Rent regulation

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"Rent control" redirects here. 
from ’Rent Control’ show at FringeNYC 2016

Overview

"Rent regulation is a system of laws, administered by a court or a public authority, which aim to ensure the quality and affordability of housing and tenancies on the rental market for land. Comprehensive rent regulation is common in Commonwealth and European Union countries, including Canada, Germany, Ireland, Cyprus and Sweden, and also some states in the United States. Generally a system of rent regulation involves:

  • price controls: limits on the rent that landlord may charge, with rent control or rent stabilization (rents can change more flexible and/or upon change of tenant). 
  • standards by which a landlord may terminate a tenancy (an equivalent of unfair dismissal from employment in tenancies)
  • obligations on the landlord or tenant regarding adequate maintenance of the property
  • a system of oversight and enforcement by an independent regulator and Ombudsman

The classic objective is to limit the price that would result from the market, where an inequality of bargaining power between landlords and tenants produces continually escalating prices without any stable market equilibrium."
- Wikipedia, "Rent regulation." 




Price regulation variant forms

The price regulation aspect of rent regulation can be done in varying ways and degrees, with likely different effects. Therefore studies or or conclusions about "rent control" need to carefully consider what forms of regulation were in effect for the study subject, and to what degree they are generalizable to other systems. Three main factors in how price may be regulated: 

1) Control of permitted rent change for a current tenant:  

    a) fixed. (rare, but exists e.g. in old New York City rent control on some remaining buildings). 

    b) fixed increase per year.

    c) change based on objective metric such as CPI (consumer price index) 

    d) change based on political/regulatory decision, e.g. municipal Rent Board decision.
   [when permitted rent change is adjustable this way, and/or it is unregulated upon vacancy, the system is sometimes called 'modern' or 'second-generation' rent controls.]

    e) possibly (and typically), other changes are permitted by landlord petition or e.g. to "pass through" expenses such as tax increase or renovation costs.

2) Control of permitted rent change during change of tenant

   a) same as within a tenant's tenure, in one of the ways above.
 [sometimes referred to as 'strong' rent control]. 

   b) unregulated, i.e. "resets to market rate," aka there is vacancy decontrol. 

3) Regulation of which and when units may fall under or exist price regulation. Price regulation may apply: 

    a) Only to units built before a certain date; and/or

    b) Only to units in buildings that reach a certain age (see "Deferred rent stabilization" below).  [This is uncommon (unknown?) in practice but often proposed].

    c) Only to units in buildings above a certain size. 

    d) not when a building is allowed to exit regulation for specified reasons, possibly including: 

    e) owner move-in. (as permitted by the "Ellis Act" in California). 

    f) conversion of unit from rental to ownership housing

        i. "condo conversion" - from rental apartment to owned apartment. See also Condomium

        ii. Conversion to "Tenancy in Common" (TIC) unit, i.e. shared ownership.  

    g) when unit rent increases above a certain point. (called "luxury decontrol" in NYC rent stablization law). 

        i. Condemnation (?) 

        ii. Demolition

        iii. Lndlord buy-out of tenant.

 

 

 

 

Rent control vs Rent stabilization

In stricter usage, rent control and "strong rent control" are typically used to refer to rental price regulation that is a) fixed price, and/or b) applies equally within and between tenancies, i.e. does not have vacancy decontrol

Rent stabilization typically refers to price regulation in which a) permitted rent adjusts variably, e.g. based on a price index, and/or b) permitted rent for new tenants is unregulated, i.e. there is vacancy decontrol. 

 

Vacancy control or decontrol

A key difference between different rent-regulation regimes is whether, or how, they regulate rent of an apartment after it is vacated by a tenant.  The rent might be allowed only the same increment as if still occupied, it might be allowed a higher increment (e.g. as in New York City), or it may be allowed to revert to full market rate (as in San Francisco). 
 

Deferred rent stabilization 

The idea that a unit may come under rent-stabilization guidelines only a certain length of time after it is built, for example 10 or 20 years. 
 

Current rent regulations

California 

San Francisco

Oakland

San Jose
 

SF rent control study by Diamond, McQuade, Qian (2017)

Diamond, Rebecca, Tim McQuade, & Franklin Qian (2017). “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.”

Key total benefit/loss figures from this paper seem to have changed by large factors across the three versions of this working paper so far released, which are linked and excerpted below. 

from: Joe Rivano Barros‏ @jrivanob 10:38 AM - 30 Jan 2018
"Can someone who's paid closer attention to this than I tell me why Stanford study changed results from $5B in losses from rent control to $2.9B & from $7B in gains from rent control to $2.9B? That change makes the losses and gains cancel out where they didn't before. c/@tmccormick." 

We reviewed the paper versions he cites from September 26 and November 29, and also one from October 11. It appears to me, that the change results from a recalculation of both the estimated welfare benefits and welfare losses into the same Present Discounted Value terms. (Whereas before people were e.g. taking a figure of $423M/yr benefit and multiplying by 17 years of study period to get $7.19B in benefit). 

We emailed the three paper co-authors on Tues 30-1-2018 to ask them if this explained the difference or if there was another explanation. 
 

  • 26 September, 2017 version. PDF.
    Abstract
    "In this paper, we exploit quasi-experimental variation in the assignment of rent control due to a 1994 ballot initiative to study the welfare impacts of rent control on its tenant bene􏰁ciaries as well as the impact on landlords' responses and the rental market as a whole. Leveraging new micro data which tracks an individual's migration over time, we fi􏰁nd that rent control increased the probability a renter stayed at their 1994 address by close to 20 percent. At the same time, using data on the history of individual parcels in San Francisco, we 􏰁find that treated landlords reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form eff􏰀ects. We 􏰁find that rent control off􏰀ered large bene􏰁fits to impacted tenants during the 1995-2012 period, averaging between $3100 and $5900 per person each year, with aggregate bene􏰁ts totaling over $423 million annually. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."

    "We fi􏰁nd that rent control o􏰀ffered large benefi􏰁ts to impacted tenants during the 1995-2012 period, averaging between $3100 and $5900 per person each year, with aggregate benefi􏰁ts totaling over $423 million annually. These e􏰀ects are counterbalanced by landlords reducing supply in response to the introduction of the law. We conclude that this led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters."
     
  • 11 October, 2017. NBER working paper. http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf.
    "Abstract: 
    In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual’s migration over time, we find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $390 million annually. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."

     
  • 29 November 2017 version. PDF
    Abstract:
    "In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual's migration over time, we fi􏰁nd that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we 􏰁find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 5.1% and caused $2.9 billion of total loss to renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form eff􏰀ects. We 􏰁nd that rent control o􏰀ffered large bene􏰁fits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with the present discounted value of aggregate benefi􏰁ts totaling $2.9 billion. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."

    "We fi􏰁nd that rent control off􏰀ered large bene􏰁fits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate bene􏰁fits totaling over $214 million annually, with present discounted value of $2.9 billion. These e􏰀ffects are counterbalanced by landlords reducing supply in response to the introduction of the law. We conclude that this led to a city-wide rent increase of 5.1%. At a discount rate of 5%, this has a present discounted value of $2.9 billion dollars lost by tenents."

 

California 'Costa-Hawkins' law repeal initiative

See main article: Costa-Hawkins Rental Housing_Act reform

 

 

References