Affordable housing advocates argue that these insurance benefits are valuable to tenants. For example, rent control provides insurance against rent increases, potentially limiting displacement. Of course, rent control also offered potential benefits for tenants. Rent control can also lead to decay of the rental housing stock landlords may not invest in maintenance because they can’t recoup these investment by raising rents. Similarly, if rental rates are below market rates, renters may choose to consume excessive quantities of housing (Olsen 1972, Gyourko and Linneman 1989).
This mis-allocation can lead to empty-nest households living in family-sized apartments and young families crammed into small studios, clearly an inefficient allocation. Once a tenant has secured a rent-controlled apartment, he may not choose to move in the future and give up his rent control, even if his housing needs change (Suen 1980, Glaeser and Luttmer 2003, Sims 2011, Bulow and Klemperer 2012). Rent control can also lead to “mis-match” between tenants and rental units. They argued that a cap on rents would lead landlords to sell their rental properties to owner occupants so that landlords could still earn the market price for their real estate. While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.Ī substantial body of economic research has used theoretical arguments to highlight the potential negative efficiency consequences to keeping rents below market rates, going back to Friedman and Stigler (1946).
New research examining how rent control affects tenants and housing markets offers insight into how rent control affects markets. While rules and regulations of rent control vary from place to place, most rent control consists of caps on price increases within the duration of a tenancy, and sometimes beyond the duration of a tenancy, as well as restrictions on eviction. Under pressure to fight rising rents, state lawmakers in Illinois, Oregon, and California are considering repealing laws that limit cities’ abilities to pass or expand rent control.
Steadily rising housing rents in many of the US’s large, productive cities have reignited the discussion whether to expand or enact rent control provisions. Associate Professor of Economics - Stanford Graduate School of Business