Rent control in the United States

Overview

In the United States, rent control refers to laws or ordinances that set price controls on the rent of residential housing to function as a price ceiling. More loosely, "rent control" describes several types of price control:

"strict price ceilings", also known as "rent freeze" systems, or "absolute" or "first generation" rent controls, in which no increases in rent are allowed at all (rent is typically frozen at the rate existing when the law was enacted); "vacancy control", also known as "strict" or "strong" rent control, in which the rental price can rise but continues to be regulated in between tenancies (a new tenant pays almost the same rent as the previous tenant); and "vacancy decontrol", also known as "tenancy" or "second-generation" rent control, which limits price increases during a tenancy but allows rents to rise to market rate between tenancies (new tenants pay market rate rent but increases are limited as long as they remain). As of 2022, seven states (California, New York, New Jersey, Maryland, Maine, Oregon, and Minnesota) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes). Thirty-seven states either prohibit or preempt rent control, while seven states allow their cities to enact rent control but have no cities that have implemented it. There is a consensus among economists that rent control reduces the quality and quantity of rental housing units.

History

In the United States during World War I, rents were "controlled" through a combination of public pressure and the efforts of local anti-rent-profiteering committees. Between 1919 and 1924, a number of cities and states adopted rent- and eviction-control laws. Modern rent controls were first adopted in response to the Great Depression and WWII- era shortages. Because of these shortages and the overall national economic crisis, the federal government called for emergency price control on consumer goods and rent control in 1942. However, not all states decided to implement these rent control laws. During World War II roughly 80% of rental housing was put under rent control starting in 1941. Despite economic predictions of a reduction in housing supply, such a reduction was not observed. Instead it was seen that landlords opted to sell their units at uncontrolled prices, sometimes to tenants, rather than renting at controlled prices, leading to an increase in housing cooperatives and apartment home ownership, and a decrease in rental units. It was not until the 1970s, during the economic recession, that Richard Nixon temporarily implemented a national wage and price controls to combat inflation, but this did not last for long and began to phase out in 1973. Nonetheless, tenants particularly in Berkeley kept organizing and brought rent stabilization to the June 6, 1973 L972 ballot. They won and Berkeley became the first city in California to have rent control since World War II. Other cities around the country followed and some still remain in effect or have been reintroduced in certain cities with large tenant populations, such as New York City, San Francisco, Los Angeles, Washington, D.C., and Oakland, California. Many smaller communities also have rent control — notably the California cities of Santa Monica, Berkeley, and West Hollywood — along with many small towns in New Jersey. In the early 1990s, rent control in some cities, such as Boston and Cambridge, Massachusetts, was ended by state referendums. When rent control ended in Cambridge, the city realized a 20% increase in new development and an increase in property values, according to a study by the MIT Center for Real Estate. History reveals that these regulations are constantly in flux and adapting to situations such as natural disasters, economic crises, and pandemics. These changes do not always look the same and vary within each state and city. For example, due to COVID-19, Oakland, California implemented a moratorium to prevent evictions from happening, which ended in February 2021. Whereas in Massachusetts the eviction moratorium ended on October 17, 2020, and there was a CDC moratorium that stopped physical removals in cases where tenants owed rent due to illness or job loss until December 31, 2020.

California

In California, municipal enactment of rent controls followed the high inflation of the 1970s (causing rents to continually rise) and the 1979 statewide Proposition 13, which set property tax rates at 1%, and capped yearly increases at 2%. Leading the campaign to enact Proposition 13, California politician Howard Jarvis tried to get tenants to vote for Prop 13 by claiming that landlords would pass tax savings along to tenants; when most failed to do so, it became an additional motivating factor for rent control. In 1985, California adopted the Ellis Act, eliminating municipalities' ability to prohibit the removal of properties from rental activities after the California Supreme Court in Nash v. City of Santa Monica ruled that municipalities could prevent landlords from "going out of business" and withdrawing their properties from the rental market. "Strong" or "vacancy control" rent control laws were in effect in five California cities (West Hollywood, Santa Monica, Berkeley, East Palo Alto, and Cotati) in 1995, when AB 1164 (known as the Costa-Hawkins Rental Housing Act) preempted some elements of municipal rent control ordinances and eliminated strong rent-control in California (except in special cases like mobile home parks). In 2018, a statewide initiative (Proposition 10) attempted to repeal the Costa-Hawkins law, which, if passed, would have allowed cities and municipalities to enact "strong" or "vacancy control" systems, allowed rent control to be applied to buildings built after 1995, and would have allowed rent control on single-family homes. All are currently prohibited by Costa-Hawkins. The proposition failed 59% to 41%. In 2019, the California legislature passed and the governor signed AB 1482, which created a statewide rent cap for the next 10 years. The Tenant Protection Act of 2019 caps annual rent increases at 5% plus regional inflation. For example, had the bill been in effect in 2019, rent increases in Los Angeles would have been capped at 8.3%, and in San Francisco at 9%. The increases are pegged to the rental rate as of March 15, 2019. The new law does not apply to buildings built within the prior 15 years, or to single-family homes (unless owned by corporations or institutional investors). It also includes a requirement to show "just cause" for evictions, and retains "vacancy decontrol", meaning that rents can increase to market rate between tenants. In 2020, Michael Weinstein, the founder of the AIDS Healthcare Foundation (AHF), sponsored and financed a second ballot initiative to allow more rent control, because he felt that AB 1482 (above) did not provide enough tenant protections, such as limiting rent increases between tenants. 2020 California Proposition 21, like its predecessor 2018 California Proposition 10, was funded almost exclusively by Weinstein's AIDS Healthcare Foundation, and failed by an almost identical margin. AHF is also a supporter of the 'Justice for Renters Act,' a 2024 ballot initiative that would expand local control over rent laws.

Maryland

A rent control law was adopted in Montgomery County, Maryland in 2023. Though it did not apply to new construction for 23 years, new-housing investment plummeted in the county in the years that followed. Permits for multi-family construction fell by 97%, which a county planning department employee called "a real suppression of housing production in the county." Permits in other counties in Maryland stayed level during this time.

Massachusetts

In 1920, the state legislature passed several laws that prohibited landlords from raising rents past 25% a year, expiring in 1923. This was in the face of the 1918-20 New York City rent strikes, where a similar law (known as the April laws) was passed in its aftermath which was then amended in NY to be a far stricter and comprehensive law. Rent control existed in Massachusetts between 1970 and 1994 when it was repealed by ballot initiative. According to the National Bureau of Economic Research, the number of rental units was reduced by 15%, tenants paid 40% below market rates on their units, and the value of properties was diminished by 45%. Tenants were 8-9% less likely to move due to rent control. During its existence, those who lived in rent controlled apartments included Ruth Abrams, a Justice of the Massachusetts Supreme Judicial Court, and Frederik, Crown Prince of Denmark. It was blamed for the death of at least one landlord, due to the stress caused by a ruling from a rent control board that would require him to raise his entire house to create a new, legal apartment in the basement. Rents rose dramatically after rent control was repealed, with average rents rising 21 percent across all units in municipalities that had a rent control program before repeal; median rents rose 40 percent in Cambridge for tenants who stayed in formerly controlled units or moved to other never-controlled units. Additionally, "exit rates from formerly controlled units spiked... and given the substantial accompanying increases in rents, it is likely that the new cohorts of renters were significantly more affluent than the tenants they replaced." After the repeal, the Massachusetts General Court passed a law protecting low-income tenants in rent control apartments from being evicted. Only 9.4% of tenants in rent-controlled apartments in Cambridge applied for and received protection for up to two years. One review states that one possible explanation for the low number is the combination of a strict income limit with inaction by tenants whose rents did not immediately rise in the aftermath of repeal. However, "the dramatically low percentage of formerly controlled units whose tenants established protected status gives credence to the assertion of opponents of rent control that it had become an entitlement program for middle- and upper-income tenants."

Minnesota

In November 2021, voters in Saint Paul, Minnesota, passed a rent control ballot initiative that capped annual rent increases at 3 percent, included vacancy control, and did not exempt new construction or allow inflation to be added to the allowable rate increase. This resulted in an 80% reduction in requests for new housing permits, while in neighboring Minneapolis, where the city council didn't take any action; after the voters authorized the city council to craft a rent control ordinance which might exempt new construction; permits were up 70% in the following months. Saint Paul's rent control initiative has been significantly rolled back since then. In September 2022, the Saint Paul City Council voted to amend the law, allowing higher vacancy increases and exempting units built in the preceding or following 20 years from the increase cap. Since then, St. Paul's typical rents have grown at a pace similar to that of non-rent controlled Minneapolis in recent years according to Zillow estimates, since the ordinance gives landlords several options to raise rents more than the 3% annual cap.

New York

New York State has had the longest history of rent controls, since 1920. New York City contains the majority of units covered by rent control. Rent control laws have stayed on the books for decades in New York because of an inadequate supply of "decent, affordable housing". The worsening in the rental market led to the enactment of the Rent Stabilization Law of 1969, which aimed to help increase the number of available rental units. The current system is very complicated, and most of the protected renters are elderly. William A. Moses, the founder of the Community Housing Improvement Program, a trade association that represents the owners of over 4,000 apartment buildings in New York City, said in 1983 that rent control was "the principal reason for neighborhood deterioration" and that at least 300,000 apartment units would have been built in New York City without it. Moses argued that landlords might not maintain their property if they were not allowed to collect adequate rent. Urban planning scholar Peter Marcuse said in 1983 that rent control was not the reason for some landlords abandoning their NYC properties at the low end of the market – instead, such abandonment stemmed from the inability of low-income renters to pay the maximum rent allowed by law. New York expanded rent control to encompass other municipalities in 2019 through the passage of the Housing Stability and Tenant Protection Act of 2019. Since then, opponents have argued these new rent control regulations hinder investment in multifamily properties in New York City. New York's rent control laws have also received criticism for inadvertently benefiting affluent tenants who might not otherwise need rental assistance. Additionally, a survey of property owners who own or manage rent stabilized units in New York City found that rent regulations would lead to fewer non-essential improvements and proactive maintenance at their buildings.

Oregon

In 2019, Oregon's legislature passed a bill which made the state the first in the nation to adopt a state-wide rent control policy. This new law limits annual rent increases to inflation plus 7 percent, includes vacancy decontrol (market rate between tenancies), exempts new construction for 15 years, and keeps the current state ban on local rent control policies (state level preemption) intact.

Cities

For localities with rent control, it often covers a large percentage of that city's stock of rental units. For example, in New York City as of 2017, 45% of rental units were "rent stabilized" and 1% were "rent controlled" (these are different legal classifications in NYC). In the District of Columbia as of 2019, about 36% of rental units were rent controlled. In San Francisco as of 2014, about 75% of all rental units were rent controlled, and in Los Angeles in 2014, 80% of multifamily units were rent controlled.

Mobile homes

In some regions, rent control laws are more commonly adopted for mobile home parks. Reasons given for these laws include residents owning their homes while renting the land the home sits on, the high cost of moving mobile homes, and the loss of home value when they are moved. California, for example, has only 13 local apartment rent control laws but over 100 local mobile home rent control laws. No new mobile home parks have been built in California since 1991.

Law

Rent control laws define which rental units are affected, and may only cover larger complexes, or units older than a certain date. To attempt to not disincentivise investment in new housing stock, rent control laws often exempt new construction. For example, San Francisco's Rent Stabilization Ordinance exempts all units built after 1979. New York State generally exempts units built after 1974 anywhere in the state (although owners can agree to rent stabilization in exchange for tax benefits). The frequency and degree of rent increases are limited, usually to the rate of inflation defined by the United States Consumer Price Index or to a fraction thereof. San Francisco, for example, allows annual rent increases of 60% of the CPI, up to a maximum 7%. Rent control laws are often administered by nonelected rent control boards. Officers in city government assign members of the board, which will ensure mixed numbers of tenants and property owners to balance out their benefits. As stated in Goodman's research, a typical rent control board in New York is structured by two tenants, two landlords, and one homeowner. (Gilderbloom & Markham, 1996).

Federal law

Rent regulation in the United States is an issue for each state. In 1921, the Supreme Court of the United States case of Block v. Hirsh held by a majority that regulation of rents in the District of Columbia as a temporary emergency measure was constitutional, but shortly afterwards in 1924 in Chastleton Corp v. Sinclair the same law was unanimously struck down by the Supreme Court. After the 1930s New Deal, the Supreme Court ceased to interfere with social and economic legislation, and a growing number of states adopted rules. In the 1986 case of Fisher v. City of Berkeley, the US Supreme court held that there was no incompatibility between rent control and the Sherman Act.