Rent stabilization is a system that regulates rent by imposing a limit on how much landlords can increase prices.
Understanding rent stabilization is crucial to passing the exam and becoming a successful agent. To fully grasp rent stabilization, you’ll need insight from trusted real estate professionals. As a real estate expert with years of experience, I’m here to shed insight into how rent stabilization works.
In this post, we will define rent stabilization, provide real-world examples, and discuss its pros and cons. Keep reading for a comprehensive look into rent stabilization!
What Is Rent Stabilization?
Rent stabilization is a system that protects tenants by imposing a limit on how much landlords can increase rent. Landlords cannot raise rent above a certain percentage in a rent-stabilized apartment. As a result, a rent-stabilized tenant can enjoy stable prices and the option for lease renewal at the end of the term.
How Does Rent Stabilization Work?
Access to rent stabilization varies depending on where a renter is looking for property. Local and state governments decide which, if any, rent laws apply in their jurisdiction.
Some states, counties, and cities place more restrictions on landlords than others. For example, the NYC Rent Guidelines Board dictates exactly how much landlords can increase rent for lease renewals. Other states and cities have entirely banned rent stabilization, including Arkansas, Florida, and Colorado.
However, in states that enforce rent stabilization, the government bases rent prices on the Consumer Price Index (CPI). The CPI measures the average change in rent prices paid by urban consumers over time.
For rent stabilization to be effective, landlords must keep rent prices below the market rate. For example, California state law limits annual rent increases to 5% plus the CPI, or 10% if that is lower.
What Types of Properties Are Rent-Stabilized?
Properties must meet the following conditions to be eligible for rent stabilization:
- Constructed before 1974
- Featuring six or more units
- Monthly rent payments are below $2,700
Rent Control vs. Rent Stabilization: What Is the Difference?
Rent control freezes monthly rent payments, while rent stabilization allows landlords to increase rent by a small percentage. Many confuse rent control and rent stabilization, but these two terms have very different meanings.
Rent control is a government program that freezes a tenant’s monthly rent payments. If the lease ends and the tenant requests a lease renewal, the landlord cannot increase the cost of their rent.
Rent-controlled apartments are hard to come by, as tenants tend to stay in them for a long time. Another challenge with rent control is that most rent-controlled apartments must be inherited via a family member.
Unlike rent control, rent stabilization does not freeze a tenant’s payments; instead, it enforces a percentage limit that landlords can increase rent by annually.
Rent-stabilized apartments are much more accessible than rent-controlled apartments. Nearly anyone can apply to live in a rent-stabilized building if they do not make more than $200,000 annually.
Example of Rent Stabilization
Margot is a tenant at Brownstone Apartments. Her lease is ending, but she is excited to renew it and continue living in her apartment.
However, when her landlord sends her the new lease agreement, she notices that her rent has increased astronomically. She can no longer afford to live at the Brownstone, so she decides to look for other options.
Margot wants to find an apartment where she can feel settled without worrying about sudden rent increases. She has no family living in rent-controlled apartments, so she searches for rent-stabilized units instead.
Margot uses her local government database to find apartment buildings with rent regulations. She finds a building called Gladstone Apartments and contacts the property owner to ask about stabilized units.
The property owner tells her they have a few available and that rent will only increase by a small percentage annually. Margot signs a lease with the property owner and becomes a long-term tenant at the Gladstone.
Pros and Cons of Rent Stabilization
Some pros of rent stabilization include stable prices, affordable housing, and lease renewals, while some cons include smaller profits, worse housing conditions, and hindered community development.
Let’s discuss some of the benefits and drawbacks of rent-stabilized housing in detail.
One advantage of rent stabilization is that rent prices stay stable with only slight increases. Tenants do not have to worry about landlords demanding unreasonably high rent payments when renewing their lease.
Another benefit of rent stabilization is that tenants can find affordable housing in densely populated cities. Without rent-stabilized units, many renters would not have the option to live in the city of their dreams.
Rent stabilization also provides tenants with the guaranteed option for lease renewal. Lease renewals benefit renters and property owners, as renters can keep their homes, and property owners do not have to find new tenants.
One disadvantage of rent stabilization is that landlords make a smaller profit than other property owners. They are limited in how much they can charge tenants for rent because they can never exceed the market rate.
Another problem with rent stabilization is that some landlords may not properly maintain the rental unit. Because they can never raise rent above a certain price, landlords have less incentive to repair damaged property or upgrade the space.
Rent stabilization can also hinder community development, as property developers may hesitate to build apartments near rent-stabilized buildings. The reason for this is that they may not be able to compete with the low rates offered by buildings with rent regulation.
A notable problem with rent stabilization for tenants is that rent prices still increase annually. Even though there is a limit as to how much landlords can raise rent, rent-stabilized tenants still have less stability than rent-controlled tenants.
Check out the table below for a clear breakdown of the pros and cons of stabilized rent:
|Pros of Rent Stabilization||Cons of Rent Stabilization|
|Rent Prices Stay Relatively Stable|
Affordable Housing in Metropolitan Cities
Protects Tenants Against Rental Market Inflation
Tenants Are Likely to Renew Lease
Increases Neighborhood Safety
More Accessible Than Rent Control
|Property Owners Make Less Profit|
Landlord May Fail to Maintain the Property
Property Developers May Avoid Rent-Stabilized Neighborhoods
Does Not Freeze Rent Prices
Where to Find Rent-Stabilized Apartments
Renters can search for rent-stabilized apartments on their city’s government website. Some sites feature a database of apartment buildings with rent regulations. Renters can contact the property owner of the building to ask if any units are available.
How to Know if Your Property Is Rent-Stabilized
To learn if your property has rent regulation, simply contact your landlord and ask. Most rent laws require that landlords disclose if a property is rent stabilized.
However, if a prospective tenant doesn’t ask about rent-stabilized options, the landlord does not have to mention them. It is the renter’s responsibility to research if a property offers stabilization. To determine if your apartment is eligible, you can also use rent control websites and search for your property address.
Which States Have Rent Stabilization?
Check out this table with data from the National Multifamily Housing Council to determine which states impose rent regulations and to what extent:
|Alaska||Dillon Rule State with No Rent Control|
|California||Statewide Rent Control City-Specific Regulations|
|Maine||No Statewide Rent Control|
County and City Rent Regulations In Effect
|Maryland||No Statewide Rent Control|
County and City Rent Regulations In Effect
|New Jersey||No Statewide Rent Control|
County and City Rent Regulations In Effect
|New York||No Statewide Rent ControlCounty and City Rent Regulations In Effect|
|Oregon||Statewide Rent Control|
|Pennsylvania||Dillon Rule State with No Rent Control|
|Vermont||Dillon Rule State with No Rent Control|
|West Virginia||Dillon Rule State with No Rent Control|
What Is a Dillon Rule State?
In a Dillon Rule State, local governments have the power to implement rent control and stabilization laws. If a state operates under Dillon’s Rule, its city and county governments can choose to enforce, ban, or not implement stabilized rent.
Which States Have the Least Rent Stabilization?
According to Go Banking Rates, the following states offer the least amount of protection for tenants regarding rent:
- West Virginia
- North Carolina
Frequently Asked Questions
Let’s answer some frequently asked questions students have about rent stabilization.
When Did Rent Laws Start?
Rent laws began in the 1920s between World War I and World War II. There are two different generations of rent laws that real estate students should know:
– First-generation rent control laws (most popular in the 50s)
– Second-generation rent stabilization laws (most popular in the 70s to modern day)
What Other Protections Does Rent Regulation Provide?
Rent regulations can also affect the following practices:
– How landlords hold a tenant’s security deposit
– What information landlords include in special notice requirements
– Whether or not landlords must provide tenants with relocation assistance after terminating a lease
What to Know Before the Real Estate Exam
Rent stabilization regulates rent prices by limiting the percentage by which landlords can increase rent.
Rent stabilization protects tenants from sharp rent increases and helps new renters find affordable housing. This will be a key term on the real estate exam, so students must understand the difference between rent stabilization vs. rent control. Rent control freezes a tenant’s rent payments, while rent stabilization limits how much landlords can increase a tenant’s rent.
Of course, this isn’t the only concept you’ll need to master before testing day. Get familiar with other vital terms using our online Real Estate Flashcards!