My family moved to the United States from the Caribbean in 1985. About eight years later, my parents had saved enough to buy a two-family home in the quiet suburbs of Boston far from our crime-plagued neighborhood. As landlords, my parents charged modest rents—enough to “help with the mortgage”—and ensured that the first-floor apartment was always well-maintained for our tenants.
Three decades later, she became a homeowner. I charge market rental rates to cover the mortgage, HOA fees, local property taxes, landscaping, maintenance fees, and other operating expenses. About 44% of landlords are women. They seek financial security and building generational wealth.
The argument that an owner’s “greed” warrants government intervention in private property contracts is specious. A months’ worth of modest profits can easily be wiped out by a broken water heater, tree removal, or roof replacement – situations I’ve dealt with.
Alarmingly, the failed reactionary housing policy of rent control is experiencing a revival led by liberal activists, legislators, and regulators. Recently, 17 Democratic U.S. Senators asked the Federal Housing Finance Agency (FHFA) to limit rent hikes on multifamily properties subsidized by Fannie Mae and Freddie Mac.
From Los Angeles County, California, to Montgomery County, Maryland, cities and states are enforcing or strengthening rent control policies.
There’s no denying that rental costs are rising quickly. National rental costs rose 8% in August year over year. This is up from 6.7% in 2022 and just 2.1% in 2021. However, the prices for services paid by landlords have also accelerated, forcing them to pass on these cost increases to tenants.
Rent control is not the answer to the lack of affordable housing; It creates more problems than it solves. The best way to reduce housing costs is to increase the supply of housing; Unfortunately, rent control works against this.
Price controls restrict the supply of rental units, leaving renters with fewer options and higher prices. Rent control is driving landlords, who own about 40% of the country’s more than 46 million rental properties, out of business. Most rentals are small (1-4 units) and managed directly by landlords. Finding tenants, performing routine maintenance, securing contractors, complying with local regulations, and many other responsibilities keep landlords busy.
The profit must outweigh the opportunity cost of the owners’ time, operational costs, and investments; Otherwise they will sell their property. This happened in the Boston area in 1970 when rent-controlled units were expanded nearby in Cambridge, Massachusetts. One-tenth of the rent-controlled units ended up being converted into for-sale housing units. At the same time, uncontrolled rental prices rose.
Rent control also discourages the construction of new rental housing. Although price control policies may exempt new construction, real estate investors reasonably fear that future policy changes will reduce their financial incentives. It is no coincidence that after rent control was lifted in Cambridge, investment in residential property soared. Building permits for improvements and new construction rose by 20%, and permitted expenditures doubled.
Not all left-leaning policymakers want to revive rent control. The Seattle City Council recently rejected a proposal from an outgoing socialist council member to cap annual residential rent increases at the rate of inflation. “The last thing we should do during a housing affordability crisis is discourage new housing production at any level of affordability,” one council member explained.
I feel for low-income renters who are being squeezed by rising prices for basics and living expenses for two years. Limiting rental rates may seem like a financial relief. However, rent control experiments led to undesirable outcomes: property deterioration, racial segregation, discrimination against younger renters and larger families, and increased income inequality. The policy can hardly be successful if renters in the top income quartile receive more than twice the market-rate rent discount than renters in the bottom income quartile.
Our nation suffers from a housing supply deficit. Restrictive zoning and building policies have hampered the construction of much-needed new housing. A successful 2019 economic study found that if New York, San Jose, and San Francisco had the standards of Atlanta or Chicago, the United States would have millions of additional housing units today.
Landlords and tenants have one thing in common: both are under pressure from rising prices. The financial relief promised by rent control for a few will come at the expense of quality housing and homeownership for many – an outcome that no one should accept.