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Thomas Sowell is a thought-provoker. While reading a section of 'The Thomas Sowell Reader,' I was struck by his thinking on several topics. One of the things he wrote about, rent control, got me thinking. I now understand why rent control laws do not control rent prices.
Here's a short explanation.
Rent control is a policy used to regulate the amount of rent that landlords can charge for their properties. Governments typically implement it at the local or state level. Rent control laws usually set a maximum amount that landlords can charge for rent and may also limit the frequency and amount of rent increases. The goal of rent control is to make housing more affordable for renters, particularly low-income renters, by limiting the amount that landlords can charge for rent. Rent control is usually applied to apartments, although some cities apply it to single-family homes and small multifamily buildings.
Rent control laws usually fall into two main categories: rent stabilization and rent control. Rent stabilization laws typically cap the amount that landlords can raise each year and establish guidelines for how landlords can increase rent, such as by linking rent increases to the cost of living. Rent stabilization laws also often include other protections for renters, such as eviction protections and requirements that landlords provide basic services and maintain their properties.
Rent control laws are typically more restrictive than rent stabilization laws and typically set a maximum rent that landlords can charge, regardless of market conditions. These laws also often include other protections for renters, such as eviction protections and requirements that landlords provide basic services and maintain their properties.
Both rent stabilization and rent control laws are implemented to protect renters from rapid and excessive rent increases, which can make it difficult for renters to afford housing. However, rent control laws are more restrictive and have a greater impact on landlords, as they limit the amount of rent landlords can charge, regardless of market conditions.
Rent control laws only sometimes effectively control the rent prices because they can have unintended consequences. For example, if the supply of rental housing is limited, landlords may be able to charge more than the controlled amount for the available units. Additionally, rent control laws can discourage new construction and renovation of existing housing, reducing the overall supply of rental housing. Landlords may also be less likely to maintain their properties if they need to charge more to cover their costs. Rent control laws can lead to a shortage of rental housing and higher prices for available units.
Rent control laws can also create a disincentive for landlords to invest, maintain, or even rent out their properties. If landlords cannot charge enough to cover their costs, they may choose to keep their units vacant, convert them to condos, or use them for personal use. This can lead to a shortage of rental housing and make it difficult for people to find an affordable place to live. Also, rent control laws can increase administrative costs for landlords, as they must comply with the many regulations a city requires. They may also lead to legal disputes between landlords and tenants over rent increases.
Another major problem with rent control laws is that they benefit current tenants at the expense of future tenants. Because landlords cannot raise the rent on existing tenants, they may charge higher rents to new tenants, which can make it difficult for people moving into the area to find affordable housing. Furthermore, because of the limited mobility of current tenants, they may be less likely to move out of a unit even if their circumstances change, resulting in a lack of turnover and making it easier for new renters to find a place to live.
Rent control laws can have some benefits, such as protecting existing tenants from sudden or large rent increases. Still, they have significant drawbacks and may not be an effective way to control rent prices in the long run.
The phrase "affordable housing" is often used in relation to rent control because rent control aims to make housing more affordable for renters, particularly low-income renters. Rent control laws are implemented to limit the amount landlords can charge for rent, making it more affordable for renters to live in a particular area.
Affordable housing is generally defined as housing that costs no more than 30% of a household's income. The idea is that if rents are controlled, more people will be able to afford housing, which will be more accessible to low-income renters.
However, as I mentioned before, Rent control laws may not always effectively control the prices of rent because they can have unintended consequences such as reducing the overall supply of rental housing, discouraging new construction and renovation of existing housing, landlords may be less likely to maintain their properties if they are not able to charge enough to cover their costs. Therefore, the achievement of affordable housing is not guaranteed by rent control laws, and other solutions, such as increasing the supply of housing, providing financial assistance to low-income renters, and preserving existing affordable housing, should also be considered.
While rent control laws may not be effective in controlling rent prices, other solutions can be implemented to lower rental prices:
Increasing the supply of housing: This can be done by encouraging new construction and development and reducing regulations that make it difficult or expensive to build new housing.
Inclusionary zoning: This is a policy where a certain percentage of new developments must be set aside as affordable housing.
Providing financial assistance to low-income renters: This can include programs such as vouchers or tax credits that help low-income renters afford higher rents in expensive areas.
Community land trusts: This is a model where community-controlled non-profit organizations acquire and hold land in trust and then lease it to individuals or organizations at a low cost.
Rent stabilization: Instead of complete rent control, governments can implement rent stabilization policies that limit the amount landlords can increase rent each year; this allows landlords to make a fair return on their investment while also protecting tenants from drastic rent increases.
Preserving existing affordable housing: Governments can use purchase, zoning, and other tools to protect existing affordable rental housing from being demolished or converted to market-rate units.
Each solution has its pros and cons, and the most effective solution would depend on the specific context of each city. Therefore, a combination of several solutions may be needed to address the problem of high rent in big cities.
I started learning about the difference between rent control and rent stabilazation when my rent began going up rapidly every year here in New York City. I realize I live in a rent stabilized apartment, not a rent controlled one. It’s one of the main reasons why I’m finally, after thirty years of living here, I’m LEAVING! It’s time for me to own my own home and get in on the rental property business - but not in a rent controlled jurisdiction. It is way too much of a headache for landlords.
The next time you hear the phrase ‘rent control' and ‘affordable housing,’ you may have a better understanding of what it means. Thank you Thomas Sowell!
Clayton is the founder and publisher of the social and political commentary newsletter Think Things Through and the host of the Think Things Through Podcast.