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. Comprehensive rent regulation is common in Commonwealth and European Union countries, including Canada, Germany, Ireland, Cyprus, and Sweden, and also four states in the United States. 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: :
- 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 two distinct types of price control:
- "vacancy control", also known as "strict" or "strong" rent control, in which the rental price continues to be regulated in between tenancies (a new tenant pays 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).
In 1992, a survey of 464 American economists found that 76.3% "generally agreed" that "a ceiling on rents reduces the quantity and quality of housing available", while 6.5% disagreed and 16.6% agreed but with provisos. However, four US states have cities with rent control policies, and a majority of OECD countries maintain rent-regulation laws, some changing to softer rent controls, which enjoy considerable popular support.
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.
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. 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. 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. 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.
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.
Rent regulation in the United States is an issue for each state. In 1921, the US Supreme Court case of Block v. Hirsh 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 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. In the 1986 case of Fisher v. City of Berkeley, the US Supreme court held that there was no incompatibility between rent control and the Sherman Act.
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.) Modern rent controls were 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). Sometimes called rent leveling or rent stabilization, rent regulation is argued to promote social stability by slowing displacement in booming economic cycles.
It is argued by most economists, including a number of neo-classical and Keynesian economists that some forms of rent control regulations create shortages and exacerbate scarcity in the housing market by discouraging private investment in the rental market. This analysis targeted nominal rent freezes, and the studies conducted were mainly focused on rental prices in Manhattan, or elsewhere in the United States.
Evidence based studies, particularly conducted by a few American economists in the 1990s found that new methods of regulation, allowing for nominal rent increases in defined situations (for instance, linked to inflation or behind wage rises) were "so different, they should be evaluated largely independently of the experience with first-generation rent controls" studied in the 1970s. A view at the time was that "a well-designed rent control can be beneficial".
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.": :
A 2009 survey of the economic literature 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 found that “the economics profession has reached a rare consensus: Rent control creates many more problems than it solves”.:
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.):
- Branco, Marc (2011-02-20). "Rent and Eviction Control Laws". marcbrancolaw.com. Archived from the original on 2012-03-31. Retrieved 2018-08-19.
- Pender, Kathleen (2016-09-10). "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.
- Cruz, Christian (2009-01-19). "The pros and cons of rent control". Global Property Guide. Archived from the original on 2010-02-27. Retrieved 2018-08-05.
- Alston, Richard M.; Kearl, J. R.; Vaughan, Michael B. (1992-05-01). "Is There a Consensus Among Economists in the 1990's?" (PDF). The American Economic Review. 82 (2): 203–209. doi:10.2307/2117401 (inactive 2017-01-15). JSTOR 2117401. Archived (PDF) from the original on 2006-09-01.
- "RENT CONTROL BY STATE LAW" (PDF). National Multifamily Housing Council. 2018-03-21. Archived (PDF) from the original on 2018-08-03. Retrieved 2018-08-03.
- "Residential Rent Control Law Guide By State". LandLord.com. Archived from the original on 2018-06-13. Retrieved 2018-08-03.
- English translation available: BGB §§568 ff
- 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.
- BGB §573c
- 256 U.S. 135 (1921)
- 264 U.S. 543 (1924)
- Beyer, Scott (April 24, 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.
- 475 U.S. 260 (1986)
- C Rapkin,The Private Rental Housing Market in New York City (1966) and G Sternlieb, The Urban Housing Dilemma (1972)
- Jenkins, Blair (January 2009). "Rent Control: Do Economists Agree?". Econ Journal Watch. 6 (1): 73–112.
- R Arnott, ‘Time for Revisionism on Rent Control?’ (1995) 9(1) Journal of Economic Perspectives 99, 102
- R Arnott, ‘Time for Revisionism on Rent Control?’ (1995) 9(1) Journal of Economic Perspectives 99, 99
- Fraser Nelson (2 May 2014). "Low-rent Labour is positioning itself as the Ukip of the Left". The Daily Telegraph. Retrieved 29 October 2016.
- Krugman, Paul (2000-06-07). "Reckonings; A Rent Affair". The New York Times. Archived from the original on 2009-04-06. Retrieved 2018-08-10.
- Jenkins, Blair (2009-01-01). "Rent Control: Do Economists Agree?" (PDF). American Institute for Economic Research. Archived (PDF) from the original on 2017-09-29. Retrieved 2018-08-14.
- "Rent Control". Initiative on Global Markets. 2012-02-07. Archived from the original on 2016-12-11. Retrieved 2018-08-14.
- 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