The term sounds powerful and perhaps gives the illusion that it is an effective solution to rising rent costs but is it really? There are countless articles, blogs, and studies on the effects of rent control. Many of them have the same conclusion…that rent control is counterproductive, ineffective, and bad economic policy.
Rent control laws cap annual rent increases across the board for a period of time and often with added conditions. It is intended to protect residents, but does it really protect those who need it the most?
Given the current state of the rental housing market, the concept which has also been referred to as rent freeze, rent stabilization, rent ceiling, etc. has risen to the surface again. And more jurisdictions at the local and state levels are considering rent control out of desperation for a solution to the housing affordability problem in their communities.
The negative effects of rent control are that it: 1) limits the supply of rental housing, 2) decreases the quality of existing rental housing, and 3) interferes with free markets and has other economic consequences. The question that policymakers should be asking is, "does it work?" What have been the results? Is there a local or state government entity out there that can tout that it has accomplished success because of its rent control laws? Where is the precedent for a successful rent control measure? A prime example of the free market being imposed upon is the federal eviction moratoria. The nation is feeling the negative effects of it today. It significantly contributed to the shortage of housing.
There are other reasons why rent control is not the answer. One very well-respected economist listed 14 Reasons Why Rent Control Hurts Housing. The article shows why rent control does not work and how it hurts the affordability of housing.
In some cases, rent control initiatives have been taken to voters, who supported it, without fully understanding its unintended consequences. One of the most recent failures of rent control laws occurred in St. Paul, MN in 2021 where voters passed one of the most radical rent control laws on the books. It resulted in an immediate sharp drop in new multifamily construction in the first several months following its passage. Several developers pulled their permit applications and/or placed projects on hold. Ultimately, the rent control laws were so egregious that the mayor of St. Paul attempted to roll back the ordinance with amendments, not realizing that a council nor mayor has the authority to make changes to a law voted by the public. The ordinance went into effect in May 2022.
In August 2022, Orange County (Florida) Commissioners voted to place a rent control question on the November ballot despite the conclusion of their hired consultants that doing so would have “unintended consequences” and that local regulation would not be effective in reducing the high cost of housing. Florida law requires that a local government can only place rent control on the ballot if it finds that there is “a housing emergency so grave as to constitute a serious menace to the general public and that such controls are necessary and proper to eliminate such grave housing emergency.”
Research by the Brookings Institute shows that “while rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.” The National Bureau of Economic Research released a working paper in May 2022 entitled, Robbing Peter To Pay Paul? The Redistribution Of Wealth Caused By Rent Control that attests to the effects of rent control on property values and to the extent that “rent control is intended to transfer wealth from high-income to low-income households, the realized impact of the law was the opposite of its intention.” Rent control laws are not income targeted allowing anyone on the income spectrum to benefit regardless of the need.
The longer-term impact of rent control limits a rental property owner’s ability to recover operational expenses, causing them to postpone or reduce investment in maintenance and improvements to the property. Overtime leading to deterioration of the property.