Rent control is a government program that regulates how much landlords can charge tenants for rent. The purpose of rent control laws is to promote fair and affordable housing for renters.
This controversial but critical topic is a must-know for all real estate students. To learn the ins and outs of rent control, you must get information from trusted professionals. As a long-time real estate expert with years of experience, I’m happy to share my knowledge of rent control with you.
In this post, we’ll define rent control, give examples, and discuss the pros and cons of rent control regulations. Keep reading for a comprehensive guide to rent control!
What Is Rent Control?
Rent control is a program that imposes a maximum limit on how much property owners can charge tenants for rent. The maximum limit, also known as a “rent ceiling,” is designed to stabilize rental prices and help tenants afford housing.
How Does Rent Control Work?
Local rent control laws determine the rent ceiling for different regions. For a property to be considered rent-controlled, the rent ceiling can never be higher than the current market rental rate.
In a rent-controlled building, landlords cannot increase rent prices just to earn an extra profit. Instead, they have to abide by the rent control rules in their municipality.
What Types of Properties May Be Rent Controlled?
The most common example of a rent-controlled property is older apartment buildings. According to Apartment Guide, a property must have been constructed before 1947 to be eligible for rent control.
According to most laws, the following property types cannot be rent controlled:
- New apartment buildings
- Owner-occupied dwellings with less than four rental units
- Single-family housing
- Homes in planned communities
- Luxury units
The History Behind Rent Control Law
Rent control laws started in the 1920s to stop landlords from taking advantage of renters by continuously increasing rent.
Local and state municipalities determine rent control laws; only some regions offer rent-controlled housing. This is because rent control is a controversial topic that politicians often debate the merits of.
Oregon was the first state to implement a statewide rent control ordinance. According to the Oregon State Bar, the statewide rent control law was signed in 2019 and capped rent prices at 7% plus the Consumer Price Index (CPI) increase.
However, new reports say that the state government may increase the rent ceiling to 14.6% in 2023. The reason for this change is to keep up with inflation and the CPI.
Vacancy Decontrol vs. Vacancy Control: What’s the Difference?
Real estate students must understand the difference between the two types of rent control:
- Vacancy decontrol
- Vacancy control
Vacancy decontrol protects current tenants from increasing rent prices, but not new tenants. For example, a tenant may live in a rent-controlled apartment where prices will never increase for as long as they live there. However, once that tenant moves away, the next tenant to move in may have to pay a higher cost for rent.
Vacancy control protects current and future tenants by offering rent-stabilized units. Even when a current tenant moves out, the new tenant can enjoy the same benefits as the first.
There are some circumstances where base rent may be increased over time, but the landlord can never raise the rent to market level. Landlords can only increase the rent as much as local rent control laws allow
Example of Rent Control in Real Estate
Say that Alice signed a one-year lease to live in ABC Apartments. She loves her apartment and plans to renew her lease at the end of the term. However, her landlord increases rent prices by 10% when she tries to renew her lease.
Alice cannot afford this price hike nor find a new job to pay her the necessary funds. She has no choice but to move out of the apartment.
While Alice is searching for a new place, she decides that she would like to live in a rent-controlled building. This way, she can feel settled in her space without worrying about rent going up.
Alice checks her city’s local housing database and applies to XYZ Apartments, a rent-controlled building she can afford.
Pros and Cons of Rent Control
Many people have strong feelings regarding the advantages and disadvantages of rent control. Let’s go over some of the pros and cons of rent regulation below.
Rent control advocates argue that it protects tenants from greedy landlords. In rent-controlled housing, property owners cannot keep raising rent prices to churn a bigger profit. This rule allows tenants who cannot afford the increasing cost of living to feel secure in their rental property.
Another benefit of rent control is that it protects tenants from inflation. In many states, rent prices are increasing faster than wages for most jobs. Rent regulation ensures that tenants do not have to pay more for rent than what they earn at work.
Rent control also encourages renters to renew their lease at the end of the term. This means landlords can rely on stable tenants without needing to find new renters. Rent control also makes it more difficult for landlords to evict tenants wrongfully.
Another benefit of rent control is that it promotes safer neighborhoods. Because apartment buildings are filled with long-term tenants, there is more stability and less crime in the area.
One negative aspect of rent control is that it can be challenging for tenants to find rent-controlled apartments. Even when they do, the application process is competitive. In fact, many rent-controlled buildings require a new renter to be related to a tenant who is moving out.
Another argument against rent control is that it encourages poor housing conditions. The logic here is that landlords cannot charge more for rent, so they have less incentive to maintain the property and keep housing units livable.
Critics also argue that rent control reduces the amount of available housing. This is because some landlords prefer to rent out commercial real estate so they can bypass rent control laws. This preference limits the number of rental housing units available for renters seeking homes.
See the table below for a clear visual of the pros and cons of rent control:
|Pros of Rent Control||Cons of Rent Control|
How to Find Rent-Controlled Apartments
Finding rent-controlled housing can be challenging for tenants. In many cases, the tenant must be related to a current tenant who is planning on moving out. In New York City, for example, the only way to find a rent-controlled apartment is by inheriting it through a family member.
However, there are some steps renters can take to find stabilized rental housing units. For one, they can look at older apartment buildings, as newer buildings are not eligible for rent control. Some local municipalities also have websites with databases featuring rent-controlled properties.
Ultimately, the best way to find rent-controlled apartments is to be familiar with local laws and housing service programs.
What Are Other Protections of Rent Control?
Rent control provides more protections than just keeping rental prices low. For example, rent regulation can affect security deposit rules, special notice requirements, and relocation assistance.
Security Deposit Rules
Rent control regulations sometimes impact the ways that landlords can handle security deposits. For example, some states require that landlords place security deposits in interest-bearing bank accounts. Other state rent control laws require that landlords hold security deposits in an entirely separate bank account from their own.
Special Notice Requirements
A rent control ordinance may also affect how landlords provide tenants with special notices. For example, some rent control rules require that landlords give tenants a thirty-day notice before rent increases. They may also be required to include information explaining the reason for the increase in rent.
Assistance With Relocation
Other rent control laws require landlords who terminate a rental agreement to provide their tenants with financial assistance. In some cases, landlords may have to pay thousands to help with moving costs.
Frequently Asked Questions
Let’s answer some of the most frequently asked questions people have about rent control.
Which States Have the Best Rent Control Laws?
According to Go Banking Rates, the following states and cities effectively implement rent control to promote affordable housing:
• Sacramento, California
• San Francisco, California
• Los Angeles County, California
• Saint Paul, Minnesota
• Portland, Maine
• Tahoma Park, Maryland
• District of Columbia
Which States Have the Worst Rent Control Laws?
According to Go Banking Rates, the following states have either banned rent control or avoided enacting it into law:
• West Virginia
• North Carolina
How Does the Consumer Price Index Affect Rent Control?
The Consumer Price Index measures changes in prices paid by urban consumers. In rental real estate specifically, the CPI tracks changes regarding rent prices and the housing market.
This index allows landlords to estimate how much they should be charging tenants for rent in their area. However, if a landlord owns a rent-controlled property, they must ensure that their rent prices are lower than the market prices measured by the CPI.
Rent Control vs. Rent Stabilization: What’s the Difference?
Rent control freezes rent prices, while rent stabilization allows prices to increase by a certain percentage each year. A rent-controlled apartment is harder to come by than a rent-stabilized apartment.
What to Know Before the Real Estate Exam
Rent control is a government program that imposes a maximum limit on how much landlords can charge tenants for rent. Many argue that rent control has beneficial effects on affordable housing, while others claim it is detrimental to the housing market.
Real estate students must understand the impact of rent control before taking the real estate exam. Now that we’ve covered the most crucial details of this topic, you should feel confident about acing this section of the test.
But there is still a lot to learn before you can call yourself a real estate wiz. Brush up on other important terms using our online Real Estate Flashcards