HistoryRent control is acontroversial topic that deals with economic and moral issues.
The history ofrent control is quite interesting and completely different from what we knowtoday. Rent control was a way for the government to keep the families ofsoldier’s from being evicted from their homes or apartments while they were atwar. This was intended to be a temporary solution that kept the soldiers whowere fighting from losing motivation.
Rent control was another way to aid warefforts. After the war rent control was extended to the public. Interestingenough, no laws were enacted or made for rent control. Rent Control was a conceptand legally nothing more. The so-called “Rent Control” was enforcedby committees that held no power.
These committees were formed in the largercities in the United States. The purpose of the committees was to keeplandlords from raising rent prices to drastic rates. The committees operated bypressuring the landlord into essentially keeping prices the same. It was, inlegal terms was blackmail; raise the prices and the renters will leave andyou’ll lose everything.
These committees did not last long.New York was one of thecities that was affected the most due to Rent control and the effect. New Yorklandlords began what was known as “rent profiteering”, systematically raisingprices at the cost of the tenants to gain the maximum profit. The situation inNew York became so bad that the state was left with no option but to enact thefirst rent control law. This law was in no way the best option, but it was away of fixing the immediate issue. Many states soon followed suit with theirown variation of the rent control laws.
World War II was anotherharsh time for the country. The government decided to implement rent control tothe nationwide. This was going to be managed by the Office of PriceAdministration (OPA). Rent control was here to stay. The government againenacted no laws but instead made an organization that wanted the people to formcommittees to manage rent control.
The government was unsuccessful with thismethod and decided to enact a law that was the easiest to implement in theleast amount of time. They decided on having a fixed day for the rent to bedue, the latest day for rent due, this method allows the landlords to get paidon a specific date with no later than another.Landlords were not takeninto consideration by the OPA. The landlords argued that they were notreceiving “fair rent” from tenants regardless of the date they had toreceive the money. The landlord’s constant pressure led the issue to theSupreme Court who was now left with the obligation to present an efficient wayof determining what was “fair rent”.
The solution was to allow thestates to have power over the rent control. The general way of determining”fair rent” was based on the value of the property. New Yorkdetermined that the rent should be 4 percent of the value and 2 percent fordepreciation. This was later increased to 6 and 2.Reasons forImplementing Rent ControlThe purpose of rentcontrol is simple, keeping rents stable.
During war times this becomesevidently more difficult. Many factors can affect the prices of rent. Inflationand Deflation are the most widely known factors.
With a changing economy,keeping prices from plummeting or skyrocketing takes some effort. Tenants wantprices to stay the same, but landlords are financially forced to attempt to increaseprices to combat inflation. Rent Control is not perfect and favors one partyover the other. Landlords are not allowed to raise prices for rent as theydeem; instead, must raise according to what the is deemed fair by thegovernment. Every public issue has its pros and cons on whether theimplementation is the best course of action.
Tenants are of course infavor of Rent Control. Rent Control is now necessary especially in the citiesthat have adopted the practice. Getting out of control is almost impossible.
Low-income families clearly benefit from a stable rent price. In general,families who rent benefit the most from rent control. Under Rent Controltenants are given protection from landlords and eviction. The laws aredifferent in every city, state, or county has different if any rent controllaws. Rent Control is needed because the increasing population and limitedhousing; landlords might be encouraged to raises prices to make the most money.Disregarding the situation tenants might face when they cannot afford to paythe increased rent.
Rent Control is also keeping older retired people who relyon Social Security payments to live. The amount of money many retired peoplereceive is constant and being able to afford a drastic increase in rent is notpossible. The purpose of Rent Control is to keep rent prices stable in thechanging economy.Implementing RentControlTwo of the major citiesthat have implemented rent control are Los Angeles, CA and New York, NY. NewYork is home to around 8 million people; 5 million of those are renting.
NewYork apartments are usually under Rent Control ordinances controlled by somecity board voters. These voters come together to decide the price ceiling onrent for the next year or two leases. The factors that are considered to decidethe price ceiling are an estimate of how much the prices of insurance and gashas gone up or changed and what the voters would accept.
This method ofcalculating Rent Control does not consider inflation or the economic effect onthe landlord. The rate of inflation in the country is on average 3% a year;Rent Control does not allow the landlords to charge the market price because ofthe government imposed price ceilings. The group of voters considers thepeople’s feelings in priority compared to the economic effects that follow RentControl.
New York Landlords are leftwith no option but to cut cost; the price is ultimately paid by the renters whoare immediately affected when the maintenance and repairs are not done with thesame frequency.Los Angeles, CA has alsoimplemented Rent Control or in other words, a government imposed price ceiling.The Rent Stabilization Ordinance (RSO) is the group in charge of keeping andmaintain Rent Control. Landlords can raise rent 3% each year as of July 2017and another 1% for utilities paid by the landlord. This is not the limit to theRent Control ordinance in Los Angeles. Landlords also deal with cityrequirements for living standards and registrations that must be completedevery year.
A close by city that has been affected by price ceilings thehardest is Santa Monica, CA. Landlords have given up in the city and opt toconvert the apartments into condos to avoid completely having to deal with RentControl. Landlords cannot afford to keep their building as a rental property inSanta Monica under the price ceiling.ArgumentThe beginning of RentControl was justified and a means to an end. The United States needed to ensurethe war would not be lost because of situations happening back home. It workedout for the US.
Then it was given to the public to fill a need that was notnecessary. The implementation of Rent Control was one-sided and left landlordswithout hope. Landlords fought for “fair rent” but the groups incharge had no efficient way of calculating what “fair rent” was. Thegovernment chose the method that was the quickest and easiest way ofdetermining how much rents could be raised. The method was the quickest andeasiest; however, it was not the best. Rent Control is implemented for moralreasons but the effects that come with Rent Control are not beneficial for bothparties involved.
The people who are supposed to reap the benefits are alsoaffected; landlords are the obvious party that suffer from Rent Control. RentControl is basically, government set price ceilings that as we know never havea good outcome. Rent Control decreases quality of housing, the quantity ofaffordable, and in some cases, destroys the housing altogether. Rent Control is thegovernment setting a price ceiling on rent. The landlord’s ability to make aprofit is now limited and with prices for all services increasing. The purposeof a rental property is to make a profit.
When they are forced by thegovernment to have a price ceiling the profit must be earned regardless. Whenrent is paid all the money is not profit for the landlord; the money goes totaxes, expenses, and only after the rest is profit. Downs (1988) study found that:They will reduce spending on current services andminor repairs first since such reductions do not greatly decrease the long-runmarket value of their properties. But if their current net earnings decline lowenough, owners may deliberately disinvest—that is, reduce their basicinvestments in their property .
. . Units will then suffer from greaterdeterioration and obsolescence than would identical, noncontrolled units,resulting in decreased market values. This passage illustrates how Rent Controlnot only affects the landlord negatively but also the tenant whose apartmentwill not be maintained with the same frequency or at all. Cutting cost isnecessary for landlords when the amount they receive is not enough to cover thecost and a profit. Rent Control keeps prices the same at the cost of thequality of living.
Thequality of housing is also deteriorating because of the limited housingavailable. Landlords become aware that housing is limited and can use this totheir advantage. The limited housing means there is a line of people who arelooking for housing. Repairs and maintenance can be put off because they haveno fear of having an empty apartment.
Landlords are aware that if a tenantleaves because of repairs or maintenance someone else is willing to take theapartment as is. Rent Control does keep prices of rent-stabilized at the costof living standards because the demand outweighs the supply. RentControl limits the profit of a landlord; when the amount of money they receivefrom rent is no longer enough to keep a profit the landlord does what any otherbusiness would do lower cost at the price of quality. Any businessman knowsthat it is illogical for a business to be open when there is no profit to bemade.
Rental housing is a business, and such requires a profit. New York hasbecome ground zero for a war between landlords and tenants. The landlords inNew York are allowed to raise the rent if any upcoming renovation is to bedone. “On Tuesday afternoon, more than 60 tenants, including Ms. Garcia, fileda class-action lawsuit against Bronstein Properties claiming that the companyhas inflated rents in regulated apartments higher than the legally allowed byfalsely claiming to have performed renovations in vacant apartments” (Barker).This illustrates the drastic measures businesses may go through to attempt togain a profit in a rent-regulated apartment. Both landlords and tenants arelosing.
The tenants do not receive repairs and landlord’s assets are not beingmaintained. Rent Control also causeanother major issue; landlords see the effect on the profitability because ofprice ceilings. The incentive to build affordable housing in a rent-regulatedcity is almost nothing. Investors are not willing to invest money in a businessthat is not profitable. Rent control unknowingly creates shortages; theseshortages are directly affecting the tenants who are looking or currentlyrenting an apartment. New York City has seen a tremendous increase in luxurydevelopment in the last couple of years. One penthouse can go on the market forover 90 million dollars. The affordable housing, on the other hand, is nowhereto be seen.
Affordable housing hasdecreased over the years and the population has increased only further limitingthe options for people looking to rent an apartment/housing in cities.Investors are terrified with the idea of Rent Control. In most cities RentControl is exempt from new housing development. Housing is in high demand andonly increasing with the population. Rent Control and the destructive effect itbrings to profits keeps investors far away. “Consequently, opponents of rentcontrol maintain that investors may turn to communities without such controlsor abandon the rental market entirely and focus on the construction offree-simple, owner-occupied-housing, practically since there has been increaseddemand for condominiums” (Lett 45).
This passage illustrates how rent controlhas a direct influence on affordable housing and the construction of housingthat takes place in a city that implements Rent Control. As a developer itbecomes a rather easy decision to build either far away from the city or makecondos to avoid dealing with any rental issues. Buying a condo is like buying ahouse and such requires payment up front or for most cases a bank loan. Banksperform background checks and risk assessments before giving a loan, in turn,limiting the risk for investors in the development.
The shortage increasesfurther with less and less real-estate available. Thequantity of housing is also decreased by Rent Control and stable pricesallowing people to occupy more space than they need. If the rent in a threebedroom is cheaper than a one bedroom, why would the tenant leave the biggerspace? The tenant has no need for the excess space but because rent prices arebelow the market price the tenant is inclined to remain in the apartment. Afamily who needs the three bedrooms might not be able to find an apartment toaccommodate them because they are occupied. “Critics of rent control alsoclaim that rent control regulations encourage an inefficient consumption ofhousing ‘since controlled rents tend to lower turnover, as a group, tenantsoccupy more housing space than if rents followed the market standard'”(Lett 47). The passage illustrates another way rent control affects tenantsinstead of helping them.
The more time a tenant has in an apartment the lessinclined the person is to leave; considering that the amount of rent they payis way less than the market value of the rent. SantaMonica has been affected drastically under Rent Control laws. The Rent Controllaws are some of the strictest on the west coast. The landlords in Santa Monicaare between a knife and a wall.
Santa Monica laws are more extensive comparedto other cities; one of the major differences is evident in the way rent isaffected at the time a tenant leaves the apartment. “Most important, the lawcontains a ‘vacancy control’ provision; thus, rents remain controlled when atenant moves” (Levine). This clause of the Rent Control law keeps pricesthe same even after the tenant leaves. The possibility of a landlord raisingprices is completely thrown out the window. The market value of rent will neverbe reached. In other cities when the tenant leaves the landlord is allowed toraise the price of the rent to an allowed amount; in Santa Monica the rentcontrol is essentially grandfathered in.
Suchdrastic Rent Control measures leaves landlords in Santa Monica with no wiggleroom. The conversion of apartments to condos has become a popular trend incities that have strict Rent Control laws that make business unprofitable. Thisconversion becomes the most profitable solution for Rent Control. The housingthat is built in this already small city is most likely luxury property thatdoes not fall under the Rent Control laws. Rent Control in Santa Monica wasintended to stop gentrification and protect the people who live in thecommunity. It only made the cost of living increase. RentControl which was intended to protect renters from skyrocketing prices has alsobecome a contributor to the homeless population. The limited amount of housinghas made it increasingly difficult for low income families.
According to one estimate (Clay 1987, i), by 2003″the gap between the total low-renthousing supply (subsidized and unsubsidized) and households needingsuch housing is expected to grow to 7.8 million units,” representing anaffordable housing loss for nearly 19 million people. This figure representsthe probable constituency of the homeless, as the United States moves into thetwenty-first century (Appelbaum). This passage shows how the increasingdemand for affordable housing and the competition with the middle class for thehousing might increase the homeless population. The government has no intentionof increasing the homeless population but the Rent Control laws that havecreated shortages; can potentially increase the homeless population. Thelow-income families cannot compete with the middle class and with increasingprices on rent. Rent Control once again hurts the people it was intended toprotect. RentControl had humble beginnings and now has evolved into a government enforcedprice ceiling.
Rent Control does keep rent prices stable and preventsskyrocketing prices or landlords attempting “rent profiteering.” The problemwith Rent control is that it ultimately leads to a decrease in quality for thetenants. The cost of operating the building is directly affected by the amountof money that it makes. Under Rent Control that amount is capped, and the costof goods and labor continue to change due to inflation. Landlords will have tocut the cost of operating the building; directly affecting the maintenance ofthe building lowering the quality of the housing for the tenant. Another affectthat comes with Rent Control is the shortage of affordable housing.
Investingin rent control housing is not happening; although, new housing usually isn’taffected by Rent Control investors still stay away because of fear. Thedevelopment of condos becomes the best alternative for renting because ensuresa profit and avoids Rent Control completely. Some apartments are being convertedto condos only furthering the already huge shortage of affordable housing.
Thedevelopment of housing has not slowed down in the country; however, thedevelopments are luxury buildings. Rent Control is a gift that comes at a hugeprice that is ignored because of how controversial the topic is. Rent Controlis not good for the tenants, landlords, or the economy.