Rent control is a topic that is continually reported on throughout the mainstream media but many people don’t know what this actually means and who is actually harmed in the process. Charles discusses how rent control has adverse consequences when it is enacted in a municipality.

Talking Points:
➞ Rent control is a topic that is getting a lot of media attention and it is promoted in certain circles as a solution for affordable housing which is the exact opposite consequence of rent control.
➞ Most states have a statewide ban on rent control but some states do allow it.
➞ As I explain rent control and its consequences; I want to make it clear that we need to have more affordable housing in the US and I am very much in support of that; but rent control is not the correct path to affordable housing.
➞ Rent control limits the amount the landlord can raise rents on the tenant annually. (3%, or 5% etc.) which sounds great when you hear it but it does not work.
➞ Issues with rent control:
o If landlords cannot raise rents; they will not improve the property
o Investors will not invest in an area if their returns or capped; they will invest in another area thus reducing new rental units and new inventory on the market – if I can only earn for sample 6% developing apartments in a rent control area but 12% in a non-rent control area; I am going to choose the non-rent control area; which hurts the rent control area because there is less new housing inventory. Money flows where it is least restrictive.
o Investors will convert apartments to condos in order to avoid rent control laws; which reduces inventory and raises rents
o A cap on rent increases while the landlord’s other expenses increase every year (insurance, taxes, utilities, management) disincentives the landlord to spend money on their property.
o In a normal market, landlords want to keep their tenant and they do that by servicing them. In a rent control market, landlords want turnover. Incentivizes landlords to be slumlords.
o Converting apartments to Airbnb’s has never been easier; reduces housing inventory. I am going to change the use of that property if it becomes rent controlled.
➞ In San Francisco, pre-1995 all small multifamily properties were exempt from rent control but since 1995 only buildings built after 1980 were exempt. This made it an incentive for investors to convert apartments into condos or demolish the building and rebuild. Both instances; tenants lose.
➞ In Melbourne, Australia, not a single housing unit was built following World War II for nine years because rent control laws made it unprofitable.
➞ In the 1970s, Washington, DC, saw its rental housing stock decline from 199,000 to less than 176,000 because fewer people were willing to rent their homes because of price controls.
➞ In Santa Monica, California, in 1979, the number of building permits plummeted by 90 percent from just a few years earlier because—again—rent control laws made it unprofitable to construct new housing.
➞ More housing supply will help communities plagued with high rents; not less inventory.
➞ Don’t take my word on it; research it online and I highly suggest the book “Economics in One Lesson”