Rent Control: Definition, How It Works, Vs. Rent Stabilization

What Is Rent Control?

Rent control is a government program that places a limit on the amount that a landlord can demand for leasing a home or renewing a lease. Rent control laws are usually enacted by municipalities, and the details vary widely. All are intended to keep living costs affordable for lower-income residents.

Rent control is not widespread in the United States. According to a 2019 study by the Urban Institute, 182 municipalities in the U.S. have rent control regulations, and all of them are in New York, New Jersey, California, Maryland, or Washington, D.C.

In fact, 31 states have laws that preempt or forbid local governments from enacting rent control measures, as of Feb. 2022.

However, the issue of rent regulation has been revived in recent years, particularly in cities and states where spiraling costs of living combined with stagnant wages have created a housing affordability crisis for moderate-income residents and elderly people on fixed incomes.

Oregon is the first state in the U.S. to enact a statewide rent control law. The law, signed in March 2019, restricts annual rent increases to 7% plus the increase in the consumer price index.

How Rent Control Works

The earliest rent control laws in the U.S. date to the 1920s and were often outright rent freezes. These generally proved unworkable. In the 1970s the idea of rent control surfaced again, this time in a more moderate form often called “rent stabilization.”

New York City, for example, has two rent control programs:

• The older rent control program has been in the process of being phased out for decades. It placed severe limits on rental prices, but the only renters still covered by the law have been living since 1974 or earlier in buildings that were constructed before 1947.
• The 1970s-era rent stabilization program regulates prices in about half of the city’s rentals. The rents can only be increased for either one or two years, and the allowable percentage increases are set by the Rent Guidelines Board, whose nine members are appointed by the mayor. The rules and exceptions are labyrinthine and administered by a combination of city and state agencies.

The high cost of living in New York City is frequently cited as proof enough that rent control doesn’t work. The average rent for a one-bedroom apartment in Manhattan was $5,022 for a doorman building and $3,417 for a non-doorman building as of Mar. 2022.

Advantages and Disadvantages of Rent Control

Rent control has always been controversial. The rent control regulations in cities today most commonly regulate price increases for lease renewals, not new tenants. That arguably has some benefits for landlords, who can charge whatever the market will bear on vacant apartments or, in the worst case, keep tenants who have every incentive to stay put and pay the rent on time.

The main arguments against rent control include:

• Rent control reduces the supply of decent housing, as landlords would rather convert a building to condos or adapt it to commercial use than abide by a law that limits their profits
• Investment in new rental housing screeches to a halt
• Maintenance of buildings under rent control is lax or nonexistent because of the poor return on investment for landlords

The main arguments for regulation include:

• Rental prices in many U.S. cities are rising far faster than wages for moderate-income jobs
• Rent control may enable moderate-income families and people on fixed incomes to live decently and without fear of a personally catastrophic rent hike
• Neighborhoods are safer and more stable with a base of long-term residents in rent-controlled apartments