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What Is Rent Control and Does It Differ from Rent Stabilization?

Rent control is a system of laws and regulations that limit the amount of rent landlords can charge tenants for rental housing. It is an efficient technique presently used to protect tenants from excessive rent increases and to ensure affordable rental housing in certain areas. Rent control laws are designed to keep rents low and stable, while also protecting existing tenants from eviction due to rising rents.

Rent control is different from rent stabilization, which is another form of rent regulation that limits the amount by which a landlord can increase the rent each year. Rent stabilization also provides additional protections for tenants, such as requiring landlords to provide basic services and prohibiting them from evicting tenants without cause.

How Does Rent Control Work?

Rent control laws vary by municipality, but they typically involve setting a maximum price that landlords can charge for rent, as well as regulating how often and by how much landlords can raise rents. In some cases, rent control may also place restrictions on evictions.

Apartments whose rents are regulated by law are known as rent-controlled units. For an apartment to be rent controlled, it must meet certain criteria, such as being built before a certain date or being part of a rent-controlled housing complex. In some cases, rent-controlled units may be subject to additional rules, such as limits on how much the rent can be increased each year.

While the local governance of rent controls vary in different areas, some general principles apply. For example, the amount of advance notice landlords must give tenants for any increases. In some cases, these laws may require landlords to justify increases beyond the allowed amount. Additionally, rent-controlled units may have different rules regarding eviction procedures and lease renewals than other units.

Rent Control vs. Rent Stabilization: Similarities and Differences

Rent control laws are designed to keep rents low and stable, while also protecting existing tenants from eviction due to rising rents.

Meanwhile, rent stabilization is a different form of rent regulation that limits the amount by which a landlord can increase the rent annually, usually determined by an index such as the Consumer Price Index. Rent stabilization also provides additional tenant protections such as basic landlord services and prohibition of eviction without cause.

In general, both rent control and rent stabilization have their benefits and drawbacks. Rent control can help keep rental prices stable in areas with tight housing markets or limited affordable housing options, allowing longtime residents to remain in their homes. However, it can also limit the supply of available housing units, as landlords may be disincentivized from renting out units or making upgrades if they cannot raise their rent prices.

Rent stabilization has similar disadvantages to rent control but with certain advantages as well; for example, landlords are more likely to accept tenants on long-term leases if they know their rental income will continuously grow through predetermined yearly increases. Additionally, some cities allow landlords to make additional charges beyond the regulated rates for certain services or amenities provided to tenants.

The Pros and Cons of Rent Control – What You NEED to Know

Rent control can be a powerful tool for protecting tenants from sudden and excessive rent increases, ensuring that renters have access to affordable housing. It also helps to keep levels of displacement low due to rising tenancy costs, making housing both more secure and accessible for those less able to afford fluctuating market-rate rents.

However, rent control can also lead to reduced incentives for property owners – who are not able to cover their operating costs – leading them to abandon rental units altogether or reduce maintenance efforts which would otherwise benefit all tenants. In addition, it may limit affordable rental housing opportunities because it has the potential to reduce the number of new units created by keeping rents below market rates. This negatively impacts the overall availability and quality of rental housing in an area, affecting landlords’ ability to reinvest in existing properties.

Additionally, restrictions on rent increases can make it difficult for landlords to accurately price their rental units in line with current market conditions. Even if units are reasonably priced, their prices will not fluctuate over time as do market prices. This means that current tenants are protected from rapid price escalations but may be paying less than what other comparable units are charging for similar terms of occupancy.

Also, long-term tenants at rent-controlled apartments may face difficulty when attempting to move out since their units will not command higher market rates due to these regulations.

U.S. Cities with Rent Control

Rent control laws vary by state, with some states allowing local cities to enact their own ordinances limiting rent increases or requiring notice for significant rent increases. Currently, six states (California, Maryland, Minnesota, New Jersey, New York, and Oregon) and the District of Columbia (D.C.) have localities where rent control exists. Texas does not currently have any statewide rent control policies but did at one point in history.

In California, 34 out of 482 cities have strict tenant protections due to rent control ordinances. In New York City, tenants are protected by the Rent Stabilization Law which limits how much landlords can increase rents each year and requires them to provide notice before making significant changes to leases or services. In New Jersey, municipalities can pass their own ordinances limiting rent increases or requiring notice for significant rent increases as long as they do not conflict with state law. Maryland has also passed legislation that allows local jurisdictions to pass their own rental regulations as long as they are consistent with state law. Oregon and Minnesota also have localities that have enacted some form of rent control policy.

Rent control is an important tool for ensuring housing affordability and protecting tenants from unfair rent increases. Although Texas no longer has statewide policies, there is a growing movement among advocates to allow cities to implement their own policies.

FAQs on Rent Control

Who qualifies as a Rent Controlled Tenant?

Rent controlled tenants are typically long-term occupants of an apartment or rental unit, who have been living in the same unit for a certain period. In some cases, rent controlled tenants may also be protected from eviction without cause.

What happens when a Tenant moves out of a rent controlled apartment?

When a rent controlled tenant moves out of their apartment, the landlord is allowed to increase the rent up to a certain amount. This amount is typically determined by local rent control laws and regulations.

How do Rent Controls affect the Housing Supply?

Rent Controls can affect the Housing Supply by limiting landlords’ ability to raise rents and incentivizing them to keep existing tenants in their units for longer. This can lead to fewer rental units being available on the market, which can drive up prices for other rental units in the area.

How do Rent Controls impact the Rental Market?

Rent controls can also impact the rental market by creating an artificial ceiling on how much landlords can charge for their units. This can lead to higher demand for rent controlled apartments and lower demand for non-controlled apartments, resulting in higher prices overall for rentals in an area with rent control laws.

The Future of Rent Control and Rent Stabilization

As cities grapple with rising rental costs, rent controls and other forms of “rent stabilization” are likely to become increasingly popular amongst policymakers. While some localities have already adopted some form of rent control, most states currently leave this decision up to each municipality. It remains to be seen whether or not we will see a trend toward more widespread adoption of rent controls in the future; however, the debate over their efficacy is likely to continue for the foreseeable future.

Ultimately, it is up to city governments and renters themselves to weigh the pros and cons when considering their use as an affordable housing solution. Regardless of your opinion on rent control, one thing is certain: its impact on the rental market will continue to be closely monitored by policymakers and renters alike.

Anthony Pinto
Anthony Pinto
Anthony Pinto is the founder and CEO of Pinto Capital Investments (PCI), a real estate investment firm focused on acquiring affordable and workforce multifamily properties and apartment buildings through syndications. Since 2019, PCI has gone full cycle on 2 large apartment complexes (+100 units) with an IRR in excess of 85%.