Rent regulation

Protest sign at a rally for tenants rights in New York City

Rent regulation is a system of laws, administered by a court or a public authority, which aim to ensure the affordability of housing and tenancies on the rental market for dwellings. Generally, a system of rent regulation involves:

  • price controls (limits on the rent that a landlord may charge, typically called rent control or rent stabilization)
  • eviction controls: codified standards by which a landlord may terminate a tenancy[1]:1 [2]:1
  • obligations on the landlord or tenant regarding adequate maintenance of the property
  • a system of oversight and enforcement by an independent regulator and Ombudsman

The classic objective is to limit the price that would result from the free market. The loose term "rent control" can apply to several types of price control:

  • "strict price ceilings", also known as "rent freeze" systems, or "absolute" or "first generation" rent controls, in which no increases in rent are allowed at all (rent is typically frozen at the rate existing when the law was enacted)
  • "vacancy control", also known as "strict" or "strong" rent control, in which the rental price can rise, but continues to be regulated in between tenancies (a new tenant pays almost the same rent as the previous tenant) and
  • "vacancy decontrol", also known as "tenancy" or "second-generation" rent control, which limits price increases during a tenancy, but allows rents to rise to market rate between tenancies (new tenants pay market rate rent, but increases are limited as long as they remain).[3]

Comprehensive rent regulation is common in Commonwealth and European Union countries, including Canada, Germany, Ireland, Cyprus, Sweden, and four states in the United States.[4][5] A majority of OECD countries maintain rent-regulation laws, some changing to softer rent controls.

A 2009 review of the economic literature[6]:106 by Blair Jenkins through EconLit covering theoretical and empirical research on multiple aspects of the issue, including housing availability, maintenance and housing quality, rental rates, political and administrative costs, and redistribution for both first generation and second generation rent control systems found that “the economics profession has reached a rare consensus: Rent control creates many more problems than it solves”.[6]:105 [7]:1 [8]:1 [9]:1

Current law

Canada

In Canada, there are rent regulation laws in each province. For example, in Ontario the Residential Tenancies Act 2006 requires that prices for rented properties do not rise more than 2.5 percent each year, or a lower figure fixed by a government minister.

Germany

German rent regulation is found in the "Civil Code" (the Bürgerliches Gesetzbuch) in §§ 535 to §§ 580a, and particular rights for tenants on termination are in §§568 ff.[10] The increases of rental price are required to follow a "rental mirror" (Mietspiegel), which is a database of local reference rent prices. This collects all rent prices in the past four years, and landlords may only increase prices on their property in line with rents in the same locality. Usury Rents are prohibited altogether, so that any price rises above 20 per cent over three years are unlawful.[11]

Tenants may be evicted against their will through a court procedure for a good reason, and in the normal case only with a minimum of three months' notice.[12] Tenants receive unlimited duration of their rental agreement unless the duration is explicitly halted. In practice, landlords have little incentive to change tenants as rental price increases beyond inflation are constrained. During the period of the tenancy, a person's tenancy may only be terminated for very good reasons. A system of rights for the rental property to be maintained by the landlord is designed to ensure quality of housing. Many states, such as Berlin, have a constitutional right to adequate housing, and require buildings to make dwelling spaces of a certain size and ceiling height.

United Kingdom

UK house prices 1975–2006.

Rent regulation covered the whole of the UK private sector rental market from 1915 to 1980. However, from the Housing Act 1980, it became the Conservative Party's policy to deregulate and dismantle rent regulation. Regulation for all new tenancies was abolished by the Housing Act 1988, leaving the basic regulatory framework was "freedom of contract" by the landlord to set any price. Rent regulations survive among a small number of council houses, and often the rates set by local authorities mirror escalating prices in the non-regulated private market.

United States

Rent regulation in the United States is an issue for each state. In 1921, the US Supreme Court case of Block v. Hirsh[13] held by a majority that regulation of rents in the District of Columbia as a temporary emergency measure was constitutional, but shortly afterwards in 1924 in Chastleton Corp v. Sinclair[14] the same law was unanimously struck down by the Supreme Court. After the 1930s New Deal, the Supreme Court ceased to interfere with social and economic legislation, and a number of states adopted rules. The application was often inconsistent. For example, in New York City, almost half of property units continue to have the protection of rent regulation, while other units on the private market are left to be priced according to what the market will bear.[15] In the 1986 case of Fisher v. City of Berkeley[16], the US Supreme court held that there was no incompatibility between rent control and the Sherman Act.

As of 2018, four states (California, New York, New Jersey, and Maryland) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes).[4][5] Thirty-seven states either prohibit or preempt rent control, while nine states allow their cities to enact rent control, but have no cities that have implemented it.[4][5]

Theory

"As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them; and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land ...."

Adam Smith, The Wealth of Nations (1776) Book I, ch 6

Rent price controls remain the most controversial element of a system of rent regulation. Historically, economists such as Adam Smith and David Ricardo viewed landlords as producing very little that was valuable, and so regarded "rents" as an exploitative concept. (Economists note that the land value tax is a way to capture this un-earned value.)[17] Modern rent controls (sometimes called rent leveling or rent stabilization) are intended to protect tenants in privately owned residential properties from excessive rent increases by mandating gradual rent increases, while at the same time ensuring that landlords receive a return on their investment that is deemed fair by the controlling authority (which might, or might not be a legislature).

It is argued by most economists, including a number of neo-classical and Keynesian economists[18] that some forms of rent control regulations create shortages and exacerbate scarcity in the housing market by discouraging private investment in the rental market.[6] This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan, or elsewhere in the United States.

The Swedish economist Assar Lindbeck, a housing expert, says that "rent control appears to be the most efficient technique presently known to destroy a city – except for bombing".[19]

Economists' views

In a 1992 stratified, random survey of 464 US economists, economics graduate students, and members of the American Economic Association, 93% "generally agreed" or "agreed with provisos" that "A ceiling on rents reduces the quantity and quality of housing available."[20]:204 [21]:1

A 2009 review of the economic literature[6]:106 by Blair Jenkins through EconLit covering theoretical and empirical research on multiple aspects of the issue, including housing availability, maintenance and housing quality, rental rates, political and administrative costs, and redistribution for both first generation and second generation rent control systems found that “the economics profession has reached a rare consensus: Rent control creates many more problems than it solves”.[6]:105 [7]:1 [8]:1 [9]:1

In a 2012 poll of the 41 members of the Initiative on Global Markets (IGM) Economic Experts Panel, only one member agreed with the following statement: "Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them." (13 "strongly disagreed", 20 "disagreed", 1 "agreed", and 7 either did not answer, were undecided, or had no opinion.)[22] [2]:1 [23]:1

In a 2013 analysis of the body of economic research on rent control by Peter Tatian at the Urban Institute (a think tank described both as "liberal"[24] and "independent"[25][26]), he stated that "The conclusion seems to be that rent stabilization doesn’t do a good job of protecting its intended beneficiaries—poor or vulnerable renters—because the targeting of the benefits is very haphazard.", and concluded that: "Given the current research, there seems to be little one can say in favor of rent control." [7]:1 [2]:1 [27]:1

Two economists from opposing sides of the political spectrum, Nobel Laureate Paul Krugman (who identifies as an American liberal or European social democrat),[28] and Thomas Sowell, (who stated that "libertarian" might best describe his views)[29]:1 have both criticized rent regulation as poor economics, which, despite its good intentions, leads to the creation of less housing, raises prices, and increases urban blight.[21]:1 [30]:4 [29]:1

See also

References

  1. ↑ Branco, Marc (20 February 2011). "Rent and Eviction Control Laws". marcbrancolaw.com. Archived from the original on 2012-03-31. Retrieved 2018-08-19.
  2. 1 2 3 Pender, Kathleen (10 September 2016). "Rent control spreading to Bay Area suburbs, to economists' dismay". The San Francisco Chronicle. Archived from the original on 2016-10-08. Retrieved 2018-08-18.
  3. ↑ Cruz, Christian (19 January 2009). "The pros and cons of rent control". Global Property Guide. Archived from the original on 2010-02-27. Retrieved 2018-08-05.
  4. 1 2 3 "RENT CONTROL BY STATE LAW" (PDF). National Multifamily Housing Council. 21 March 2018. Archived (PDF) from the original on 2018-08-03. Retrieved 2018-08-03.
  5. 1 2 3 "Residential Rent Control Law Guide By State". LandLord.com. Archived from the original on 2018-06-13. Retrieved 2018-08-03.
  6. 1 2 3 4 5 Jenkins, Blair (1 January 2009). "Rent Control: Do Economists Agree?" (PDF). American Institute for Economic Research. Archived (PDF) from the original on 2017-09-29. Retrieved 2018-08-14.
  7. 1 2 3 Tatian, Peter (2013-01-02). "Is Rent Control Good Policy?". Urban Institute. Archived from the original on 2015-07-03. Retrieved 2018-08-19.
  8. 1 2 Beyer, Scott (2015-04-24). "How Ironic: America's Rent-Controlled Cities Are Its Least Affordable". Forbes. Archived from the original on 2015-07-19. Retrieved 2018-09-11.
  9. 1 2 Valdez, Roger (2017-12-18). "Rent Control Doesn't Help Renters: Some In Washington State Want To Try It Anyway". Forbes. Archived from the original on 2017-12-23. Retrieved 2018-09-13.
  10. ↑ English translation available: BGB §§568 ff
  11. ↑ M Haffner, M Elsinga and J Hoekstra (2008). "Rent Regulation: The Balance between Private Landlords and Tenants in Six European Countries". International Journal of Housing Policy. 8 (2): 217, 227. doi:10.1080/14616710802037466#.U2HwTMcoYXw (inactive 2018-09-21).
  12. ↑ BGB §573c
  13. ↑ 256 U.S. 135 (1921)
  14. ↑ 264 U.S. 543 (1924)
  15. ↑ Beyer, Scott (24 April 2015). "How Ironic: America's Rent-Controlled Cities Are Its Least Affordable". Forbes. Archived from the original on 2015-05-01. Retrieved 12 June 2017.
  16. ↑ 475 U.S. 260 (1986)
  17. ↑ "The time may be right for land-value taxes - Beloved of liberals and economists, they have so far never caught on". The Economist. 2018-08-09. Archived from the original on 2018-08-27. Retrieved 2018-09-09.
    Taxes on land have long had a magnetic attraction for liberals and economists. ... One of George’s arguments for confiscating land rents was that landlords do not deserve the gains they accrue when others invest in an area. This was echoed by Winston Churchill, then a Liberal, in support of the “people’s budget”. “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains—and all the while the landlord sits still,” he thundered. The argument emphasises the potential for landowners to benefit at the taxpayer’s expense. There is lots of evidence that local house prices rise when taxpayers provide, say, better transport links.
  18. ↑ C Rapkin,The Private Rental Housing Market in New York City (1966) and G Sternlieb, The Urban Housing Dilemma (1972)
  19. ↑ Fraser Nelson (2 May 2014). "Low-rent Labour is positioning itself as the Ukip of the Left". The Daily Telegraph. Retrieved 29 October 2016.
  20. ↑ Alston, Richard M.; Kearl, J. R.; Vaughan, Michael B. (1 May 1992). "Is There a Consensus Among Economists in the 1990's?" (PDF). The American Economic Review. 82 (2): 203–209. doi:10.2307/2117401 (inactive 2018-09-21). JSTOR 2117401. Archived (PDF) from the original on 2006-09-01.
  21. 1 2 Krugman, Paul (7 June 2000). "Reckonings; A Rent Affair". The New York Times. Archived from the original on 2009-04-06. Retrieved 2018-08-10.
  22. ↑ "Rent Control". Initiative on Global Markets. 7 February 2012. Archived from the original on 2016-12-11. Retrieved 2018-08-14.
  23. ↑ Matthews, Dylan (2013-08-20). "Which economist do you agree with most? Take this quiz to find out!". The Washington Post. Archived from the original on 2018-08-16. Retrieved 2018-08-15.
  24. ↑ Rich, Spencer (1988-06-12). "Urban Institute, Leading Liberal Think Tank, Marks 20th Birthday". Los Angeles Times. Archived from the original on 2010-07-01. Retrieved 2018-08-20.
  25. ↑ Cohen, Rick (2014-12-12). "The Inner Workings of Think Tanks: Transparify Gives Us a Good Look". Nonprofit Quarterly. Archived from the original on 2016-05-31. Retrieved 2018-08-20.
    ...the Urban Institute, and others are typically considered nonpartisan or middle of the road.
  26. ↑ McLean, Jim (2014-11-20). "Kansas hospitals continue campaign for Medicaid expansion". Kansas Health Institute. Archived from the original on 2014-12-16. Retrieved 2018-08-20.
    ...the nonpartisan Urban Institute,...
  27. ↑ Jaffe, Eric (2013-04-09). "Some People Will Do Crazy Things for a Rent-Controlled Apartment in NYC". CityLab - The Atlantic. Archived from the original on 2018-09-12. Retrieved 2018-09-11.
  28. ↑ "Nobelpristagaren i ekonomi 2008: Paul Krugman", speech by Paul Krugman (Retrieved December 26, 2008)
  29. 1 2 Sawhill, Ray (1999-11-10). "Black and right - Thomas Sowell talks about the arrogance of liberal elites and the loneliness of the black conservative". Salon. Archived from the original on 2011-12-07. Retrieved 2018-09-22.
  30. ↑ Sowell, Thomas. 2008. Economic Facts and Fallacies. Basic Books, ISBN 0-465-00349-4.

Bibliography

  • R Arnott, ‘Time for Revisionism on Rent Control?’ (1995) 9(1) Journal of Economic Perspectives 99
  • A Anas, ‘Rent Control with Matching Economies: A Model of European Housing Market Regulation’ (1997) 15(1) Journal of Real Estate Finance and Economics 111–37
  • T Ellingsen and P Englund, 'Rent regulation: An introduction' (2003) 10 Swedish Economic Policy Review 3
  • H Lind, 'Rent Regulation: A Conceptual and Comparative Analysis' (2001) 1(1) International Journal of Housing Policy 41
  • C Rapkin, The Private Rental Housing Market in New York City (1966)
  • G Sternlieb, The Urban Housing Dilemma (1972)
  • P Weitzman, 'Economics and Rent Regulation: A Call for a New Perspective' (1984–1985) 13 NYU Review of Legal and Social Change 975–988
  • M Haffner, M Elsinga and J Hoekstra, 'Rent Regulation: The Balance between Private Landlords and Tenants in Six European Countries' (2008) 8(2) International Journal of Housing Policy 217
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