Rent Control

My home city, Cambridge, Massachusetts, used to have rent control. It was generally supported in the city, but it was voted out in a statewide referendum in 1994.

The statewide referendum was a bit of a crock; only three cities in the state had any form of rent control (Cambridge, Boston, and Brookline). Rent control, like historical preservation, is something which local communities should be able to decide for themselves. I don’t think it was appropriate for it to be removed by referendum.

In my opinion, the general effect of removing rent control in Cambridge was negative. Over a period of several years rents increased steadily. Many long-time residents were forced to leave the city. The city became less diverse. Harvard Square turned into an outdoor shopping mall. From my perspective as a long-time city resident, these were not changes that I wanted to happen.

The arguments against rent control are that it is unfair to landlors, and it discourages them from investing in the building. As far as I can see these arguments do not apply to rent control in a steady state. They only applies to discussions about creating rent control for the first time or about removing it. Unexpectedly removing rent control amounts to a windfall for landlords. This doesn’t mean it can’t be done, but it does mean that arguments about fairness and investment don’t apply.

Rent control can introduce some perverse incentives. If rent control is written such that the rent can only increase when people move, people have a strong incentive to stay. A fair rent control law has to maintain similar rents for similar apartments across the area. Then people will be willing to move, at least within the area.

In some cases it may be appropriate to have an income component to rent control, so that lower income people can rent apartments. In order to make this fair to the landlord, the difference in rent needs to be supplied by the city out of property tax revenue. If the renter’s income increase, the rent should also increase up to a point. However, the rent should increase more slowly than the renter’s income after taxes, to avoid a perverse incentive to keep income low.

Used wisely, rent control can encourage a more diverse community, and that should be a choice open to the people living in that community.

I’m not going to argue that the Cambridge rent control system was used wisely. It was not too bad overall, but in my view the rent control advocates were arrogant and refused to consider even legitimate concerns of the landlords. Had they been willing to discuss issues more openly and fairly, the statewide referendum effort would probably not have been launched in the first place.

The city I live in now, Berkeley, California, still has rent control. However, I don’t know too much about the details. I do know that the eviction policy seems unfair to landlords. It is apparently very difficult to evict renters, taking many months or even years. Eviction control is required due to an unfortunate state law, which permits rents to be adjusted when a tenant leaves. This gives landlords an incentive to push tenants out frequently in order to raise rents. As noted above, it also gives tenants a perverse incentive to stay longer than they otherwise would. However, the effect of the current eviction control rules seems to be that tenants are permitted to stay for many months even if they fail to pay their rent. This seems unfair. However, as I said, I’m not familiar with the details as I was in Cambridge.

10 Comments »

  1. fche said,

    May 9, 2008 @ 7:45 am

    > […] Used wisely, rent control […]

    is like any other well-intentioned example of centrally planned economies. Rarely used wisely.

  2. atgreen said,

    May 9, 2008 @ 12:20 pm

    I used to own a condo in Berkeley but sold it when I moved out. I was hoping to keep it as a rental unit, but I just heard too many horror stories from Berkeley landlords. I think it only makes sense there if you own multiple properties and can spread your risk around.

  3. pinskia said,

    May 9, 2008 @ 3:44 pm

    Prop 98 might change the situation in California:
    http://en.wikipedia.org/wiki/California_Propositions_98_and_99_(2008)

    I know LA, SF and Oakland all have rent control. Berkeley and East Palo Alto has it too. To me rent control is needed for at least East Palo Alto. Otherwise you run out all the needed folks to do jobs that some folks don’t want to do.

    — Pinski

  4. Ian Lance Taylor said,

    May 9, 2008 @ 4:47 pm

    fche: the point of rent control from my perspective is not a centrally planned economy, though I agree that it has been used that way. The point is an increased ability for a community to determine who gets to live in it. There are good examples of that and bad examples, but it is not, I think, always bad.

    Pinski: thanks for the link.

  5. fche said,

    May 28, 2008 @ 6:06 am

    > […] The point is an increased ability for a community to determine who gets to live in it. […]

    Those members of the community who deem themselves appropriate to judge who should get to live with them could then directly and personally subsidize those who need it, rather than imposing statutory constraints on the landlords.

  6. Ian Lance Taylor said,

    May 28, 2008 @ 4:54 pm

    There are many restrictions on what you can do with a house, as I’m sure you know if you’ve ever tried to get a construction permit for a remodel. Why shouldn’t rent be among them?

  7. fche said,

    May 29, 2008 @ 7:01 am

    > There are many restrictions on what you can do with a house,
    > […] Why shouldn’t rent be among them?

    And why not also skin color, hair style, and types of music therein?
    Don’t you find rhetorical questions a weak form of argument?

  8. Ian Lance Taylor said,

    May 29, 2008 @ 7:49 am

    Well, I can give you answers for your rhetorical questions if you want them.

    My point is: many communities already regulate housing significantly. They regulate what extensions are permitted, they regulate how the house may appear from the street, they mandate the use of historically accurate materials. They do this on the basis that what your house looks like matters to your neighbors. I see regulating the rent as a valid extension of that.

  9. fche said,

    May 29, 2008 @ 2:06 pm

    If these constraints are about making neighbours happier, then I would think that *minimum rent* limits would make them happier than *maximum rent* limits.

  10. Ian Lance Taylor said,

    May 29, 2008 @ 10:33 pm

    That is no doubt true in some places. Cambridge preferred maximum rent limits, and this was supported by city vote several times before it was overridden by the state vote.

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