The term ‘housing crisis’ encompasses many different issues, including housing affordability, affordable rental housing, lending standards, and housing value. According to the National Low Income Housing Coalition, there is a housing shortage of 7.2 million homes in the United States. Affordable housing is any housing unit that can be afforded (requiring up to 30% of total income) by those below the median household income. One way to make housing more affordable and accessible to low-income households is through rent control laws.

Rent control laws are legislation placing a limit on rental rates in a city or a state. Rent control varies by location, but it generally states a maximum amount of rent that can be charged for a unit, as well as the amount that the rent can be increased by per year. The specific numbers vary based on local inflation and cost of living, and it is largely influenced by political party divisions and politicking. These laws are intended to keep living costs affordable for lower-income citizens and regulate the housing market. 

Rent control laws ensure that rent is priced below market-rate housing. The lower price of rent-controlled apartments makes housing affordable, especially in neighbourhoods with a high median price. This causes several main benefits:

• Education: One cause of systemic poverty is the quality of education. This paper by Servaas Van Der Berg et al. explains how “the low quality of tuition offered in schools in poor communities can entrench exclusion and marginalisation.” By artificially lowering rent costs, lower-income families are able to live in higher quality school districts and safer neighbourhoods, breaking cycles of poverty. 
• Stability: Since rent controlled units are affordable and have predictable pricing long-term, they have lower turnover rates than other units. A neighbourhood with long-lasting tenants will build a sense of community and camaraderie. Residents are more invested in the safety and prosperity of their neighbourhood. This article from the Urban Institute explains how constant moving impacts education, social and political capital, health, financial security, and the level of safety and crime in a neighbourhood. This study by Dr. Oshi concludes that children who move repeatedly in their childhood report more behavioural problems and poorer academic performance. 
• Ending “No-Cause Evictions”: Rent control laws have included language that will protect tenants from evictions without cause. Currently, these laws do not exist on a federal level and landlords have the ability to evict tenants without cause (“no-cause evictions”). Since the main tenants for rent-control units are the elderly and low-income families, rent control laws will allow these tenants to live without the fear of a sudden rent increase by ensuring that rent is increased by a set amount each year. Reducing the number of no-cause evictions also increase neighbourhood stability and community.

Overall, rent control allows lower-income renters to achieve greater levels of stability and protects them from individual landlord decisions about price by delegating these decisions to local legislators.

The longer a unit is rent controlled, the further the rent will fall behind market-price. Because tenants are paying cheaper prices for each unit, the landlords make less profit per unit than they otherwise would without the rent control policy. This causes several main drawbacks: 

• Poor Apartment Maintenance: in non-rent control apartments, landlords generally upgrade unit appliances every few years to make units more appealing to potential tenants. If landlords make less money from rent-controlled units, they will have to spend less on maintenance and upgrades to keep the same profit. 
• Rising Rent Costs: landlords will likely offset the decreased profits from rent-controlled units by raising the prices on their market-rate units. This artificially increases the rent-price in a certain area, making the area unaffordable for low and moderate-income families. 
• Decreased Housing Supply: developers are not incentivized to build new buildings in rent controlled areas because developers often intend to price newly-built units at or above market rate for the area. With rent prices below market rate, developers won’t turn profits on new builds for years, and they will skip over rent-controlled markets in favour of freer markets.

(More information on the pros and cons of rent control)

Case Study: Berlin

Berlin experienced a drastic increase in rental rates, which spurred three of Berlin’s leftist parties to enact a five-year rent control freeze. This is an unusual policy; most rent control policies restricts rental increase and have no set time period. The policy stated that rent for all apartments built before 2014 are frozen at their June 2019 price for the next 5 years, which applies to 90% of Berlin’s available housing units. This decision encourages new builds, as they will not fall under the rent control policy. 

This split Berlin’s available housing into two markets: the 90% of rent-capped units and the smaller market of unregulated units built after 2014. The average rental price for rent-capped apartments plummeted when compared to other major European cities; the average rental price for the smaller unregulated market soared. Since the supply of non-regulated apartment buildings is so slim, and landlords are looking to make up the costs incurred from their rent-controlled apartments, the rent for newly built apartment buildings are now even more unaffordable for new tenants. With young people still flocking to Berlin, and a lack of movement in apartment units, there is a sharp decline of regulated apartments available for new tenants. 

Berlin’s housing market is seeing the effects of this policy only a year later with a substantial increase in median rental price on apartments. According to Bloomberg, the rent in Berlin’s regulated apartments (90% of units) grew at -57.7% (March 31^st, 2021) relative to the growth in the 13 next-largest cities in Germany. The rent in Berlin’s unregulated apartments (10% of units) grew 8.8% (March 31^st, 2021) relative to the growth in the 13 next-largest cities in Germany. (More information about Berlin’s policy and the one-year analysis available here, here, and here)

Conclusion

Those in favour of rent control believe that the benefits of affordable rent today outweigh the long-term negative impact on the rental economy. They believe that landlords should not be able to increase rent by large amounts each year. Rent control laws give more power to the tenants. Those opposed to rent control argue that artificially low rental rates result in lower-condition housing, which decreases living standards overall. They believe the current units will become dilapidated and new units will not be built, resulting in a housing shortage crisis in the near future. 

The Berlin case study sheds light on the immediate effects of rent control policy on the housing market. This policy was more aggressive than usual rent control laws, so it’s hard to conclude what exactly the impact of rent control laws will be in the long run.

Rent control is one of the many policy tools city council members can use to make housing more affordable; it should not be considered in isolation. Other policies, including government subsidies and mortgage interest deductions, can work with existing rent control policies to create a multi-pronged approach to affordable housing.