Does Rent Control Hurt Tenants?

Does Rent Control Hurt Tenants?

The trouble with renting in a great area is its desirability. Its appeal could be due to the weather, a hot job market, or the abundance of cultural attractions. Whatever the reason, it has the effect of raising prices. When property prices increase, owners have the option to cash in and move somewhere cheaper. However, renters lack this option, and they may be priced out of buildings that they have called “home” for years.

In an effort to combat rocketing rent prices, the government of Oregon recently passed a law imposing a statewide mandatory rent control policy. Many believe this law to be misguided.

Rent Control Disincentivizes Landlords

Across the United States, local governments have been struggling with a housing affordability crisis. While wages stagnate, rents increase as newcomers pile in looking for higher-paying jobs. A rent control policy is one way to tackle the problem, but it often brings consequences that end up hurting the very people that it was meant to protect.

To keep landlords honest, the Oregon law contains a ban on no-cause evictions after a tenant’s first year of occupancy. It means that once a tenant has occupied a unit for a year, he or she cannot be evicted without good reason. However, it also means that landlords could begin evicting people in the eleventh month and finding replacements at higher rents than they would receive under the law’s annual maximum increase of 7% plus the Consumer Price Index.

Rent control also disincentivizes landlords from improving properties. If a landlord is limited in how much he or she can charge, there is less incentive to fix up a place. Developers are in the same boat. If there is a hard limit on the amount of money they can charge per unit, then they are less likely to break ground on new, state-of-the-art properties.

Flip the Script

According to the governor of Oregon, the new law is meant as a stop-gap. She intends the policy to provide “immediate relief” for renters whose income or pension has not kept up with property values. However, it is not meant to be a long-term solution.

The long-term solution is to turn the original problem on its face. If prices balloon because of demand, they can be lowered by increasing the number of housing units. When the supply increases, landlords are forced to compete for good tenants. They have to keep their buildings in great shape, hold down their rent prices, or some combination of the two. Increased competition also pushes real estate developers to construct more attractive properties than their rivals do. The market becomes more dynamic and more friendly to renters.