exposing the dark side of rent control...
Lets talk about the reality of Rent Control, the economics behind it, and why it’s ultimately a flawed approach to a housing shortage - enjoy! Add me on Instagram/Snapchat: GPStephan
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We need to first define what Rent Control is: This is a government-enacted regulation that limits the amount a landlord can increase a tenant’s rents annually.
There are very few things economists agree on, but there’s one thing I found especially interesting when I began researching this topic…and that was the mutual consensus that rent control does NOT help with housing affordability. A 1992 pole of the American Economic Association found that 93% of its members agreed that “a ceiling on rents reduces the quality and quantity of housing.”
A Stanford study has argued that Rent Control actually has an ADVERSE affect on prices for renters and actually works AGAINST making housing more affordable.
Here’s what they found:
-Rent controlled tenants were 20% more likely to stay in their unit.
-Renters were more likely to move elsewhere if they didn’t have the incentive of having their rent capped where they currently were living
-In the priciest neighborhoods, turnover was HIGHEST as landlords actively try to remove tenants to achieve market rents
-Landlords of rent controlled buildings were more likely to convert their buildings in such a way that it wasn’t rent controlled, reducing the amount of housing by 15%
-The loss of available housing drove up prices of rental units. It was found that a 6% decrease in housing supply led to a 7% increase in rental prices.
The net result is that, based off these studies, rent control ends up restricting the supply of new units into the market. While some renters may get a bargain and win the lease-agreement lottery, most people NEVER get access to low rent-controlled prices, and if they do, they are incentivized to never move out because it’s so cheap, lowering supply.
First, landlords of rent controlled properties have NO INCENTIVE to fix up their units. If they have a tenant paying below market rent, they want the tenant out. Because of that, they will do the bare minimum to keep the unit habitable and nothing else, hoping that eventually the tenant will get fed up and leave…allowing the landlord to re-rent the unit for market prices. Generally, rent controlled units are falling apart. Landlords do NOT take care of them as they should.
Second, when it comes to owning real estate, it’s a business…and any sustainable business out there is driven by money. Landlords will spend whatever it takes to increase the value fo their property if it means they’ll receive a higher rent.
Third, my personal experience is that rent control doesn’t always benefit the person it was intended for - it benefits the person who happened to sign a lease agreement at the right time, regardless of how much money they make or whether or not they actually NEED the assistance.
It’s a complex situation, and there isn’t necessarily a one-size-fits-all approach that will make EVERYONE happy, but here’s my thoughts.
In order for a solution to work, we need to place our focus NOT on rent control, but expanding zoning so that we can build more dense housing. Until then, the problem will continue to get worse…and if rent controls are enacted even further, landlords will be less likely to maintain their properties, more likely to take their units off the market, more likely to convert them to units that aren’t rent controlled, and all of this will further drive up housing costs as inventory dwindles.
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Suggested reading:
The Millionaire Real Estate Agent: http://goo.gl/TPTSVC
Your money or your life: https://goo.gl/fmlaJR
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