The Impact of Rent Control on Landlords: A Commentary

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“We’re From The Government, and We’re Here To Help”

These words, famously cited by Ronald Regan, can move many a real estate investor to tears. And not without justification. Many government schemes to “help” the – purportedly – underprivileged, backfire. No better example exists than rent control ordinances, which generally end up destroying the stock of rental units, while transferring wealth from the real estate investor to their renters, without regard to actual need.

Many years ago, I lived in a (terrific) rent controlled apartment smack dab on the beach in Santa Monica. Among the other tenants benefiting from rent control were doctors, lawyers, a couple of celebrities who I won’t name here, and a guy who drove a Rolls Royce complete with personalized license plates. Will someone please tell me what was the point of controlling the rent on these units? If it was to help the poor, something went seriously wrong.

Did you know, as the New York Times reported, that there are currently people living in New York City paying as little as – get this — $58 per month for their rent-controlled units? That’s less then a cable bill, at least if you have HBO. This is just nuts, even if the ordinance had a good motive behind it once upon a time. Meanwhile, what do you think those ultra cheap apartments are like? Yes, they are hell-holes, because landlords have no incentive to repair them.

What do economists think about rent control?
Generally, they hate it:

“Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.’”

From The Concise Encyclopedia of Economics

Nor does “fairness” really work as an argument. Why should a landlord’s prices be dictated in an otherwise free market, when those of virtually every other economic actor can rise without any controls? If the people decide that affordable housing is a net social good, then the people should put their money where their mouth is and not just place the burden of providing such housing solely on the owners of real property.

So, without any sound economic or other justification, why does it linger? The answer can often be found in entrenched tenant groups which manage to elect pro-rent control candidates. Once in power, they cling to it like Saran Wrap, while the housing stock decays and landlords rue the day they decided to go into the real estate business.

Photo: iamagenious

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.