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ContinueWe take a closer look at what exactly rent control is, how rent control works, and its impact on landlords, tenants, and the housing market.
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Written by
Ben Luxon
PUBLISHED ON
4
Dec
2023
Establishing appropriate rules and regulations for renting out a property to potential tenants can get tricky if you're not well-versed in current market dynamics. Essentially, some states grant landlords, property managers, and investors the liberty to set rent prices without limitations for existing tenants. However, other states implement rent control laws, mandating adjustments to rent increases in line with local regulations rather than market conditions.
Understanding rent control is crucial, especially if you're preparing to list your rental units in the housing market. Non-compliance with these regulations could lead to legal repercussions with federal authorities.
This article delves into the functioning of rent-controlled apartments and explores strategies for managing annual rent increases based on your state's specific regulations. While rent control was initially designed to safeguard tenants, it can also assist landlords and property managers in better organizing their housing expenses.
Rent control serves as a legal framework in which states and local governments impose limits on the rental prices landlords can charge. It establishes boundaries on how much landlords can increase rents for current tenants. Specific provisions and caps are determined by each municipality. Notably, these rates often remain below the prevailing market rates, rendering the rentals more budget-friendly. This approach, also referred to as rent stabilization, prevents steep annual surges in rental prices.
Rent control isn't universal across the US, in fact, over 30 states have enacted laws which prevent prevent select cities and towns from implementing rent control regulations altogether.
Rent control in an area dictates the maximum allowable rental charges set by the city or municipality for specific properties, often based on factors like square footage or the number of bedrooms. Moreover, these regulations also place a cap on the percentage by which landlords can annually increase rent for existing tenants. Should a landlord attempt to charge excessively or surpass the allowed rent hike as per the rent control laws, tenants hold the option to report the violation to the city’s housing authority.
Landlords with properties in rent-controlled areas, need to be aware of the limits imposed by the municipality on how much they can charge. Rent remains capped at this maximum, and any increases are constrained by the levels set by the local government. This creates predictability in rental payments for tenants and allows them to choose a long-term residence without fear of rent becoming an overwhelming financial burden.
Related: Rental Housing Discrimination: What You Can’t Do When Choosing Tenants
Rent control, established in several major cities over many years, carries both advantages and disadvantages for both tenants and landlords. Let's explore a few of these aspects.
Beyond providing affordable housing, rent-controlled apartments offer several advantages:
However, there are drawbacks to rent-controlled apartments:
Rent control thus presents a complex balance of advantages and challenges for both tenants and landlords alike.
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The roots of rent control trace back to the 1920s, where early attempts focused on freezing rent increases, albeit proving impractical. However, it wasn't until the 1970s that the concept gained traction, primarily through New York's Rent Control Board, which established a more structured and enforceable approach to rent control laws.
Rent Stabilization spans several years across various states. While certain states have implemented rent stabilization regulations for urban centers, the application of these rules remains limited. This discretion often allows property managers significant latitude in determining maximum base rent.
Oregon broke new ground in 2019 by becoming the first state in the United States to institute a comprehensive state-wide rent control condition. This landmark legislation, introduced relatively recently, stirred substantial controversy within the rental market, particularly among investors who were apprehensive about its implications.
The concept of rent control and its evolution over time reflect a nuanced balance between regulatory measures aimed at stabilizing rental markets and the concerns and interests of property owners, tenants, and investors. The historical trajectory illustrates attempts to strike this balance while addressing the complexities of housing affordability and market dynamics.
There are several alternative forms of affordable housing that are more widely available across the US than rent controlled properties. Below, we'll dive into a few viable options accessible in most municipalities, even in areas where rent control is prohibited.
Section 8 housing, overseen by the U.S. Department of Housing and Urban Development (HUD), aims to assist low-income individuals and families in accessing secure and affordable housing temporarily. Those who meet the criteria will receive housing vouchers to help cover their monthly rent expenses. HUD then bridges the gap between what the tenant pays and the total monthly rent by paying the property owner or landlord.
While any landlord has the option to accept Section 8 vouchers, it's not mandatory. Additionally, keep in mind that Section 8 housing comes with income limitations and tenants will need to consult with local housing authorities to check their eligibility.
Also administered by HUD, public housing operates distinctively compared to Section 8 housing. Subsidized or public housing is confined to designated apartments or properties managed by the local housing authority.
The range of available housing options varies based on location and the properties provided. Typically, cities offer a spectrum of accommodations, ranging from apartments and townhomes to standalone homes tailored for larger families.
To be eligible for these rentals, tenants need to demonstrate that their income aligns with the acceptable range set by the area's housing authority. If their income surpasses the maximum specified by the housing authority, they won't qualify for a lease.
If you own properties in an area where rents are particularly high, it could be worth looking at renting out individual rooms within the property. This will make the rent more affordable for prospective tenants. It will also reduce their bills. If you do look at thiis route, it’s worth making sure you understand Joint and Several Liability clauses.
Rent control, a contentious issue, is outright prohibited in 37 states. However, five states, along with the District of Columbia—New York, New Jersey, California, Maryland, and Oregon—have implemented rent control regulations. In California and Oregon, these laws encompass the entire state, whereas in other regions, rent regulation is specific to certain cities.
New York City boasts the lion's share of rent-controlled or rent-stabilized apartments in the U.S., with approximately a million units, constituting over half of the city's rental housing. Washington, D.C., San Francisco, and Los Angeles also host cities where rent-controlled units account for at least half of all rentals.
Even within these limited cities, finding rent-controlled apartments can be challenging due to tenants' tendencies to remain in these spaces. For those seeking such apartments, older buildings are often the prime targets. Checking your city's rent or housing board website may reveal a database of rent-controlled units that align with available rental listings.
The perpetual tug-of-war between landlords and tenants persists in cities with more renters than available housing. Rent control isn't a flawless solution, it favors those lucky enough to secure these rare regulated units and reduces a landlords ability to achieve the profits which disincentivises investment into either repairs or new rental property.
Related: States Without Property Tax: From Lowest to Highest
In the realm of rent-controlled units across the country, there exist two primary rent control measures, each contingent upon the state's regulations.
Vacancy Control, often hailed as "true rent control," abides by specific guidelines. Landlords or property managers can only augment rental property prices in line with the rates sanctioned by the rent control board. Additionally, the landlord is restricted to raising rent for existing tenants a limited number of times per year.
On the other hand, Vacancy Decontrol permits landlords to set the rent price for their rent-controlled apartments without constraints when an old tenant vacates, and a new one enters. Consequently, new tenants might not pay the same rent as their predecessors.
Under Vacancy Decontrol, landlords have the option to petition their local rent control board for a rent hike based on escalations in taxes or housing expenses. Similar to Vacancy Control, the landlord is confined to increasing the rent for existing tenants a specific number of times annually.
Property managers possess the liberty to adjust rent based on lease renewals in cities devoid of rent control. Nevertheless, the protocol alters significantly for properties governed by rent control policies.
Under these circumstances, landlords are bound by the directives of each city's rent board. Across many locations, landlords have typically been authorized to implement increases ranging from 0% to 4.5% for a one-year lease. In contrast, Oregon permits an annual increase of 7%, plus inflation.
Under rent control policies, tenants benefit from increased legal safeguards, particularly in California. Tenants residing in rent-controlled buildings in the state can only face eviction if they are found in violation of the lease terms. These breaches encompass nonpayment of rent, substantial property damage, among others.
Another circumstance leading to eviction occurs when landlords opt to withdraw their property from the rental market, whether for demolition or conversion to condos. However, in such cases, landlords may incur substantial relocation fees to assist tenants in securing new accommodations. The fees vary significantly based on location.
For instance, in Los Angeles, landlords may be required to pay relocation fees ranging from $8,500 to $21,200, contingent upon factors such as the tenant's age, income, and duration of residency. In contrast, statewide laws, such as those in Oregon, limit relocation fees to one month's rent.
Yet, there are exceptions to these regulations. Landlords can legally request tenants to vacate if they intend to occupy the unit or offer it to a family member, avoiding legal repercussions.
Furthermore, in select cities, landlords have the option to propose "cash for keys" agreements to tenants. This arrangement permits landlords to offer financial incentives for tenants to vacate, provided the tenants are informed of their rights, and the agreement is duly reported to the city. It's crucial to note that tenants have the right to refuse such offers and continue residing in the unit.
Related: 5 Steps To Take When The Rent Is Late
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Understanding the nuances of rent control is vital for both tenants and landlords navigating the rental landscape. For landlords, managing properties within rent-controlled areas requires meticulous adherence to regulations, including limitations on rent increases and tenant rights.
Software solutions like Landlord Studio play a pivotal role in this landscape by offering landlords efficient tools for property management, rent collection, tenant communication, maintenance tracking, and accurate financial tracking. Streamline operations, ensure compliance with legal requirements, and maximizes profitability by providing real-time financial insights.
In rent-controlled environments, these tools become even more essential, enabling landlords to maintain transparency, efficiency, and profitability while adhering to regulatory constraints.
Rent control establishes limits on landlords regarding rental charges and yearly rent increases for various property types.
Landlords usually inform tenants about rent-controlled properties upon lease signing. If uncertain, contacting the local housing authority can clarify and provide a list of such apartments.
Contacting the local housing authority is the best way to identify rent-controlled apartments and explore alternative affordable housing options.
Alternatives include Section 8 housing, public housing, cohabitation, or homeownership, which can help manage monthly payments effectively.
Rent increases are regulated by city or state authorities. For instance, in cities like New York, the Rent Guidelines Board decides on yearly percentage increases.
Rent control laws often protect tenants from unwarranted eviction, obliging landlords to annually renew leases for rent-controlled apartments.
While most rent-controlled units are older, these laws may also apply to new constructions, subject to specific city laws.
Rent control laws vary locally, emphasizing the importance of researching your city's regulations before renting.
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