Rent Regulation for the 21st Century
A primary goal of rent regulation is to protect low-income renters from unexpected spikes in their monthly housing costs. As a solution to housing instability, however, rent regulation has several potential drawbacks: it can reduce the overall supply or quality of rental housing; it can create a two-tiered system that leaves tenants in unregulated housing unprotected; and it often benefits higher-income, rather than lower-income households. In a new policy brief, the Furman Center's Sophie House recommends pairing broad-based anti-gouging regulations with targeted subsidies as a superior method for stabilizing low-income households while avoiding rent regulation's history of drawbacks. Read Rent Regulation for the 21st Century.
Previous research shows that rent regulation systems offer greater benefits to higher-income renters over time. In 1994, a policy change in San Francisco expanded rent regulations to small multifamily buildings. Through comparison between protected and unprotected tenant populations, the study found that more regulated properties were occupied by higher-income tenants in the long run. The study also found that newly protected groups were more likely to stay at their addresses following the policy change. These results suggest that rent regulation provided stability for the tenants least likely to be displaced, a result inconsistent with the policy rationale behind the expansion. Research across New York City and Massachusetts also suggests that rent regulation systems are more beneficial to higher-income tenants.
Policymakers could impose stricter limits on landlords’ abilities to increase rents across more of the housing stock, but these strict regulations are likely to have similarly undesirable market consequences. As regulations increase, landlords may be less likely to invest in the regulated stock since it offers lower returns. Stricter rent regulation can also constrain the housing supply, pushing developers to build units for sale as opposed to rentals, or incentivizing current owners to convert and sell rental properties to owner-occupants. Decreases in the rental housing supply raise the costs of unregulated units, and make housing harder to find for prospective renters and residents.
Means testing could better target the benefits of rent regulation but also has potential drawbacks. Administering a means-tested rent regulation program would require determining and periodically re-certifying households’ income eligibility. This would require substantial implementation, administrative, and enforcement costs. Means testing could also deter landlords from renting to lower-income tenants.
The policy brief instead recommends pairing broad-based anti-gouging rent regulation with targeted subsidies as the best way to stabilize low-income renters while avoiding the drawbacks of strict, broad rent regulation and means-testing. Anti-gouging regulations cap a landlord’s ability to increase rent beyond a certain amount, typically set at a given percentage above inflation. Targeting subsidies to low-income tenants ties assistance to people instead of housing units, while anti-gouging caps prevent landlords from raising rent and inadvertently, subsidy costs. Both California and Oregon have recently adopted statewide anti-gouging regulations, limiting rent increases to 5 and 7 percentage points above the consumer price index, respectively.
Subsidies could also be provided directly to landlords through a model similar to the existing Housing Choice Voucher (HCV) program. The increased administrative costs and landlords’ hesitance to rent to voucher holders are potential obstacles to a voucher-based system. Subsidies could also take the form of property tax credits, similar to two existing New York City programs, the Senior Citizen Rent Increase Exemption and the Disabled Rent Increase Exemption.
Although many rent regulation systems aim to protect low-income renters, in practice, rent regulation alone may prove too blunt an instrument to reach these households. Expanding rent regulation or, alternatively, means-testing rent-regulated housing both raise serious concerns. Instead, in considering how rent regulation can better meet its aims, this brief suggests that pairing broad-based anti-gouging rent regulation systems with narrow, targeted subsidies as a long-term mechanism for increased housing affordability and stability for low-income renters.