The Pros And Cons Of Rent Control For Landlords And Tenants

While rent control appears to help housing providers in the short run, in the long run it affects their investment and development plans, according to new research by the National Apartment Association (NAA). Potential actions include reducing investments, shifting plans to other markets and canceling plans altogether. Furthermore, a full two-thirds of housing providers would not consider investing in markets with strict rent control policies.

“Rent control” is a loose term used to cover a spectrum of rent regulations, according to the Urban Institute. These regulations can vary from hard caps on maximum rents (often associated with traditional rent control) to limits on the amount that rent can increase over time.

Rent control has a long and hotly debated history. Although rent control has been shown to increase stability and affordability for tenants in controlled units, some studies have found that these benefits are offset by greater costs in the uncontrolled rental market because of reductions in the overall supply of rental units. Even still, many tenants, tenants’ rights groups, and community organizers support rent control and believe in its ability to balance power between renters and landlords. As such, rent control has reemerged as a potential tool to address the housing affordability crisis in the U.S.

Different groups of stakeholders have diverging views on the efficacy of rent control in promoting equitable housing outcomes. While landlords, for-profit developers and real estate industry representatives are skeptical of rent control’s ability to provide affordable housing for renters with low incomes and renters of color, many tenant advocates and housing policy researchers disagree and feel that policy loopholes or weak regulatory coverage is to blame when rent control fails to improve housing affordability.

In 2019 alone, New York, California, and Oregon passed statewide rent control laws or laws that allow cities to enact their own regulations. In November 2022, voters in Orange County, Florida approved an ordinance by a wide margin that prevents owners of existing apartments from raising rents at a rate higher than the inflation rate for the region.

NAA’s analysis highlights the unintended and detrimental consequences of rent control. From December 2022 to February 2023, NAA commissioned ndp | analytics to conduct interviews with housing providers and developers from three markets affected by rent control policies and proposals: St. Paul, Minnesota; Santa Ana/Santa Barbara; California; and Portland/Eugene, Oregon. The respondents ranged from large firms operating thousands of units and having properties across the country to mom-and-pop businesses with a handful of units and, often, invested in real estate as part of a retirement plan or second source of income.

The housing provider research was supplemented with an online public opinion survey across the country in February 2023. The questions focused on housing availability, residential construction and policy perspectives. Here are the key findings from the interviews and survey.

The unintended consequences of rent control

With rent control in effect, housing providers say they are faced with the difficult financial strain of absorbing essential maintenance costs and are forced to reduce investments in improvements and nonessential maintenance. As a result, 54% said they expect to or would consider selling some assets. This is particularly alarming for the apartment industry, as the nation faces housing supply challenges and must build 4.3 million new apartments by 2035 to meet current shortages and address future demand. Furthermore, the apartment industry and its residents contribute $3.4 trillion to the national economy and support 17.5 million jobs.

“NAA’s latest research aligns with decades of data and real-life case studies that all lead to the same conclusion: rent control is a failed policy that brings more harm than relief to local communities,” said Bob Pinnegar, NAA president and CEO. “It’s not surprising that policies that make it harder for housing providers to do their jobs lead to less housing options. It is past time for our elected officials at all levels of government to shift their focus to policies that address housing supply issues and are targeted to the households most in need of support.”

Struggling to meet demand for more apartments by 2035

“Rent control is not the solution it appears to be on the surface,” said Leah Cuffy, NAA’s director of advocacy research. “While well intended, these policies have been proven to work against their intended purpose and ultimately hurt renters, housing providers and communities. This research explains the unsettling truths about rent control which are important to recognize in housing affordability discussions.”

She added, “This latest data reinforces what we already know – the U.S. can not afford to pursue housing policies like rent control if we are to meet demand for 4.3 million new apartments by 2035. More than half of housing providers today are small business owners, and our data shows that rent control deters providers from investing and developing in those markets. Squeezing housing providers with these strict regulations risks lowering current supply and limiting future growth, creating a volatile environment for affordable housing across the U.S. and ultimately doing more harm than good for renters.”

Extensive interviews with housing providers and developers helped ndp | analytics to better understand the implications of rent control and encompassed three markets affected by state or local policies: St. Paul, Minnesota; Santa Ana/Santa Barbara, California; and Portland/Eugene, Oregon.

The research was also supplemented with an online opinion poll that gauged public perceptions of rent control. A whopping 75% of respondents indicated a desire for policies that increase funding for local programs by attracting more residential and commercial development. Nearly half of respondents incorrectly believe that rent control is targeted to only help low- and moderate-income renters.

This post first appeared on Forbes.com. To see the original, click here.