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

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  1. Florence this is such a hot topic in our household as all our rental properties are in provinces that have forms of rent control!! Rent control creates run down properties through the handcuffs it puts on landlords. Instead of putting money into property improvements, landlords of rent controlled properties find themselves paying more for utilities, taxes, insurance, etc. and not being able to recover the costs through rent increases. This means less money for improvements.

    Now all that said … there are things you can do … I wrote about the ways we still make money despite rent controls right here:

  2. Jeff Brown

    Florence — Rent control is an excellent example of our economy’s leeches sucking the life from the economy’s producers. The metaphor for our macro economy is the rundown buildings in NY — the perfect picture of our eventual economic demise, if we don’t burn the leeches off once and for all.

    I told a group yesterday that the word ‘Greece’ is ‘economicese’ for leech. I then asked them if they still aspired to be a golden goose in a land of unfettered, mostly protected leeches. It got quiet.

    Good stuff, Florence.

  3. Wow, 58 bucks a month. I can’t even imagine how torn up the place must be. I am no longer a renter but it was a painful topic for us everytime we moved. We would stay at places longer than needed just because we had a decent rate that would not go up. Then you move and it is a giant jump. Makes it hard. This is only one of the many problems with how society is set up.

  4. I have always considered rent control a government taking. In other words, if the state or local government has the police power to set an arbitrary cap on rents, it has then “taken” the difference between market rents and the capped rent. Our Constitution requires compensation at that point. The landlord should then be compensated for the difference. In this manner, the rent control policies are shared by all taxpayers, and not shifted solely to the property owner. Since rent controls are supposed to benefit everyone, “everyone” in that community has to pay for it. But if you live in a Marxist worldview, you would only want landowners to pay this social cost as it is a redistribution of wealth from the landed gentry (yes, you, the person who scrimped to buy a rental property and devote your spare time improving it) to “the poor.”

  5. Great article…

    I have been on several rants lately regarding how real estate investors and our businesses are under attack and rent controls are just another manifestation of those attacks.

    The only way to combat this idiocy (sp) is to get involved and put polititians in office who understand the importance of what value real estate investors add to community.


  6. Robert Austin on

    Great points Florence –

    I go back and forth with my local apartment association over why we can’t back legislation that makes rent control more equitable for landlords. I guess “fair” housing is a good talking point for politicians seeking office because it tugs at our heart strings, but at what cost?

    Rent control not only makes it harder for you to make a return on your investment, but makes it hard to evict problem tenants as well, and unfortunately these problem tenants prey on these neighborhoods because of these precise laws, they know it’s hard to get rid of them once they move in!

    After a year of owning (and living) in a rent controlled neighborhood and dealing with problem tenants myself who are almost impossible to evict, I am ready to move. There is no support from the city or the local apartment association, and the cops don’t care because they have more serious crimes to deal with.

    A police office I spoke to a couple of months ago told me that he is discouraged in his job because of the revolving door; criminals that he arrests who are out on the street a few days later, tauntingly indignant over having been arrested. I bet if we were allowed to charge more fair rents, much of the crimes and deviant behavior would cease. Property owners would be happy, the police would be happy, and renters who actually care about where they live and have respect for their neighbors would be happy.

  7. If the landlord doesn’t like rent control, he can sell his rental properties and move out to the country where he can feel free to set the rent as high as he wants. That is, if he thinks that’s what will make him richer, then he should move. That’s what everyone else does. Most people who rent in an urban area have a very good reason to be there – jobs. They’re not there for the crap-tastic housing that doesn’t meet building codes. Landlords don’t provide new jobs when they raise the rent, they just benefit from a higher economic output which they themselves did not create. The problem is that most landlords lock all their capital up in the physical property and don’t leave anything for operating costs. They love to complain about not having enough income to maintain their properties but they cash in 40 years later when they sell off their assets. And if they do make a profit, which they mostly do, they use it to buy up more property instead of reinvesting it back in a way that benefits their existing tenants.

    Landlords receive lots of perks to buy and develop property. From exemptions to zoning that allow them to put up more units, tax write-offs if their property sucks and they fail to rent it out, mortgage interest deductions to help them get in the game, and all the benefits of being a long-term investor (they can afford to sit on their properties and wait for the right moment and sell high). Tenants make it all happen for the landlord and for the city without getting any of the benefits that landlords do. It’s really telling what most landlords think of their own tenants (leeches?) on this and many other blogs. The vast majority of the landlords I know never worked for their money, they inherited it, along with their property. And they have a problem with their tenants who are there in the city to actually work for a living.

    • Spoken like a true tenant.

      It is obvious you have never owned a rental property nor have you ever had to battle with tenants willing to scam you in a heartbeat or destroy the property and then leave.

      Once you have experienced these and the many other challenges facing landlords on a daily basis then perhaps your perspective may change.


      • So it’s a race to the bottom for you, then? When I was in college a couple fellow students died in an apartment fire because the building they lived in violated fire codes. No exit signs, no fire escapes, no fire alarms, nothing. And months before that happened, when a newspaper interviewed the landlord about the violations, the landlord complained about how awful his tenants were. Anyway, none of that talk about mean nasty tenants has to do with rent control except for one thing: had those buildings been rent controlled, the tenants could have demanded a lower rent until the violations were fixed and the landlord couldn’t have kicked them out.

        It’s simple really, if you want to make a living in this line of work, you have to meet certain obligations no matter what. The reason why rent control exists is because historically landlords are have always been opportunists who failed to meet even the most basic obligations. While I have a degree in economics and I agree about deadweight loss and market inefficiencies created because of rent control, I can’t get around the continuing history of why it’s there. They collect money when the market is good, evict everyone when the market is bad, and in the meantime if their tenants get killed then oh well. It has caused a lot of civic unrest and that’s why it’s there.

        It’s interesting that you mentioned tenants who destroy a property and then leave because tenants leaving is exactly how a building leaves the rent control system, in NYC anyway. I don’t see you having much of an argument there, since rent control is a great way to get tenants who never want to leave and who want to put in their own sweat equity into maintaining and improving the apartment for themselves. We’re talking about apartments that have been rented by a single family since WW2. The only way you can get one is to inherit one. You can get a rent stabilized apartment, but only by word of mouth – the old tenant has to sign over their lease to the new tenant. People are going to want to pass on a great deal on a quality apartment to their friends whenever possible. So once you get a great tenant, you’ll continue getting great tenants. It would seem to me, sir, that you should be in favor of rent control and rent stabilization based on your daily experiences as a landlord. I’m a business owner myself.

        • I’m not totally sure I understand how setting rental caps would help stop fires or buildings that are out of code? There are crappy tenants and crappy landlords; I don’t see how rent caps controls that.

          If you really are an economist I’d be surprised. Rent and real estate prices are directly related, and real estate prices effect literally every aspect of every commercial transaction. Setting an arbitrary cap on rental rates essentially drives down real estate prices which in effect has a widespread economic impact. Setting a price cap on anything inherently creates market inefficiencies and that includes rent.

          You more or less assume that the ‘goal’ of the landlord is to provide housing no matter the cost. This would be akin to McDonalds providing food no matter the cost. In actuality the goal of both is to make money in their respective industries. We live in a (somewhat) capitalist country where a profit motive exists, and serves to drive prices down and increase quality of good or service. I personally don’t see anything wrong with that. If you want to see ‘fair’ housing (or fair as you seem to see it) I suggest you visit the housing projects of NYC, Chicago or Atlanta.

          You don’t work for free, do you? I didn’t think so.


        • Steve, rent control contains a strong incentive for landlords to keep their buildings up to code. If a building is in violation of something, the tenant can complain and demand a drop in the rent until the violation is fixed. Without rent control, the landlord can continue to charge rent and ignore the building code, plus he can pass on any of the fines and maintenance costs to the tenant in the following year’s rent.

          The costs that a tenant incurs when moving to a new apartment are very significant, and building code violations and other problems aren’t always apparent at first and can often be covered up by the landlord until after the tenant moves in. Which means that the landlord has the upper hand, both financially and knowledgeably, and can force the tenant to stay silent about dangerous conditions.

          I suppose that an alternative solution would be to hire enough inspectors to check out each apartment in the city once every couple of weeks and finance it all through property taxes, but why do that when you can accomplish as much through tenant protections? As you can see, rent control uses economic realities to achieve social goals that protect more than just the real estate market, but also the economic interests of the city as a whole, including tenants and the surrounding businesses where the tenants do their work and shopping. Incidentally, rent control usually occurs in some of the most expensive real estate markets in the world and the real estate market doesn’t seem to suffer much for it.

  8. BBK… I assume there is a real name associated here somewhere?

    It is obvious that you have never been a landlord. If you had been you would know that landlording is one of the most regulated businesses in America. However, it sounds like you would be in favor of even more regulation… just what this economy needs… more intervention from government to further twist the market place.

    With that being said it is obvious you have strong opinions on the subject which you are richly entitled to. So… it is best to leave you to those opinions.

    As for myself… I will continue to be a successful landlord seeking and “earning” great returns and will never, ever invest in an area with rent controls.


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