Rent Control: Pros And Cons

Rent Control: Pros and Cons

Rent control is the government imposition of price ceilings on rent for

apartments in certain areas of a city. The goal is usually to protect the rights

of the poor. Thus, in a rent controlled or rent stabilized building, the amount

of rent will not increase as quickly as inflation. While the moral side of rent

control may have some appeal, in the long run the disadvantages far outweigh the

advantages.

Those who argue in favor of rent control say that it is the only way to protect

lower-income tenants from landlords who overprice, and from being forced to move

out of a neighborhood because they cannot afford the rent. Limiting the price

that a landlord can demand helps maintain a city's ethnic diversity and prevents

the creation of slums on the outskirts of the main city. Another thing that

proponents say is that by linking rent prices to apartment maintenance and

material improvements, rent control actually improves the state of housing.

Overall, they argue that the goals of rent control can be reached if they are

administered in a careful and just way.

The opponents, though, have both theoretical and practical experience on their

side. First, rent control creates a market that is unfair for everyone. Since

the rent is set at a lower than normal level, an unsatisfied demand is created.

This increase in demand leads to an increase in the cost of rents in the

uncontrolled sector. Thus, two types of rents are created: those that are

unfairly cheap, and those that are unfairly expensive.

Another problem that is created is that landlords who own rent controlled

apartments are often not able to earn enough money to adequately maintain

buildings. This leads to run-down, poor quality housing. In many cases,

landlords lose so much money that they are not able to even pay the debt on the

properties, and they abandon them. Both of these effects have been documented in

New York and elsewhere, and go against the goals of rent control.

Finally, rent control has the bad side effect of turning away new construction.

This is because even if rent controls don't include new constructions, owners

are afraid to build any new buildings if in a few years those too will be taken

over by rent control. Rent control thus leads to less construction and an even

greater unsatisfied demand. This, in turn, increases the rents of uncontrolled

apartments even more. New constructions are also avoided because banks and

insurance companies don't want to invest in areas where rent control is in

effect, because they know that it is likely that landlords will not be able to