In February, Oregon became the first state to enact statewide rent control. In September, California followed with its own statewide rent cap. Only the District of Columbia and three other states—Maryland, New Jersey and New York—currently have localities with some type of rent control. However, as housing affordability challenges continue unabated, advocates in many parts of the country see rent control as the solution to the rental housing crisis. Washington, Colorado and Nevada are all considering some type of statewide rent control.
The new state laws cap annual rent increases to 7 percent in Oregon and 5 percent in California (plus an adjustment for inflation in both states). In both states, rent control only applies to buildings that are more than 15 years old.
Economists, it is oft-repeated, agree on very few things, but rent control is the exception. Pretty much every economist agrees that setting rent ceilings is bad. In a recent research summary LSA did for the National Multifamily Housing Council, we found that the empirical research on rent control and rent stabilization is more nuanced, with near universal findings that rent control/stabilization poorly targets individuals and families most in need, and more mixed findings on the relationship between rent control/stabilization and overall rental supply and market rents.
An important distinction that does not always get touched on is that most “rent control” policies are not hard rent ceilings, but rather place a limit on the amounts rents can increase and apply those limits only on a subset of buildings (e.g. not new construction). Some California lawmakers have been stressing that their new law is a type of anti-gouging law rather than a rent control law.
The effect of the new law in California is yet to be seen but there is some evidence that a very small share of buildings will be impacted. Zillow has estimated (albeit using incomplete data) that only 7 percent of renters in California experienced a rent increase more than the new cap (i.e. more than 5% plus inflation) in 2018. A UC Berkeley study of 10 gentrifying California communities found that over a 5-year period, the average yearly rent increase exceeded 10 percent about once every three years.
One key risk of the new law is that owners of rental buildings will convert those buildings to condominiums to meet the growing demand for homeownership and to avoid having to deal with any regulations on rent increases.
Rent control or rent stabilization laws can also have other unintended consequences, like creating a mismatch between tenants and units types/sizes, leading to a lack of investment in rental properties, and making it easier to charge higher rents in the unregulated market.
Finally, rent stabilization or rent control is not a solution without being accompanied by a serious strategy for encouraging more housing production overall and subsidies for the lowest-income individuals and families who are hardest hit by the housing affordability challenge.