Rent Regulation and Housing Affordability: Context, Evidence, and Program Design
by Ingrid Gould Ellen and Mark A. Willis
Rent Regulation Sparks New Interest
In many US cities and towns, housing costs are increasing faster than incomes. Americans who rent their homes have been hit especially hard: nearly half of renters shoulder unaffordable housing costs. A forthcoming report by the New York University Furman Center for Real Estate and Urban Policy shows that between 1970 and 2016, the share of rent-burdened households went up in the 100 largest metropolitan areas nationwide.
As housing costs escalate, calls for stringent rent regulation have intensified. Last month, California voters rejected a ballot initiative that would have allowed cities to expand rent control after a contentious public debate and campaign, and rent regulation proponents have vowed to try again. In New York, Democrats gained control of the state legislature, in part through pledges to strengthen New York’s rent stabilization laws. Pew Stateline reports that lawmakers in Hawaii, Illinois, Minnesota, New Jersey, and Washington have all considered rent regulation bills in the previous two years.
Clearly, rent regulation is having a legislative moment. At its core, rent regulation protects tenants from sharp increases in housing costs by limiting the amount rents can be raised from year to year. But its design and implementation raises many choices for policymakers, each with the potential to affect the housing market. Should a community decide rent regulation is a good fit, evidence-based guidance on LocalHousingSolutions.org—a joint project of the NYU Furman Center and Abt Associates—can help officials pair it with other policies to mitigate potential unintended consequences. Most importantly, the tools and supports available through the site can help communities create or refine a comprehensive and balanced housing plan that combines smart rent regulation with tools to increase housing supply across the income spectrum.
A basic policy rationale behind rent regulation is to protect tenants from displacement in tight rental markets, and evidence suggests it can accomplish this goal. As of 2008, for example, rent-stabilized tenants in New York City had lived in their units an average of 12 years, compared with 6 years for households in market-rate units. This difference was pronounced in the priciest parts of Manhattan, where 35 percent of households in rent-stabilized apartments had lived in their units for 20 years or more, compared with just 2.7 percent of households in market-rate apartments. Further, a study of newly regulated buildings in San Francisco found that tenants in place when the law was passed were 10 to 20 percent more likely to remain at the same address.
Rent regulation is also appealing for policymakers seeking to preserve neighborhoods’ economic and racial diversity in the face of gentrification and rising housing costs. In an era of perpetual resource scarcity for subsidized housing, it is not surprising that a policy solution that does not require direct government subsidies is on the political agenda. Yet despite these potential benefits, rent regulation presents several trade-offs that merit careful consideration.
Trade-Offs, Drawbacks, and Risk Mitigation
The incentives and economic consequences of rent regulation are important as debate continues in New York, California, and beyond. Even the most aggressive rent regulations exclude new construction to minimize any disincentive for the production of new housing, which is essential to moderating upward pressure on rents. Other subsections of the housing stock, such as single-family homes and smaller multifamily buildings, may also be exempted to minimize the regulatory burden on small landlords.
Recent research suggests that despite these exemptions, the long-term effects of rent regulation may reduce the overall rental housing supply, leading to higher costs for renters. The same study of newly regulated buildings in San Francisco suggests that the city’s rent stabilization law provided incentives for condo conversions, major renovations, and owner occupancy, all of which resulted in deregulation. The study concluded that regulated buildings saw a 15 percent decline in the number of renter residents and a 25 percent decline in those living in the rent-controlled units, which contributed to rent increases across the metropolitan area.
By limiting rental income, rent regulations also risk discouraging owners from maintaining and investing in buildings, leading to gradual deterioration of the rent-regulated housing stock. One response to this issue is to allow for large rent increases at vacancy, but this approach limits the protective effect of rent regulation to the current occupant and makes long-term affordability less likely, particularly in hot housing markets. Allowing rent increases to cover the costs of replacing and upgrading major building systems can combat disinvestment, but administration and enforcement have proven difficult, and the increases do reduce affordability over time.
Vacancy-based rent increases can also create an “incentive to harass,” whereby landlords stand to profit by quickly churning through tenants to raise regulated rents to market levels. This unwelcome by-product of rent regulation can be problematic when vacancy-based rent increases are combined with rules that allow for deregulation above certain rent levels. These perverse incentives also grow in proportion to the gap between regulated and market rents, so it is often the neighborhoods where rent regulation’s protective effects are most needed that experience the most severe and shocking instances of landlord abuse. This kind of tenant harassment is difficult to detect and quantify, but a study that examined rent control in San Francisco found that rent regulation increases the rate of no-fault evictions as rents rise and landlords have an incentive to turn over units to reset their rents to market levels.
As policymakers consider adopting or reforming rent regulations, they need to balance these concerns against the desire to shield tenants from large rent increases. They should also check LocalHousingSolutions.org for policies that can counter potential side effects. For example, rent regulation is commonly accompanied by just-cause eviction requirements, right-to-lease renewals, or other tools to hold landlords accountable, such as the “Certificate of No Harassment” or “Speculation Watchlist” recently announced in New York City.
A Resource for Policymaking and Practice
Despite the recent attention to rent regulation and the strong feelings it inspires, it is important for those on both sides of the debate to view it in the proper context: rent regulation is only one of dozens of tools policymakers have at their disposal to address housing costs. No tool on its own can address the crisis at scale. As policymakers and advocates consider whether rent regulation makes sense in their communities, they can turn to LocalHousingSolutions.org, which pulls together guidance on more than 80 policies to help communities promote housing affordability. Local governments must develop comprehensive and balanced housing plans that leverage multiple policy approaches and resources, and involve a broad range stakeholders, to tackle high housing costs. The good news is that a sound plan can lay the foundation for housing affordability, stability, quality, and choice.
LocalHousingSolutions.org was created by Ingrid Gould Ellen and Mark A. Willis of the NYU Furman Center and Jeffrey Lubell of Abt Associates. It provides resources to help cities, towns, and counties develop comprehensive and balanced local housing strategies that enhance affordability, protect low-income residents from displacement, and foster inclusive neighborhoods.
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