggle academically (Robustelli, T. et al., 2020).

Using a natural experiment, Diamond, McQuade, and Qian (2019) showed that San Francisco's 1994 ballot initiative that expanded rent control to small multifamily housing constructed before 1980 reduced displacement. The Stanford researchers categorized renters in small apartment buildings built prior to 1980 as a treatment group and those in similar structures built between 1980 and 1990 as its control group. By tracking these groups' migration and housing decisions, the researchers found that those benefiting from rent control were 10-20% more likely to remain in their homes, with a more pronounced effect among older and long-standing residents.

The DC Policy Center recently prepared a report that similarly revealed a strong correlation between rent control and longer tenancies, although causality could not be assumed. Indirect indicators, however, suggest that in areas where a significant portion of housing units are under rent control, tenants tend to stay in their homes for longer periods of time. Data collected from 2014 to 2018 shows that neighborhoods with over 75% of rent-controlled units have a higher percentage of renters who have remained in their homes since before 2000 compared to areas with fewer rent-controlled units. This sustained occupancy pattern was not observed when analyzing all rental properties, suggesting that the strong presence of rent-controlled units did in fact improve tenant stability.

Rent control acts as a protective measure against rapidly increasing housing costs, especially for those tenants who might not have the means to secure housing elsewhere. By doing so, rent control becomes essential in preventing the displacement of long-term tenants who would otherwise face overwhelming challenges finding affordable housing. The emotional, financial, and societal strains of evictions and consistent moves are significant, underscoring the importance of any policy that seeks to mitigate these issues.

Conclusion

If the benefits of rent control, such as stable housing and affordable rent, are extended to a broader range of households, what are the consequences  for landlords in scenarios where their maintenance costs increase sharply and unexpectedly? Could there be a mechanism whereby the local, state, and/or federal government steps in with additional subsidies for landlords facing this squeeze? Should policymakers be exploring this approach – shifting the burden of unforeseen cost increments from tenants to the government in such cases to offset a negative impact on the affordable housing stock due to rent control regulations?

The effectiveness of rent control ultimately relies on how it is designed, enforced, and regularly evaluated. While it may not be the ultimate solution to all housing problems, it does present a hopeful avenue for promoting housing stability for many individuals. It can be, at least, a step on the longer path to recognizing decent affordable housing as a human right.

References

1. Asquith, B. J. (2019, April). Rent Control: Affordable Housing’s Dubious Solution. Milken Review. https://www.milkenreview.org/articles/rent-control
2. Diamond, R., McQuade, T., & Qian, F. (2019). The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco. American Economic Review, 109(9), 3365-3394.
3. Diamond, R. (2018). What Does Economic Evidence Tell Us about the Effects of Rent Control?. Washington, D.C.: Brookings Institutions. https://www.brookings.edu/articles/what-does-economic-evidence-tell-us-about-the-effects-of-rent-control/
4. Kim, E. (2019, April 17). Study Says Rent Control Is Good For Cities, Debunking Conventional Economists' Wisdom. Gothamist. https://gothamist.com/news/study-says-rent-control-is-good-for-cities-debunking-conventional-economists-wisdom
5. Rajasekaran, P., Treskon, M., & Greene, S. (2019). Rent Control: What Does the Research Tell Us about the Effectiveness of Local Action? Washington, D.C.: Urban Institute. https://www.urban.org/sites/default/files/publication/99646/rent_control._what_does_the_research_tell_us_about_the_effectiveness_of_local_action_1.pdf
6. Richardson, B. (2023, March 23). The Pros and Cons of Rent Control for Landlords and Tenants. Forbes. https://www.forbes.com/sites/brendarichardson/2023/03/23/national-apartment-association-study-finds-that-rent-control-is-not-the-solution-it-appears-to-be/?sh=47e7b94059f0
7. Robustelli, T. et al. (2020). Displaced in America: Mapping Housing Loss Across the United States. Washington, D.C.: New America Foundation.
8. Taylor, Y. S. (2020). Appraising the District’s rentals. D.C. Policy Center. https://dcpolicycenter.wpenginepowered.com/wp-content/uploads/2020/03/Rental-Housing-Report.Final_.March-15.pdf
9. Trumm, D. (2019, August). The case for rent control. The Urbanist. https://www.theurbanist.org/2019/08/05/the-case-for-rent-control/
10. Valdez, R. (2020, July 17). How rent control makes housing less affordable. Medium. https://freopp.org/rent-control-paper-f565f84517c5 
11. Weaver, C. (2021, September). There’s no denying the data: Rent control works. The Hill. https://thehill.com/opinion/finance/573841-theres-no-denying-the-data-rent-control-works/

Endnotes

¹https://www.census.gov/newsroom/press-releases/2022/renters-burdened-by-housing-costs.html#:~:text=DEC.,by%20the%20U.S.%20Census%20Bureau.

²https://www.pbs.org/newshour/nation/eviction-filings-soar-over-50-above-pre-pandemic-levels-in-some-cities-as-rents-increase#:~:text=Landlords%20file%20around%203.6%20million%20eviction%20cases%20every%20year.