Rent control is a rare policy that fixes the price of rent indefinitely. These laws fall under the umbrella term “rent regulations.”
As a property owner or manager, it’s vital to understand rent control laws and how rent regulation works for rent-controlled units, both when you have existing tenants and new ones.
We’ll talk about the difference between rent control vs. rent stabilization, explain how a rent-control ordinance really works, how they protect tenants from rising rents and give you a few advantages and disadvantages of owning and managing rent-controlled units.
Rent stabilization vs. rent control
Both rent control and rent stabilization are concepts centered around the idea of protecting existing tenants from major annual rent increases in the price of rent. The goal is to offer affordable housing while also enabling landlords to increase rent.
While people often confuse the two, there’s a big difference.
What is rent stabilization?
Rent stabilization is more common than rent control. It means that landlords or property owners can only increase rent by a specific percentage each year. In areas that have rent stabilization in place, the state sets the rate of a rent increase. For example, Oregon sets a yearly price ceiling for rent increases to 9.2 percent, while Los Angeles County in California limits yearly rent increases to a mere 3 percent.
What is rent control?
Rent control is a policy that sets a maximum base rent and means landlords can’t increase a tenant’s rent or evict tenants.
This type of rental housing is incredibly rare. In fact, there are only 22,000 rent-controlled apartments out there. Even if tenants can find an apartment on the market that’s subject to rent control, they have to meet a specific set of criteria to qualify:
- They can’t make more than $200,000 for two years in a row
- The building must have been built before 1947
- The apartment must have been lived in by the same family since at least 1971
- The apartment must be passed from family member to family member
- The person who inherits the apartment must have lived in it for two consecutive years before officially inheriting it
Where are rent-control laws most common?
Out of the 50 states, only five have specific rent-control laws in place. The five states that have rent control regulations are California (including San Francisco), Maryland, New Jersey, New York (including New York City) and Oregon. The National Multifamily Housing Council keeps a list of rent control laws by state so you can look up the law in your area.
Photo source: National Multifamily Housing Council
Pros and cons of rent control
There are pros and cons depending on your perspective and situation. Tenants, property owners and landlords often have differing opinions. There are several things to know about rent-control rules and how it works.
Pro: Rent control fosters safe neighborhoods
Rent control offers renters financial stability. Long-term tenants know that they can live on a fixed income and avoid fluctuations in market rates. When there’s financial stability, people will stay in the same location in the same rental property, develop relationships with neighbors and decrease renter turnover. All of these factors contribute to a safer neighborhood and environment. It also offers vacancy control in housing markets.
Pro: Rent control offers automatic lease renewals
With rent control, the current tenant automatically gets the first right of renewal on a lease at the same, not the market price. For landlords, this helps reduce vacancies.
Pro: Rent control housing is hard to come by
Roughly 22,000 apartments in the U.S. are rent-controlled. These properties are incredibly rare and hard to come by. Once a tenant moves, the units usually revert back to the market rate.
Con: Rent control units may need more maintenance
Because of the fixed rent price and limits on how much landlords can charge, they often keep their maintenance expenses and operating costs to a minimum. So, they don’t always maintain, update or refurbish them as often because it isn’t profitable for them. For new owners purchasing these properties, you might have to take on lots of expenses in updates.
Con: Landlords often lose money on rent-controlled apartments
If you’re a landlord of a unit under rent control, you’re likely losing money compared to other landlords who can increase the price of rent each year and charge higher rents.
Listing your rent-controlled apartment
Rent control is a unicorn in the real estate world. When tenants have one of these apartments, they tend to hold onto it. If you’re the manager of a rent-controlled apartment, it may limit how much you can earn from your rental property. But since tenants tend to stay put, you’ll keep a steady stream of rental income.
When a rent-controlled apartment does become available, list it on Rent., where you can accept applications, screen tenants and collect rent.
