Rent control policies
are designed to make housing more affordable.
Rent control is the government regulation of housing contracts in areas of high rents. It is designed with the purpose of lowering such rents in order to make them affordable for the majority of people. Despite such advantages, such policies also have disadvantages, which may include artificially high rents and negative impacts on housing investment.
Rent Control
Rent control policies vary by location, however, they are mostly found in areas where prices tend to be higher, such as cities. Policies may include regulations regarding rent stabilization, where a landlord is not allowed to raise rent above a given percentage within a given time frame. Policies may also have stipulations regarding the amount of time a tenant may rent the property. Often, if a tenant has adhered to the rules stipulated in the lease, he cannot be evicted. In some cities, tenants may stay indefinitely, whereas in others, they may stay for a minimum length of time.
Advantages of Rent Control
Rent control policies are set out with the aim to reduce the prices of rent within a city. While it is true that many people would be able to afford housing that is leased at market value, others may find it difficult or unfeasible to afford such prices. A city's economy is made up of people in many different professions, and even the lowest paying professions are critical if an economy is to run smoothly. For example, although teachers may be paid at a relatively low rate in comparison to other professionals, they are still in great demand.
Disadvantages: Effects on Initial Prices
As landlords are unable to specify the departure date for a tenant, a landlord does not know when a tenant may move out of an apartment. A tenant may theoretically stay in the apartment until a time when she is paying rent that is substantially below the current market rates. As a result, landlords, when setting up a new leasing contract for new tenants, may stipulate rent at an artificially high price that is above the current market rate. This is done in order to make up for any loss of rent-derived income in the future. As a result, rent-controlled apartments may actually be higher in rent than those of non-rent-controlled apartments.
Disadvantages: Effects on Investments
Rent control is said to have a negative influence on the investment of housing. This may include new buildings as well as the renovation of old buildings. Various studies have found that, once rent control regulation is removed, there has been a boom in new housing investment. This is because, under times of rent control, landlords and building owners are unsure if they would be able to recoup the costs associated with building investments if rent rates remain artificially low. Thus, there remains a long-term effect of a decrease in building quality.
