What is rent control? It’s a law that means a home’s rentcan be increased by only an incremental amount restricted by the government. As such, rent-controlled homes-typically apartments-remainaffordable, shielded from landlords who, on the open market,can hike the rent to whatever people are willing to pay.
In rent-controlledhomes,the government regulates the rent with the goal of providing affordable housing to families in the area,says law professorDavid Reiss, academic program director for theCenter for Urban Business Entrepreneurship.
Rent-controlled apartments are most common in New York City (which enacted laws to this effectin 1943), but they’re also widespread inSan Francisco and a handful of other densely populated urban areas.But rent control does come with somedownsides and challenges-particularly if you’re trying to find one of these highly coveted units yourself.
What’s the difference between ‘rent-controlled’ and ‘rent-stabilized’?
The terms rent-controlled and rent-stabilized are often used interchangeably to describe any type of government-regulated rental unit, but there are substantialdifferences between these two terms that you should know.
Rent-controlledapartments are the true unicorns.
Rents for rent-controlled apartments areseverelylimited, says Reiss. In these apartments, rent increases hover well under 1% per year. As such, understandably,very few apartments are rent-controlled-in New York, less than 2%, says Reiss.
To qualify for rent-controlledstatus, the building hasto have been built before 1947 and have been occupied by the same family since 1971. Yes, these apartmentscan be passed down to children or other family members, but that’s it-no friends orsubletters allowed. So, unless you havea great-granduncle perched in the same ancient apartmentsince the ’60s, you can probably forget about ever finding such anapartment.
Once the current tenant leaves, probably carried out in a coffin, the apartment will lose its rent-controlled status, Reiss says.
Rent-stabilizedapartments, on the other hand, have rents thatcan be raised a bit more than their rent-controlled cousins. For a sense of how stable these rents are,landlords are typically allowed to raise rent by only 1%or 2%per year. The actual amount is determined each year by a city board, and is often a point of fevered debate between tenants groups and landlords.
What are the drawbacks of rent control?
But rent regulations have their drawbacksfor landlords and tenants alike. For landlords, the tax abatements mightnot be enough to cover how much they’d make on an apartment in the open market, so it mightbe a losing game for them. For tenants hoping to land such an apartment, rent regulationscan be bad since a building’s current tenants oftenhang on for dear life, so apartments rarely open up and are scarce.
Also, since the price of rent-regulated units is artificially depressed, landlords who also have unregulated apartments mightinflate those rents to compensate.As a result, cities where rent control exists usually possess two housing markets: the rent-controlled market in which prices are held down, and a complementarymarket whereprices skyrocket.
In cities such asAtlantaorChicago where there is no rent control, there is still a moderately priced housing market, whereas in cities such asNew YorkorSan Franciscoit’s a much more polarized worldwhere people either lucked out with low rent or find themselves at the mercy of the sky-high open rental markets.
Furthermore, rent control leads to so-called gray markets. Tenants who have favorable lease terms tend to hold on to rentals for a long time and mightillegally sublease them as opposed to putting them back on the market.
And rent control can createa strongly adversarial relationship between landlords and tenants. If a landlord has a building that is filled with tenants paying far below market rents, the landlord has a strong economic motive to evict the tenants or to convert the building to another use, such as condominiums.
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