Rent control can be defined as the price control on an item usually imposed by the government in any country. Rent control involves the placement of a ceiling on domestic rental housings. Along with wage control, which is a perennial favorite, rent control is said to be an example of a constantly recurring potential for political opportunism, as well as, economic ignorance to triumph over sound principle. Perhaps, rent control is not only the single most agreed upon but also the least controversial issue prevailing in the field of economics. From the findings of a research conducted by Turner, economists of all persuasions are usually not united in their view of rent control (257). While some insist that it is ideal to impose rent controls, others perceive rent controls as against the expectations of the society and thus governments should abolish the laws or ordinances, which are used to set price controls on the residential housing rents. Therefore, this paper will assess both views and thereby deriving a personal opinion regarding each issue.
Related Protection
Imposing rent controls is also noteworthy as it leads to related protection. Typically, cities in which rent control is in force, legislate protection for tenants. This can be derived from San Francisco and Santa Monica cities in California where rent controls have been perceived as a progressive approach towards protecting the tenants (Turner 262). The laws of rent control in both cities are similar with other considerations for tenants, with eviction policies being the most notable. While laws in some states like California allows rental house owners to end a month-to-month tenancy in the absence of nothing more than a sixty day notice, states with rental control laws do not. Indeed, the cities with rent controls only allow rental house owners to evict a tenant for a just and reasonable cause. The Just Cause should include acts such as non-payment of the rent by the tenant, lease agreement violation, as well as unlawful utilization of the rental unit by the tenant. It is also valid to indicate that initially, rent controls is imposed on an economists’ argument that housing supply is not elastic; that is, a shortage in housing cannot be made up in an immediate manner, no matter the extent that rents are allowed to rise. This implies that, the government through ensuring that there is no unnecessary increase of housing rents, would ensure tenants are protected from not only exploitation, but also extortations in the absence of real harm to the landlords, as well as, in the absence of discouraging new construction.
Restrictions of roommates
The ordinance of rent control with vacancy decontrol is described as having a provision, which seemingly limits the restrictions of rent to current tenants. Otherwise, in the situation of roommates, three of four roommates have the freedom to leave and be replaced by others. Once replaced, the rent control laws indicate that the original tenant can now leave and another tenant to occupy the house. In such a circumstance, the rent control laws prevent the landlord from making use of the decontrol provision contained therein. According to Rapaport, the rent control ordinance may apply, provided that one of the original tenants is left in the unit (446). Further, it may apply provided that no one has been replaced. In this case, for a person to maintain the rent low, one has to maintain roommates (Rapaport 452).
Lower rent rates
Rental controls also guarantee lower and reasonable rents. In cities where rent control is in effect, the rate at which the rental house owners increase house rent is limited. For instance, in San Francisco, landlords are allowed only to raise housing rent once in a year, on the anniversary date of the tenants’ initial move-in. Thus, while a rental house owner can charge the amount of rent the person wishes, the aforementioned limits should be duly observed and complied.
Increased mobility
Rent control ensures lower rents, in addition to, more controlled rent increases by the landlords; thus increased mobility. This is especially beneficial in center cities. As such, through rent controls, artists and lower income earners are allowed to live in those areas where public infrastructure and transport is well developed and serve the residents efficiently. Consequently, household expenses are reduced in a significant manner. Imposition of rental controls by the government can also make it possible for different forms of workers, such as firefighters and teachers, to reside within a reasonable distance of their work station when the housing charges would otherwise be out of their reach
Personal view regarding positives of rent controls
While some economists and psychologists view rental controls as essential, there has been a considerable number of criticisms, which serve to question the integrity of imposing rent controls.
A Housing Shortage
Pollakowski contended that, the principal-immediate effect of rent control implementation is that it leads to the precipitation of a housing shortage (35). Simply, this arises due to the law of demand and supply. In an economic field, if the price charged on a product or service is set artificially low implies that the demand for the product or service will rise significantly and will be more than what would otherwise be the case. Conversely, less of the product or service will be available for supply. According to Baar, rent control will act as brakes as it will hold the market tendencies of moving towards equilibrium (99). Consequently, this would leave a portion of demand inadequately satisfied. Besides, being the immediate effect arising out of the rent controls, the consequent of housing shortage is ongoing and growing. Therefore, from the reduction of housing supply, it is worthwhile to infer that as time goes by, only a few dwellings will become available in order to replace the existing stock as it wears out and replacement need arises, or to cope with any spontaneously increase occurring because of a population increase (Baar 99). As a result, an ever-increasing housing shortage will be evident; thus leading to further and deepened crisis in the society.
Reduction of the existing housing stock
In his findings, Baar established that rent control causes a reduction, which occurs in the present stock of residential houses available for tenants (103). Of course, there are people who invest in the rental housing business due to its viability. It is common with those people to own more than one rental houses, as well as, more than one personal-residential facility. With regard to the personal-residential facilities, the owners would have been previously ready to let out homes as a townhouse or even as a holiday home when they feel that some personal-residential houses will not be used for some time. However, because of implementation of rent controls, these people will no longer find it worthwhile letting these personal-residential houses. Instead, most of them would prefer leaving the house empty until the next time the person will use it again. Further, these people would find it illogical and would find too much trouble for letting out their residential houses at exceptionally little rewards. Therefore, they prefer the houses remaining unoccupied. Moreover, some rental house owners who had previously let out their houses for rent can decide to withdraw from the housing industry owing to the imposed rent controls. Worse still, such a landlord would see no sense in maintaining the houses; therefore, opting to sell them to owner-occupiers. From the findings of the research conducted by Olsen, it is worthwhile to contend that when considering the effects surfaced by the introduction of rent controls, it is essential to keep it in mind that in the field of economics, what occurs at the margin is what is considered significant (673). Therefore, while the effects surfaced by rent controls on the bulk of rental house owners may be deemed minimal, effect on those landlords considered marginal will be significant. Further, the effects on marginal landlords can be assumed to mean the difference regarding whether they will continue in the rental housing industry or they will opt out.
Deterioration of the current stock
Lind urges that rent controls place a restraint on the profitability of rental properties (45). Based on this assertion, it is undeniable to indicate that landlords will start establishing ways in which they can reduce their expenses in an effort towards maintaining their returns. One of the ways that they may maintain their returns is by seeking to reduce the costs they incur from maintenance of their rental houses. Hence, to be precise, maintenance activities reduce significantly. With the existence of a shortage in residential shortages owing to the implemented rent controls, landlords will deviate or will no longer care about their duties of providing superior properties and rental services in an effort towards attracting tenants. With inadequate maintenance, the rental housing industry will be characterized by shabby and poorly maintained properties. Furthermore, people will have to rent them as they will not find better housings. With this, they will have achieved their goal of maintaining a sound income despite the existence of rent controls.
A rogue rental housing industry
Arnott established in his research that the implementation of rental controls affects the nature of the rental housing industry in not only a negative but also a predictable way (par. 4). Indeed, this is somehow akin to the renowned Graham law. As such, the landlords seemingly legitimate and law abiding will be driven out of the industry, and replaced by landlords perceived not keen on the law. Lind asserts that there are numerous ways for rent controls, which includes the necessary accompanying controls regarding eviction, to be deviated (42). An honest landlord will be confronted by the continuous temptation of succumbing. This is particularly when the would-be tenants, who can be described as desperate, face extreme difficulties in finding accommodation, and pleading with the honest landlord to listen to their grievances. Typically, it is indicated in a plethora of researches that a would-be tenant is as likely to forego the so called ‘key-money’ as a rental house owner is to demand it. However, Marks contends that the act of acceptance of ‘Key money’ is criminal in nature, and would render the landlord a criminal (360). For those landlords who would be unwilling to accept the ‘key money’, there is a likelihood that they will sell out, often to those people who are not only willing but able to a profit while operating outside the requirements of the law, as well. The effect of this is that it leads to the creation of a class of ‘slumlords’. Moreover, ultimate rent controls surfaces perverse effects. Tenants continue enjoying rents being protected and foregoing a fraction of otherwise the rental market enjoy as a bonanza (Arnott par. 5). However, rent controls are often established for reasonably well off people who would otherwise have been able to pay a market rental. Arnott thinks that; while many, and perhaps the majorities, of rental controlled tenancies’ beneficiaries are the disadvantaged and the poor, the real victims of implementation of rent controls are the poor and the disadvantaged. Arnott continues to think that these people are considered too poor or otherwise do not have the ability to work the system in an effort towards overcoming the chronic shortage of rental houses, which then results to living rent controls.
Own personal view regarding negatives of rent controls
Based on the shortcomings presented by rent controls, it is worthwhile to assert that rental controls serve to diminish a sustainable livelihood of both tenants and landlords. For tenants, rental controls lead to shortages of rental housings since some rental house owners opt to withdraw from the industry owing to decreased returns from their investments (Marks 365). Further, in their quest to maintain the rate of returns from their investments, landlords become reluctant to maintain the rental houses and tenants ends up living in unsustainable housings. Indeed, when the landlords opt for this, tenants have no otherwise than to live in those diminishing conditions. Furthermore, even if a tenant decides to seek accommodation from other rental houses, there is a monumental likelihood that the tenant will experience the same unmaintained conditions. In addition, it is valid to contend that rent controls render a significant number of people homeless. Implementing rent controls lead to shortage of houses. With the increasing population, the housing options become limited and thus many people residing in the streets (Olsen 680).
Works Cited
Arnott, Richard. “Time for revisionism on rent control?”Journal of Economic Perspectives 9. 4 (2005): 99-120. Print.
Baar, Williams. Apartment operating cost increases and the annual general rent adjustment under Santa Monica’s Rent Law20 Mar. 2001. Web. 17 Oct. 2012. <http://www.santa-monica.org/rentcontrol/pdf_files/kb_rpt_01-02/ga_adj_study.pdf>
Lind, Halley. Rent regulation: A conceptual and comparative analysis. Belmont, CA: Cengage Learning. Print.
Marks, Davis. “The effects of partial-coverage rent control on the price of rental housing.”Land Economics 6.3 (2002): 360-369. Print.
Olsen, Edwards. “Economics of rent control.”Regional Science and Urban Economics 2.8 (2001): 673-678. Print.
Pollakowski, Hewwet. The effects of rent deregulation in New York City. Oxford, UK: Oxford University Press, 2009. Print.
Rapaport, Charlie. “Rent regulation and housing market dynamics.” American Economic Review 8.2 (2005): 446-451. Print.
Turner, Benson. “Economic and political aspects of negotiated rents in the Swedish housing market.”Journal of Real Estate Finance and Economics 1. 4 (2008): 257-276. Print.
