Rent Control Sucks For Owners & Tenants.

Why Authority Property Management believes rent control sucks for everyone. 

By Authority Property Management   4-30-2019

When many people hear about rent prices being controlled, they think the end result will be paying much lower rent on properties that are affordable and luxurious. However, in most cases, this is not what happens. While on television and in movies it seems as if people are able to live in beautiful homes, condos, and apartments even if they are working at less-than-stellar occupations, real life is filled with plenty of people living in places priced well below current market value. As a result, rather than living on easy street, tenants find themselves in substandard housing, often due to the misguided policies surrounding rent control. To learn why this seemingly good idea is bad for a property owner and any rental property he or she may own, here are some important details to keep in mind.

Uncontrolled Markets

When we think of something uncontrolled, chaos and uncertainty come to mind. However, when discussing how rental prices affect local housing markets, an uncontrolled market is a good thing. In an uncontrolled housing market, prices vary with the amount of demand. As a result, increased competition results, making those providing a product or service go the extra mile to entice potential customers, or in this case renters. In applying this concept to controlled rents, we only have to look at vacancy rates. Nationwide, vacancy rates approach seven percent in cities without controlled rents. However, in cities where this exists, vacancy rates average between one or two percent, making it harder for tenants to find housing. Along with this, when tenants are paying rents far below market value, landlords gain little, creating even more problems.

Tenant Behavior

In a housing market naturally regulated, there are always plenty of housing options to go around for everyone. However, in a controlled market, we often discover many changes in tenant behavior. One of the biggest changes in these markets involves renters using up more available housing than they would in an otherwise normal market setting. This leads to the problem regarding low vacancy rates, which in turn leads to fewer and fewer people moving to an area, which over time can lead to a decline in the standard of living for an area.

How Landlords and Developers Respond to Controlled Markets

If there is one thing we have noticed regarding markets where rent control is in effect, it is that landlords and developers respond in ways that lead to additional problems for themselves and prospective tenants. To begin with, fewer housing developments are constructed. Since any real estate project is a gamble, developers naturally want to make as much money as possible. In unregulated markets, the sky is the limit to what they may potentially make. However, in controlled markets, our experiences show the possibility of profiting from residential housing developments drops significantly. Because of this, developers turn instead to commercial projects, where profits are more likely.

In regards to controlled rents, one of the most startling statistics we have come across is one stating that in New York City, there was more residential development taking place during the Great Depression than there was at the beginning of the 21st-century. As for how landlords respond to this situation, we usually find many of them have little if any motivation to make necessary repairs to buildings. In most cases, this is because they know they stand to make little profit, and also have a much smaller pool of potential renters that will be seeking out their property.

Impact on Renters

According to Swedish economist Assar Lindbeck, using controlled rents in a city is "the best way to destroy a city, other than bombing." While this may sound extreme, we have found much of his reasoning to be correct in many ways. With controlled rent policies in place within a city, a property owner has less and less incentive to create new housing projects such as condominiums or apartment complexes. Because of this, they often choose to demolish existing buildings and look elsewhere for new project sites. As a result, many renters are forced into moving out of their longtime communities, creating a void that is almost impossible to fill for decades. Along with this, those who are forced to move often find themselves living in much poorer neighborhoods that have high unemployment and crime rates.

Lack of New Residents for Cities

As cities such as Seattle, San Francisco, San Diego, and many others begin to look at controlling rents on various types of rental property, the result is a sharp decline in the number of people moving to these cities. In fact, once rental price controls went into effect in San Francisco in the mid-1990s, the policy quickly raised rents by more than five percent. As the policy has continued over the years, it has led to even more problems in a city already experiencing some of the nation's highest housing costs. For example, many people who otherwise would call the city home cannot afford to make the move. As this continues over time, neighborhoods decline, businesses close, schools decline, crime rates increase, and quality affordable housing becomes almost impossible to find.

A Political Tool

In most cases, we have found the vast majority of housing and economic experts view rent control as nothing more than a political tool. Popular with many people in that it sounds as if it will help the poor, most statistics instead show it helps mostly upper-middle and upper-class individuals. Since these persons are often well-connected, they are able to secure spots for rent-controlled units.

While it sounds like a perfect utopia for many, policies of controlled rents offer anything but a paradise for many renters and cities. Instead, the result is often limited housing choices that are in disrepair and priced too high, along with landlords and developers doing little due to a lack of incentives. All in all, we find that for a property owner with various types of rental property, controlled rent policies are anything but good news.

Here in California the legislation just keeps going after this. Want to know more or discuss further we would be glad to. Let us know your thoughts.