The idea of rent control may be making more headlines lately, but it’s far from a new idea. The history of rent control in America dates to World War I, where, between 1919 and 1924, several cities and states adopted the policies. Rent control was also widespread during the Great Depression and World War II-era housing shortages, though not all states adopted it. During recessionary times in the 1970s, rent control resurfaced, and President Nixon even briefly implemented national wage and price controls to battle hyperinflation.
New York has the longest history of rent control, with some policies dating to 1943. New York City passed the Rent Stabilization Law of 1969, which created a complicated system that covered most rental units. Since then, there have been several changes to that law that have either strengthened or undermined it. New York state lawmakers expanded rent control to cover other municipalities in 2019. California also has a long history of rent control, with many policies enacted during the high inflation of the 1970s.
As much as rent control seems increasingly common today, relatively few U.S. cities and states allow it. As of 2022, six states and Washington, D.C., have localities where some form of residential rent control is in effect. Thirty-one states either pre-empt or prohibit rent control, and seven states allow cities to enact the policies but have no cities that have done so. Cities with rent control often have laws that cover much of the rental unit stock. For example, in NYC, as of 2017, about 45 percent of rental units were “rent-stabilized,” and one percent was rent controlled. About 36 percent of rental units in D.C. as of 2019 were rent controlled.
The policies vary in each state and city, but rent control basically means a price control on residential housing that functions as a price ceiling. Rent control is an umbrella term that describes various methods like “rent freezes,” where no increases are allowed, and “vacancy decontrol,” where increases are limited during tenancy but allowed to rise to market rate when the person moves out.
These laws may be relatively rare in American cities now, but they’ve surged in popularity recently. In 2019, Oregon became the nation’s first state to adopt a statewide rent control policy, which limits annual increases to inflation plus seven percent. The law includes vacancy decontrol, exempts new construction for 15 years, and keeps the state ban on local policies. Voters in St. Paul, Minnesota, passed a rent control measure in 2021 that capped annual increases at 3 percent, included vacancy control, and didn’t exempt new construction or allow inflation to be added to the rate increase. In Florida, where state law preempts rent control, a legal fight is brewing between cities like Orlando and state lawmakers over the policies. Meanwhile, in Boston, Mayor Michelle Wu recently submitted a finalized rent control proposal to the city council. Overall, the National Apartment Association is also tracking more than 20 bills at the state level that propose rent control laws.
A rare consensus
It’s hard to blame lawmakers for looking for options to help keep rental costs down. An affordable housing crisis is gripping America, similar to periods when rent control became more in the past like the 1970s and during the Great Depression. A recent widely cited Moody’s Analytics report concluded that the average American household was rent burdened, with 30 percent of the average median income going toward rent. The national average rental price grew 36 percent between 2010 and 2020 during the nation’s prolonged economic recovery. This vast increase outpaced the growth of median household income, which also rose by a healthy 27 percent during that time.
What has really spurred anger among housing advocates is the meteoric rise of rent prices since the pandemic hit in 2020. The national median rent was $1,827 in April 2022, a 16.7 percent jump from 2021. The pandemic helped cause prices to increase throughout the economy, but income didn’t rise as quickly. Since 1980, average rent prices have increased 8.85 percent per year when adjusted for inflation, but they’ve consistently outpaced wage inflation. Rental prices are finally cooling down thus far in 2023, but the calls for rent control are more urgent than ever throughout the country.
Rent control seems like a common-sense solution to put a clamp on these runaway increases. The only problem is that economists of all stripes have nearly unanimously agreed for decades that rent control does more harm than good, reducing the quantity and quality of housing. Economist Blair Jenkins said in a review of several studies in 2009 that “the economics profession has reached a rare consensus: Rent control creates many more problems than it solves.” Economists from widely divergent political leanings, like liberal Paul Krugman and libertarian Thomas Sowell, have both criticized rent control policies as lousy economics. As far back as 1946, the economists Milton Friedman and George J. Stigler wrote that “rent ceilings … cause haphazard and arbitrary allocation of space.”
So, why is rent control deemed so ineffective by academics? For several reasons. While the policies may help residents in the short run, they adversely affect residents and neighborhoods over the long haul and for a broader population. Rent control has been shown to discourage investment in buildings and new housing supply because it takes away financial incentives for developers. Rent-stabilized buildings tend to deteriorate faster, as landlords are not motivated to invest as much in routine maintenance. Landlords may also circumvent rent control policies by converting properties into different types of assets, such as condos, which further takes away affordable housing stock.
Rent control can also create counterintuitive situations where wealthier households who don’t need the benefit take advantage. Why move out of a relatively nice unit if the rent is stabilized? Examples of this have happened in New York City over the years. Former NYC Mayor Ed Koch lived in a bargain $475-a-month rent-stabilized unit in Greenwich Village from 1977 to 1989. While Koch was living there, the market rate for the apartment would’ve been $1,200. He obviously could afford more, and he also stayed at Gracie Mansion, the official NYC mayoral residence. Koch hung on to the rent-stabilized apartment anyway, which could’ve gone to a family that needed it more.
Merely a band-aid
Cities that had rent control before and abandoned it have also become case studies of the adverse effects of the policy. One example is Cambridge, Massachusetts, which had a strict rent control policy from 1970 through 1994 that covered all units built before 1969. By the time the law was eliminated in 1994, rent-controlled units typically rented at more than 40 percent below the price of nearby non-controlled buildings. After the law was quashed, the value of the newly decontrolled rental properties jumped by 45 percent, and it boosted the value of neighboring properties, too. The economic magnitude of removing the law was enormous, increasing property values in the city by $2 billion between 1994 and 2004. Researchers concluded from this and other evidence that the law created “substantial negative externalities” on the housing market and made neighborhoods less desirable.
With so much research stacked against rent control, it’s hard to see why so many lawmakers are pushing for it. This could be because it’s a simple solution to a complex problem, something that can be summed up in a tagline at a protest. “Rent control is a knee-jerk reaction to an affordable housing problem that has snowballed over time,” Nicole Upano, AVP of Housing Policy and Regulatory Affairs at the National Apartment Association (NAA), told me. “We’re constantly underbuilding affordable housing.”
Upano spends a lot of time talking to lawmakers about rent control, and she said what really needs to happen is addressing the shortage of affordable housing. The NAA staunchly opposes rent control, and it proposes solutions like passing legislation like the Choice in Affordable Housing Act, which reforms the federal Housing Choice Vouchers program. These reforms would incentivize more landlords to accept housing vouchers in higher-opportunity areas. The NAA also supports the YIMBY (Yes in My Backyard) Act, which would rezone many neighborhoods for higher-density housing and require communities to explain why they don’t implement inclusionary zoning.
Solving the challenge of the affordable housing shortage is much easier said than done. Legislation like the YIMBY Act can help, and so will the overall movement that’s gaining steam against the not-in-my-backyard sentiment that so often stifles development, particularly affordable development. In the meantime, it’s hard to blame politicians and voters for pushing for rent control policies.
The economic evidence is clear the laws have side effects, but it may be the only short-term solution available during a significant housing stress period for the average American. If more people can avoid homelessness and financial ruin because of rent control and similar policies like eviction moratoriums, some of these policies may need to stay as emergency measures. The hope is that rent control is just a temporary band-aid to a problem that requires creative policymaking focused on the long term. If America ever solves the affordable housing crisis, rent control should be a footnote in the historical record, not the whole story.
