What are the effects of rent control, both good and bad?
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Good and bad for who?
One of the upsides to rent control is that over time, neighborhood businesses thrive. Tenants have more money to spend on shopping and restaurants, entertainment, theater, etc.
The good effects of rent control are short term. You can quickly give relief to people who might very well lose their housing otherwise. This can prevent cascading economic problems.
The bad effects of rent control are long term. You have now put your thumb on the market forces that would usually have caused new housing to have been created. Now the original problem you were trying to fight — too little housing which caused prices to rise — becomes entrenched.
Another bad problem with rent control is that it is almost impossible to undo. Once people start depending on rent control, there are both legal and moral problems to taking it away again. That is why many places that experimented with rent control in the 1970s and then abandoned it after a few years are *still* grappling with the consequences 50 years later.
About the only real way to make rent control work is to put a time limit on it from the very start, make this time limit damn near impossible to move, and immediately move to solve the underlying problem by either encouraging people to move out of the area or encourage lots of new development.
I am unaware of anyone ever actually making it work, but I’m sure if there are good examples, somebody will let me know 🙂
Depends on the situation.
If you have so few houses available and something preventing construction (like zoning laws) then not much. You won’t be getting new housing anyway.
If the rent is set too low you get selloffs and rentals come off the market and become permanent housing.
A claim is often that it reduces housing supply, but generally that isn’t the case since it’s rentals becoming permanent housing. Nobody tears down a house because they can’t rent it at a higher rate. The house is still there. That’s typically followed by saying that it stops new housing from being built but that’s generally also not true since rental caps are rarely set low enough that the rentals aren’t still a good investment.
In an efficient market where there aren’t any other barriers to building houses and the rent control is set at a low value it can impact housing quality and availability.
Rent control is terrible, because desirable people will always be first to rent, and landlords have no incentive to put in the extra to make an apartment above average
I lived in a heavily rent controlled city for a few years. Everyone was stuck in homes they hated, that were poorly maintained, because the cost increase would be so huge if they moved. Everyone was miserable. It’s a terrible system for all but a handful of current tenants.
I live in Sweden, one of very few (possibly the only one?) countries with nationwide rent controls.
The upside of rent controls is that it makes rent more affordable. Where they’ve been implemented, they’ve usually been intended as a temporary social policy. In Sweden’s case, oil imports were drastically reduced due to WWII in the 40’s. When supply decreased, the price increased and most properties were heated by oil. So legislators introduced rent controls to prevent property owners from passing on their costs to tenants, preferring property owners going bust over tenants becoming homeless. The intention was for the rent controls to be abolished once oil rationing went away, but for a variety of reasons that never happened (though changes have been made, and modern Swedish rent controls aren’t as strict as they used to be).
The downsides of rent controls are many. Most notably that it creates a housing shortage. If property owners cant charge their tenants what it actually costs them to invest in and maintain the property, they wont pay a developer to build the property. There are various ways of dealing with this situation. In Sweden it was dealt with by creating a housing queue – you’ll have to wait for 25+ years to get an apartment in attractive parts of large cities. In other places it’s been dealt with by arranging apartment lotteries when an apartment becomes vacant.
A less ovserved downside is that rent controls increases demand. If you can rent a $1,500/month apartment for only $800/month, you may want to rent a $1,200/month apartment for $650 in a coastal city as well, as a vacation home. It’ll sit empty for most of the year and effectively displace locals in need of a permanent residence and thus worsen the housing shortage.
Another downside is that it increases segregation. All housing markets are segregated, to varying degrees. The most attractive neighbourhoods are usually disproprtionately occupied by middle-aged to old people belonging to the majority ethnicity, since they have more money and better connections than other. But it get even more pronounced if you add rent controls to the mix, because while it is uncommon for young people and immigrants to have a lot of money or great connections, it does happen so they have a shot at living in the best neighbourhoods where apartments are bought and not rented, or rented at market rates. But a 24-year old or somebody who only immigrated a couple of years ago literally *cant* have done 25+ years of waiting in the housing queue. If you want to find the whitest neighbourhood in Sweden, find the neighbourhood with the largest share of rented apartments in downtown Stockholm.
A fourth downside is that it inflates prices in alternative housing markets. If you’re moving to a new city and you cant rent a place there since you haven’t waited in line, buying a home is basically your only option. Since it’s your only option, you’re prepared to pay more than you would’ve been if you had other options, and prices increase. Higher prices for owned housing and inaccessible rental housing make housing in general less accessible to less affluent people. Young people without long time in the housing queue and without large savings are most affected.
The inflated housing prices also make rent controls difficult to get rid of. Hundreds of thousands of people have borrowed money to pay an inflated housing price. If rent controls disappear, prices for owned housing will drop and those people will lose tens of thousands of dollars but still have to pay their mortgages.
Tl;dr: don’t try rent controls at home. If you do try rent controls at home, abolish them quickly.
Rent control is good when done well, for proof look towards Vienna. Done poorly and you now have a great number of people unable to afford the mortgages they are obligated to pay due to the difference in rent prices.
Rent control only really works in a socialist collective first type of environment. One where the government builds all the housing and doesn’t rent it out with the goal of profits but with the goal of housing as many people affordably as possible.
In a capitalistic rent market rent control has basically no chance of being passed federally unless it comes with a tax break equivalent to the revenue lost due the government forcing lower rents. Imagine this for a minute.
If I’m a small time landlord who just bought their first property and I decided to rent it out for $1500 a month and also now have a mortgage of $1300 I’m likely not even breaking even after paying for home insurance and a company to handle acquiring/ handling tenant needs. So let’s say after a year of eating the loss I raised rent to $1800. At this point I am likely netting around $300 month before taxes.
Come next year and the “affordability rent control mandate” gets passed federally and suddenly I can’t charge more then $1000 a month. This is obviously an issue because now I am $300 in the red before taking into consideration any of the other costs of maintaining and filling said property.
As a single home owner this would devastate me as I am still legally required to pay the same mortgage despite the property now only earning me a max of $1000 a month. In this hypothetical, I would likely end up defaulting on my mortgage and the bank would foreclosure on my house.
This is the issue with rent control in a vacuum, in order for it to work tax breaks / rebates equivalent to the difference in rent received versus the expenses of running said property need to come alongside any form of rent control. That would cost the government allot of tax money so getting any politician to support such a movement is very hard because in the short term it would mean allot less money for everyone. Not particularly helpful if you’re looking to get reelected, even if it’s more then worth it in the long run.
In an efficient free market, increasing demand should result in increasing supply. For many reasons, very often government initiated at the behest of voters, the real estate market is not efficient and supply does not keep up with demand. Rents go up and Rent Control become yet an additional government interference with the market. Yet, is it really feasible, in a modern democracy to let the real estate run rampant if a significant number of people who have homes are fearful of losing them? People who live in the homes of others, who want to relocate to urban areas or the outright “ unhoused” do not vote as regularly as who either rent or own their own home and otherwise lack political influence. It is householders who ultimately ultimately control political clout in urban areas and the fear of renters being unable to continue to afford to live where they do can be a serious driving force in local politics. Rent Control is a response to the prospects of many voters being priced out of their homes by The Market.
ELI5 short answer: Rent control benefits individual people and families economically, whereas no rent control benefits landlords and developers economically.
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