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Rent regulation

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Rent regulation

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Overview

Rent regulation policies protect tenants from dramatic increases in housing costs by regulating how much landlords can increase rents from year to year.

The amount of permitted increases is often based on a combination of landlords’ estimated operating costs, improvements made to the unit or to building conditions, the duration of the tenancy in a unit, and other factors varying by jurisdiction. 

Jurisdictions adopt rent regulations for many reasons, among them ensuring stability for tenants in rent-stabilized units and promoting the overall affordability of rental housing. But the goals of rent regulation can sometimes be in tension: maintaining the affordability of existing housing might discourage new housing construction. Meanwhile, protections for current tenants might make it harder for future tenants or those living in unregulated units to remain in and afford housing. Designing an effective rent regulation regime requires careful attention to the condition of local and regional rental housing markets and the details of how a particular law will operate.

Approach

This brief refers to all regulations governing rent increases in housing as “rent regulations,” a term that encompasses both “rent control” (which typically references a hard cap on allowable rents) and “rent stabilization” (which is generally a more flexible form of regulation). 

A rent regulation policy must contain mechanisms for determining the size of an increase a landlord can impose in a particular year. While these mechanisms vary considerably, they generally provide a cap on the maximum amount by which landlords may raise rents in a given year. A board or agency often determines these caps according to a given set of criteria and base many of them on changes in the Consumer Price Index (CPI) or other proxies for landlords’ cost increases. In addition to these fixed caps, regulatory schemes allow for additional increases based on landlords’ proof of economic hardship. They may also permit additional increases upon building or unit improvements, tenant vacancies, or other circumstances. Broad-based regulations that regulate all, or most, of the rental housing stock but set a relatively high cap on landlords’ abilities to raise rents—such as the statewide rent regulation regimes in Oregon and California—are often referred to as anti-gouging regulations.

While rent regulation laws aim to stabilize rent increases, many such laws also include other tenant protections, such as just cause eviction requirements and right to lease renewals.  These policies share an overarching goal of providing tenants predictable costs and housing stability.

Coverage

Most cities with rent regulation policies only cover multifamily buildings whose construction predates the regulations by some period. In an effort to avoid discouraging housing construction, most rent regulation regimes exempt new construction—i.e., residential buildings constructed after rent  regulations were passed—as well as smaller homes. Jurisdictions must also decide whether and how to allow units to exit the regulated market, which might take place upon vacancy, demolition, or conversion, or when rents reach a particular level.

Rent regulation policies often require state authorization, and 37 states have laws prohibiting or preempting local governments from enacting rent regulations. Additionally, smaller municipalities may find the efficacy of rent regulation limited if other regional housing markets are unregulated.  

Eligibility

Rent regulation policies typically do not include tenant eligibility criteria and are not means-tested, meaning tenants are not selected based on their income or assets. While means testing, in principle, could limit the availability of regulated housing to income-eligible tenants, in practice, means testing can be burdensome and potentially counterproductive if it discourages landlords from renting to lower-income tenants. 

Other considerations

Impact on investment, new construction, and housing costs

By discouraging developers from building new housing or landlords from renting out units while maintaining lower rents for a subset of renters, rent regulation policies have the potential to jeopardize the overall supply of affordable housing. A 2018 study by Rebecca Diamond, Timothy McQuade, and Franklin Qian sheds light on these tradeoffs. Exploiting a natural experiment in San Francisco, Diamond et al. found that tenants who benefited from the law were between 10 and 20 percent more likely to remain in their units than their counterparts in the non-rent controlled buildings. The study also found, however, that rent-controlled properties were 10 percent more likely to be converted into condos or dramatically renovated, making them exempt from rent control. Other landlords avoided the regulations by moving into the property themselves or buying off tenants. As a result, the researchers estimated that rent regulation reduced the overall supply of rental housing in the city by 6 percent and increased rents in San Francisco by 5.1 percent over the study period. A study by Brian Asquith also found that tightening rent regulations in San Francisco led to an increase in no-fault evictions, as policies incentivized landlords to turn over units to reset rents to market levels.

Jurisdictions must also be attentive to rent regulations’ potential effects on housing quality, as below-market rents may discourage investment. Many rent regulations allow owners to increase rents based on property improvements to reduce the disincentive to make such investments.

What happens at vacancy?

Some rent regulations allow landlords to implement larger-than-usual rent increases when current tenants move out. In some cases, these provisions allow landlords to raise rents to market rate (as, for example, California’s Costa-Hawkins Rental Housing Act requires). Choices about what happens at vacancy have the potential to affect policy outcomes significantly. In a city or neighborhood where rents are rising quickly, allowing the rent to rise to the market rate value only upon vacancy protects existing tenants but does little to maintain the unit’s affordability from tenant to tenant. Additionally, when rent regulation schemes allow landlords to increase the rents they charge for particular units substantially upon vacancy, landlords may be incentivized to take aggressive measures to try to get tenants to move out. To address this negative incentive, many municipalities have included “just cause” eviction provisions with their rent regulation laws, requiring a landlord to demonstrate a valid reason for evicting a tenant. Similarly, some municipalities regulate tenant buyouts—the process by which a landlord offers a tenant a sum of money to voluntarily move—to ensure that they are not offered in unfair or deceptive ways and that tenants are aware of their rights.

Succession rights

Succession rights control the ability of a rent-regulated tenant’s family members to take over the lease for the apartment when the primary tenant dies. Jurisdictions will have to determine when succession is permitted and what kinds of relationships trigger succession rights. Typically, succession rights only apply if the family member requesting such rights has been living in the unit with the primary tenant.

Enforcement

Jurisdictions considering new rent regulations must also decide how they will enforce those protections. Enforcement authority might be vested in state (as in New York) or local (as in California and New Jersey) entities, including administrative agencies and civil law enforcement offices. Tracking units’ legal rents is a particular challenge in jurisdictions without registries of rent-regulated buildings. In New York, owners must register rent-stabilized buildings and file annual rent registrations, which a state agency makes available to tenants upon request. 

Examples

California passed a statewide law in 2019 limiting annual rent increases to 5% after inflation for most tenants, taking an anti-gouging approach to rent regulation. The legislation creates “a statewide standard that will put more than 95 percent of multifamily units under a consistent and uniform rent standard.” This New York Times piece discusses the bill further.

New York State passed broad rent regulation reforms for New York City and its surrounding counties that maintained and strengthened existing rent stabilization laws. The new set of regulations places stricter limits on the additional rent increases landlords can implement based on improvements to buildings or individual units. The bill also got rid of a pathway to deregulation for high-rent units occupied by high-income tenants and a 20% “vacancy bonus” that allowed landlords to raise rents when tenants moved out.

Oregon became the first state to enact statewide rent regulation after enacting Senate Bill 608 in 2019. The bill, which uses an anti-gouging approach, limits annual increases to 7% + the change in the CPI in a 12-month period. Subsidized rent and new construction would be exempted for 15 years. Upon vacancy, landlords can raise rents without a cap, as long as tenants leave of their own accord. The bill also includes just cause eviction protections.

Washington, DC‘s regulation applies to multifamily buildings built before 1975. Landlords may increase the rent in covered units by a maximum of CPI plus 2%, or by CPI only for senior tenants and people with disabilities. Upon vacancy, rather than automatically allowing landlords to raise rents to market level when a tenant moves out of a unit, a landlord can only raise the rent by 10% or to the price of a comparable unit, but no more than 30%. Washington, D.C. also grants tenants the right of first refusal should a landlord choose to sell a rental building. Learn more about rent control in Washington, D.C.

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