With inflation and the cost of rent continually going up, you hear a lot of politicians today talk about rent control. Rent control limits the amount you can raise the rent on your tenants annually. When you get a new tenant it typically resets and you can once again charge market rent. Rent control sounds good for renters, but the problem is that it only hurts the landlord which in turn hurts the renter. It also limits the choices the renter has to get affordable rent, let me explain.
First, let’s state the obvious. Having a lot of rental properties to choose from in an area is good for the tenant. It is good because there is a competitive supply and demand element to it. The more rental housing that is available, the less rent will actually cost. If there is a limited supply of rental housing, those investors who own it will be able to charge a lot more because the availability is limited. If an area imposes rent control, they are disincentivizing investors from building or purchasing more rentals in that area. This keeps the supply of rental housing low, making the market rent go higher in that area.
Now, you may say yes market rent is going up, but the tenant is locked in, so they don’t have to pay the market rent. This is true as long as they never move. Think about how often renters move. This can be because they get a new job, start a new relationship, have a baby, need more space, etc. People move all of the time and the market rent actually increases faster because there is less supply. If you don’t believe me, look at the areas that have rent control. Two well-known areas are San Francisco and New York City. They are almost certainly at a higher market rent than cities that are not. The rent control established has not made these areas more affordable.
Also, when people live in rent-controlled areas, the landlord is less likely to fix up the property. This is because there is no incentive for them to maintain the unit because they actually want you to move out year after year. If you move out they can increase the rent they are charging, so a lot of times they won’t fix items that need to be fixed, or if they do they take as long as they are legally allowed to fix it. This is very different from a landlord who wants to retain their tenants who are paying what market rent is adjusted to year after year.
So What Can Be Done to Lower the Cost of Rent?
The cost of rent is a supply and demand issue like everything else. The demand for rent will continue to increase as our population expands, so the only way to reduce the price is to increase the supply. Governments need to work with landlords in order to loosen restrictions on where we can build and how many properties can go on a piece of land. California just passed senate bill 9, which allows investors to build a duplex on land designated for a single-family residence. Passing bills like this is what will actually begin to correct the housing supply.