Rents have been increasing in much of the US and most of the world. Whenever rents increase we here people bring up rent control as a way to keep rent affordable. Rent control has been implemented in many areas and it doesn’t always have the results that were hoped for. The problem with rent control is that it usually raises rent, which is the opposite of what rent control is intended to do. In fact, most restrictions on rental properties end up raising rent. If you increase the cost to own, buy, or manage rentals, it will most likely raise the cost of rents.
What is rent control?
Rent control is when a city or state or local government puts caps on how high a landlord can raise rents. Los Angeles recently approved a policy where landlords cannot raise the rent more than 10% (this is a combination of 5% a year plus the cost of living increases in the area). They also cannot do a no-cause eviction or they will have to pay three times the rent and $1,411 in relocation fees. California itself has rent control but LA took a step further to make it more restrictive. New York and New Jersey and some other states have rent control in certain cities. Some areas like Boston used to have rent control until state laws made it illegal.
There are many different forms of rent control in many different areas. Many areas also make it harder to evict tenants along with implementing rent control to try and make the rent control measures more effective.
For example: If I own a rental property and the current rent is $1,500 a month but I want to raise the rent to $2,000 a month I may not be able to raise the rent that much on the current tenant if I am in a rent control area. Most rent control laws only apply to current tenants so if I can get the current tenants out, I could raise the rent to $2,000 a month for new tenants.
The cities try to stop this by making no-cause evictions illegal. That means I cannot evict the current tenants if they are paying rent and not violating any other rules, even if their lease is up. There are usually some exceptions to the no-cause evictions like when a landlord decides to sell or move into the property themselves.
How much have rents been increasing?
Rents have been increasing more recently as inflation has gone up as well. However, rents have not gone up as fast as housing prices over the last 10 years, and rents have not increased much more than inflation during that time either. Rents have been going up but all prices go up over time and I am surprised rents have not gone up higher based on the housing price increase we have seen lately. If the cost to landlords goes up, logically rental will go up as well.
Some might say that many landlords bought years ago when prices were lower, but property taxes and insurance go up when property value increases as well. The cost to repair and maintain properties has increased significantly too as wages have increased in the last few years much more than usual.
Rents are not as high as many publications make them out to be either. I see articles stating rents are above $2,000 a month in the US all the time. When you dive deeply into these states you will see that number is for the top 50 metro areas in the US, not the entire country. Average rents in the entire country are around $1,200 to $1,300 a month, not $2,000 a month. I made a video that goes over those stats bellow:
Why do rent control measures often increase rents?
The intention of rent control is to keep rents lower when they are rising fast in certain areas. Most areas that see rents rising faster than other areas are large cities with little extra housing and high demand. It is thought that keeping the rent increases at reasonable levels will help renters stay in their home or apartment without being forced to leave because rent jumps a ton in one year.
In theory, this sounds great to some people. However, the theory does not always work out how it is intended to in real life. The biggest issue with rent control is that is discourages landlords from buying rentals. When you discourage the purchase or properties to rent, the supply of rentals decreases and supply and demand tells us when there is too little supply, prices often go up. Rent control may slow down the rent increases on some properties, but it increases the rent increases on many others.
As a landlord, I would not want to buy properties in an area with rent control or no-cause evictions. Those restrictions add greatly to my costs and make the properties less appealing to other landlords if I ever decide to sell. In order to incentivize me to buy there, rents would have to be significantly more compared to the purchase price compared to other areas with fewer restrictions.
If I did own properties in that area, you can also bet I would be raising rents every year as much as I could. I currently do not do that in my area because I like to keep my tenants and I think raising rent is necessary once in a while but not every year and not to match going rents exactly. This rent control measure actually tells people it is okay for landlords to raise rent 10% a year and gives them more justification to do so.
If I did have a property with super low rents, and the tenants did not want to leave, I would probably sell the property which means I could evict them even in a no-cause eviction area. By selling the property, the new landlord could raise rents to whatever they want or it might even sell to an owner occupant taking the renal out of the rental pool.
A study on rent control in San Francisco backed this up saying they thought rents were much higher now with rent control than if there was no rent control because the rental pool shrunk so much. https://www.gsb.stanford.edu/faculty-research/publications/effects-rent-control-expansion-tenants-landlords-inequality-evidence
How can rent control discourage tenants from moving up?
In the show Seinfeld, there are a few episodes where the characters are looking for a new apartment. The show talks about how impossible it is to find apartments and went they do come up, there are 50 people trying for one place to live in. This is because of the rent control in New York. If you can score a rent control apartment or take one over from someone else, you are in great shape, if not, you are going to have a hard time finding somewhere to live.
That is not the only issue with rent-controlled apartments. I think it discourages people from moving up or moving out. If you score a rent control apartment, you have very little incentive to move. If you need a bigger place or want to start a family or buy a house, rent control may discourage you.
Some proponents of rent control say they want to stabilize renter’s lives so they don’t have fear of needing to move. First, they are renting a property that belongs to someone else. When you rent something from someone else there will always be a fear of having to move. If people want stability they should work on buying and there are many programs to help with that. I think we want to encourage people to buy houses not keep them in rent-controlled properties their entire lives.
Rent control may keep the cost of rents lower on some properties but overall, rent control usually raises the cost of rent in areas that implement it. The measures decrease the amount of housing used for rentals and make it harder to find places as well. Not only do rent controls increase rents, they discourage people from moving up or buying.