Difference between revisions of "Rent regulation"

From YIMBYwiki
Jump to: navigation, search
(31 intermediate revisions by the same user not shown)
Line 1: Line 1:
  
''"Rent control" redirects here. ''
+
''"Rent control" redirects here. '' [[File:Rent-Control--FringeNYC-2016.jpg|thumb|right|500px|from ’Rent Control’ show at FringeNYC 2016]]
  
 
== Overview ==
 
== Overview ==
  
'''"Rent regulation''' is a system of [https://en.wikipedia.org/wiki/Law 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 [https://en.wikipedia.org/wiki/Commonwealth Commonwealth] and [https://en.wikipedia.org/wiki/European_Union European Union] countries, including [https://en.wikipedia.org/wiki/Rent_regulation_in_Canada Canada], Germany, Ireland, Cyprus and Sweden, and also some states in the [https://en.wikipedia.org/wiki/United_States United States]. Generally a system of rent regulation involves:
+
'''"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:
  
*[https://en.wikipedia.org/wiki/Price_controls price controls], limits on the rent that landlord may charge, with '''rent control''' and '''[https://en.wikipedia.org/wiki/Rent_stabilization rent stabilization]'''  
+
*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 [https://en.wikipedia.org/wiki/Unfair_dismissal unfair dismissal] from employment in tenancies)  
 
*standards by which a landlord may terminate a tenancy (an equivalent of [https://en.wikipedia.org/wiki/Unfair_dismissal unfair dismissal] from employment in tenancies)  
 
*obligations on the landlord or tenant regarding adequate maintenance of the property  
 
*obligations on the landlord or tenant regarding adequate maintenance of the property  
 
*a system of oversight and enforcement by an independent regulator and [https://en.wikipedia.org/wiki/Ombudsman Ombudsman]  
 
*a system of oversight and enforcement by an independent regulator and [https://en.wikipedia.org/wiki/Ombudsman Ombudsman]  
  
The classic objective is to limit the price that would result from the market, where an [https://en.wikipedia.org/wiki/Inequality_of_bargaining_power inequality of bargaining power] between [https://en.wikipedia.org/wiki/Landlord landlords] and [https://en.wikipedia.org/wiki/Leasehold_estate tenants] produces continually escalating prices without any stable [https://en.wikipedia.org/wiki/Market_equilibrium market equilibrium]."
+
The classic objective is to limit the price that would result from the market, where an&nbsp;[https://en.wikipedia.org/wiki/Inequality_of_bargaining_power inequality of bargaining power]&nbsp;between&nbsp;[https://en.wikipedia.org/wiki/Landlord landlords]&nbsp;and&nbsp;[https://en.wikipedia.org/wiki/Leasehold_estate tenants]&nbsp;produces continually escalating prices without any stable&nbsp;[https://en.wikipedia.org/wiki/Market_equilibrium market equilibrium]."<br/> - Wikipedia, "Rent regulation."&nbsp;
  
- Wikipedia, "Rent regulation."&nbsp;
+
 
 +
 
 +
 
 +
 
 +
== <br/> 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:&nbsp;
 +
 
 +
'''1) Control of permitted rent&nbsp;change for a current tenant:&nbsp;&nbsp;'''
 +
 
 +
&nbsp; &nbsp; a) fixed. (rare, but exists e.g. in old New York City rent control on some remaining buildings).&nbsp;
 +
 
 +
&nbsp; &nbsp; b) fixed increase per year.
 +
 
 +
&nbsp; &nbsp; c) change based on objective metric such as CPI (consumer price index)&nbsp;
 +
 
 +
&nbsp; &nbsp; d) change based on political/regulatory decision, e.g. municipal Rent Board decision.<br/> ''&nbsp; &nbsp;[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.]''
 +
 
 +
&nbsp; &nbsp; 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'''
 +
 
 +
&nbsp; &nbsp;a) same as within a tenant's tenure, in one of the ways above.<br/> ''&nbsp;[sometimes referred to as 'strong' rent control].&nbsp;''
 +
 
 +
&nbsp; &nbsp;b) unregulated, i.e. "resets to market rate," aka there is&nbsp;''vacancy decontrol.&nbsp;''
 +
 
 +
'''3) Regulation of which and when units may fall under or exist price regulation'''. Price regulation may apply:&nbsp;
 +
 
 +
&nbsp; &nbsp; a) Only to units built before a certain date; and/or
 +
 
 +
&nbsp; &nbsp; b) Only to units in buildings that reach a certain age (see "Deferred rent stabilization" below). &nbsp;''[This is uncommon (unknown?) in practice&nbsp;but often proposed].''
 +
 
 +
&nbsp; &nbsp; c) Only to units in buildings above a certain size.&nbsp;
 +
 
 +
&nbsp; &nbsp; d) not when a building is allowed to exit regulation for specified reasons, possibly including:&nbsp;
 +
 
 +
&nbsp; &nbsp; e) owner move-in. (as permitted by the&nbsp;"[[Ellis_Act|Ellis Act]]" in California).&nbsp;
 +
 
 +
&nbsp; &nbsp; f) conversion of unit from rental to ownership housing
 +
 
 +
&nbsp; &nbsp; &nbsp; &nbsp; i. "condo conversion" - from rental apartment to owned apartment. See also [[Condomium|Condomium]]
 +
 
 +
&nbsp; &nbsp; &nbsp; &nbsp; ii. Conversion to "[[Tenancy_in_Common|Tenancy in Common]]" (TIC) unit, i.e. shared ownership.&nbsp;&nbsp;
 +
 
 +
&nbsp; &nbsp; g) when unit rent increases above a certain point. (called "luxury decontrol" in NYC rent stablization law).&nbsp;
 +
 
 +
&nbsp; &nbsp; &nbsp; &nbsp; i. Condemnation (?)&nbsp;
 +
 
 +
&nbsp; &nbsp; &nbsp; &nbsp; ii. Demolition
 +
 
 +
&nbsp; &nbsp; &nbsp; &nbsp; iii. Lndlord buy-out of tenant.
  
 
&nbsp;
 
&nbsp;
 +
 +
&nbsp;
 +
 +
&nbsp;
 +
 +
&nbsp;
 +
 +
== Rent control vs Rent stabilization ==
 +
 +
In stricter usage,&nbsp;''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''.&nbsp;
 +
 +
''Rent stabilization&nbsp;''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&nbsp;''vacancy decontrol.&nbsp;''
 +
 +
&nbsp;
 +
 +
== 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.&nbsp; 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).&nbsp;<br/> &nbsp;
 +
 +
== Deferred rent stabilization&nbsp; ==
 +
 +
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.&nbsp;<br/> &nbsp;
  
 
== Current rent regulations ==
 
== Current rent regulations ==
  
 
=== California&nbsp; ===
 
=== California&nbsp; ===
 
  
 
=== San Francisco ===
 
=== San Francisco ===
 
  
 
=== Oakland ===
 
=== Oakland ===
  
 +
=== San Jose<br/> &nbsp; ===
  
=== San Jose ===
+
== SF rent control study by Diamond, McQuade, Qian (2017) ==
  
 +
Diamond, Rebecca, Tim McQuade, & Franklin Qian (2017). “[http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco].”
  
== California 'Costa-Hawkins' law repeal initiative ==
+
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.&nbsp;
 +
<blockquote>from: Joe Rivano Barros‏ @jrivanob 10:38 AM - 30 Jan 2018<br/> "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."&nbsp;</blockquote>
 +
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).&nbsp;
  
 +
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.&nbsp;<br/> &nbsp;
  
"a substantial expansion of rent control in California could result in...significant reductions in construction of new housing." Legislative Analysts Office @LAO_CA analysis of #CostaHawkins repeal initiative&nbsp;
+
*26 September, 2017 version. [https://drive.google.com/open?id=1zjClPSHvzBx7LpSaD56I8FdWuFiXrdRq PDF].<br/> Abstract<br/> "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."<br/> <br/> "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&nbsp;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."<br/> &nbsp;
 +
*11 October, 2017. NBER working paper.&nbsp;[http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf].<br/> ''"Abstract:&nbsp;<br/> 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,&nbsp;'''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%&nbsp;'''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&nbsp;'''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.'''&nbsp;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."''<br/> &nbsp;
 +
*29 November 2017 version. [https://drive.google.com/open?id=13pzS8XOAHXgvWdT6ddeoFy123Y_hoJ4y PDF].&nbsp;<br/> Abstract:<br/> "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."<br/> <br/> "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."
  
 +
&nbsp;
 +
 +
== California 'Costa-Hawkins' law repeal initiative ==
 +
 +
See main article: [[Costa-Hawkins_Rental_Housing_Act_reform|Costa-Hawkins Rental Housing_Act reform]]
 +
 +
&nbsp;
  
 
&nbsp;
 
&nbsp;
Line 41: Line 125:
 
== References ==
 
== References ==
  
 +
*Arnott, Richard. “[https://www.aeaweb.org/articles?id=10.1257/jep.9.1.99 Time for Revisionism on Rent Control?]” The Journal of Economic Perspectives, 1995: Vol. 9, №1: 99–120.<br/> [https://www.aeaweb.org/articles?id=10.1257/jep.9.1.99 https://www.aeaweb.org/articles?id=10.1257/jep.9.1.99].<br/> Abstract: "Economists' traditional hostility to rent contols is based on models that treat the housing market as perfectly competitive and on the experience with 'hard' controls in New York City and many European countries following World War II. The current 'soft' rent control systems in North America are varied and qualitatively different from earlier hard controls. The theoretical case against them is weak, particularly when the housing market is viewed as imperfectly competitive. The empirical case against them is weak, too. Economists should reconsider their blanket opposition to current rent control systems and evaluate them on a case-by-case basis."<br/> &nbsp;
 +
*Diamond, Rebecca, Tim McQuade, & Franklin Qian (2017). “[http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco].”
 +
**26 September, 2017 version. [https://drive.google.com/open?id=1zjClPSHvzBx7LpSaD56I8FdWuFiXrdRq PDF].
 +
**11 October, 2017. NBER working paper.&nbsp;[http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf].
 +
**29 November 2017 version. [https://drive.google.com/open?id=13pzS8XOAHXgvWdT6ddeoFy123Y_hoJ4y PDF].&nbsp;
 +
 +
 +
&nbsp;
 +
 +
*East Bay For Everyone. "[https://www.scribd.com/document/350029454/Ab-1506-Support#from_embed RE: AB 1506 - Residential Rent Control: Costa-Hawkins Rental Housing Act.]" (letter). 2017.&nbsp;[https://www.scribd.com/document/350029454/Ab-1506-Support#from_embed https://www.scribd.com/document/350029454/Ab-1506-Support#from_embed].<br/> &nbsp;
 +
*Gordon, Leslie. “[http://urbanhabitat.org/sites/default/files/UH%202018%20Strengthening%20Communities%20Through%20Rent%20Control.pdf Strengthening Communities through Rent Control and Just-Cause Evictions: Case Studies from Berkeley, Santa Monica, and Richmond.]” Urban Habitat (Oakland, CA), January 2018.&nbsp;<br/> [http://urbanhabitat.org/sites/default/files/UH%202018%20Strengthening%20Communities%20Through%20Rent%20Control.pdf http://urbanhabitat.org/sites/default/files/UH%202018%20Strengthening%20Communities%20Through%20Rent%20Control.pdf].<br/> &nbsp;
 +
*Heskin, Allan D., Ned Levine & Mark Garrett. “The Effects of Vacancy Control: A Spatial Analysis of Four California Cities.” ''Journal of the American Planning Association'', Volume 66, 2000 - Issue 2, Pages 162-176. DOI: 10.1080/01944360008976096.&nbsp;<br/> [https://doi.org/10.1080/01944360008976096 https://doi.org/10.1080/01944360008976096]<br/> ''“Abstract:&nbsp;<br/> This article examines changes between 1980 and 1990 in the number of rental units and the demographic composition of tenants in four California cities that adopted rent control with vacancy control provisions. Six border areas within the four cities were compared to border areas of adjoining cities that did not have vacancy control. A spatial lag regression model was constructed to estimate the changes in regional and neighborhood components in addition to vacancy control policies. Vacancy control contributed to lower rents and longer tenure by tenants compared to non-vacancy-controlled areas. There were also fewer rental units in part because of a shift from rental housing to owner-occupied housing.”''<br/> &nbsp;
 +
*Initiative on Global Markets (at University of Chicago Booth School) [IGM 2012]. “[http://www.igmchicago.org/surveys/rent-control Rent Control]” [poll of economic experts].&nbsp;<br/> February 7th, 2012.&nbsp;[http://www.igmchicago.org/surveys/rent-control. http://www.igmchicago.org/surveys/rent-control.&nbsp;]<br/> ''Poll statement:&nbsp; “Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them.”&nbsp;<br/> 40 respondents.&nbsp;<br/> 0 Strongly Agree<br/> 2% Agree<br/> 7% Uncertain<br/> 49% Disagree<br/> 32% Strongly Disagree<br/> 2% No Opinion''<br/> &nbsp;
 +
*Kurtek, Sanela. "[https://torontoism.com/toronto-news/2017/12/rent-controls-toronto Why Rent Controls are Such a Problem for Toronto]."&nbsp;''Torontoism,&nbsp;''December 18, 2017.<br/> [https://torontoism.com/toronto-news/2017/12/rent-controls-toronto https://torontoism.com/toronto-news/2017/12/rent-controls-toronto].<br/> &nbsp;
 
*Legislative Analysts Office (California).&nbsp;[http://www.lao.ca.gov/ballot/2017/170629.pdf Review of proposed statutory initiative pertaining to rent control (A.G. File No. 17-0041)].&nbsp;12 Dec 2017. [http://www.lao.ca.gov/ballot/2017/170629.pdf http://www.lao.ca.gov/ballot/2017/170629.pdf].<br/> &nbsp;  
 
*Legislative Analysts Office (California).&nbsp;[http://www.lao.ca.gov/ballot/2017/170629.pdf Review of proposed statutory initiative pertaining to rent control (A.G. File No. 17-0041)].&nbsp;12 Dec 2017. [http://www.lao.ca.gov/ballot/2017/170629.pdf http://www.lao.ca.gov/ballot/2017/170629.pdf].<br/> &nbsp;  
*Wikipedia. "[https://en.wikipedia.org/wiki/Rent_regulation Rent regulation.]"&nbsp;  
+
*McFarlane, Alastair. “Rent stabilization and the long-run supply of housing.” Regional Science and Urban Economics, Volume 33, Issue 3, May 2003, Pages 305-333.&nbsp;DOI: 10.1016/S0166-0462(02)00031-5<br/> [https://doi.org/10.1016/S0166-0462(02)00031-5 https://doi.org/10.1016/S0166-0462(02)00031-5].<br/> ''"Abstract:&nbsp;<br/> This paper examines the impact of moderate rent controls on the construction and replacement of urban housing. It studies a common form of rent regulation that limits rent growth to below-market increases but permits landlords to set the base rent at free market levels and allows them to re-set rents when the incumbent tenant vacates, after which rents are re-controlled (‘vacancy decontrol–recontrol’).&nbsp;'''One of the primary insights is that neither the timing nor the density of construction is affected by rent stabilization when base rents are perfectly flexible. Allowing landlords to set the initial contract rent lets them capture the benefits to the renter of rent stabilization. Perfect capitalization of rent stabilization into a higher base rent provides the landlord with a free market rate of return and thus does not distort development activity.'''&nbsp;However, redevelopment of land will be hastened because rent stabilization complemented by vacancy decontrol–recontrol increases the difference between rents before and after redevelopment, increasing the opportunity costs of postponing redevelopment. Extensions include an analysis of other common rent regulations and the impact of rent stabilization on the urban rent gradient."''<br/> &nbsp;
 +
*Niemietz, Kristian. "How Germany Made Rent Control "Work": Rent Control "Works" when It ... Doesn't Control Rents." FEE.org,&nbsp;June 03, 2016.&nbsp;[https://fee.org/articles/how-germany-made-rent-control-work/. https://fee.org/articles/how-germany-made-rent-control-work/.&nbsp;]<br/> &nbsp;
 +
*Tenants Together. "[https://medium.com/@tenantstogether/making-the-case-for-rent-control-c598740f5ce8 Making the Case for Rent Control]."&nbsp; Medium, Jan 22 2018.<br/> [https://medium.com/@tenantstogether/making-the-case-for-rent-control-c598740f5ce8 https://medium.com/@tenantstogether/making-the-case-for-rent-control-c598740f5ce8].<br/> &nbsp;
 +
*Wikipedia. "[https://en.wikipedia.org/wiki/Rent_regulation Rent regulation.]"&nbsp;<br/> &nbsp;
 +
*Willis, John W. “[http://scholarship.law.cornell.edu/clr/vol36/iss1/3 Short History of Rent Control Laws,]” 36 Cornell L. Rev. 54 (1950). [http://scholarship.law.cornell.edu/clr/vol36/iss1/3 http://scholarship.law.cornell.edu/clr/vol36/iss1/3].
  
 
&nbsp;
 
&nbsp;
  
 
[[Category:Housing]] [[Category:Affordable housing]] [[Category:Policy]]
 
[[Category:Housing]] [[Category:Affordable housing]] [[Category:Policy]]

Revision as of 13:12, 31 January 2018

"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