Over the years, there has been many debates over whether rent control benefits the economy, tenants, or landlords. This is a tricky subject, because not every group will benefit at the same time, it is a balancing act with the tradeoffs that occur. Rent control can be defined as “a system in which the local government system is in charge of determining how much rent can be charged for an apartment unit, or house” (Rent Control). If you ask an Economists there opinion on the situation, they will often criticize rent control, arguing that it is a highly inefficient ay to help the poor raise their standard of living (Mankiw 115).
Economists are essentially unanimous in concluding that rent control is destructive (Block), but some economists fail to see the broader picture of how rent control benefits the individual, who actually has to deal with the scenario on a first hand basis. Like all other government-mandated price controls, rent control is a law placing a price ceiling on what landlords are able to charge tenants (Block); this helps a tenant tremendously since they know there is a cap set on how much a landlord is able to harge for their place depending on the zoning classification and other factors.
The original, First-generation, rent control programs were introduced in most major North American cities near the end of World War I to try and counteract the effects that World War I placed on people who were at home. Now society has moved on to controlled apartments in areas like New York that are considered to be under the category of “Second-generation” or “soft” controls which is a way of restricting annual rent increases (Frank). Soft rent control guarantees landlords a “fair return” on rentals; all they have to o is comply with properly maintaining the property or building.
But in exchange for landlords having the ability of being able to float the maintenance cost onto the tenants, landlords have to deal with the headache of soft controls, which are actually harsher on landlords than the former system. In a way, the new system is an oxymoron; yes, tenants are able to get benefits, but landlords are subject to endure stricter bylaws and barely any room to run their property how they see fit; both sides in the situation are faced to deal with tradeoffs.
If tenants want their rent to stay reasonable, then they cannot complain too much about the repairs that need to be made, or else eventually the cost will trickle down to them in the long run. On the other side, Landlords know that the process of obtaining the special approval from the local government is often made burdensome, making them jump through hoops that most end up putting off performing needed repairs, knowing approval for rent increases will be delayed or outright denied (Pros and Cons).
One Prime example is on one of the episodes of The Big Bang Theory, hich takes place in Pasadena, California where one of the characters (Lennard’s) experiments blew up the elevator shaft and the landlord never fixed the elevator. Through Second- generation controls, sitting tenants’ rights are strengthened; these laws often regulate the power of landlords and limit the ability of them to evict sitting tenants. This is one reason why landlords are against the strict regulations put in place by local governments.
In some instances landlords seek to get rid of their current tenants even though they may have been with them for multiple years. Landlords know that the market has changed and they can get more money for their rental space; but in rent controlled areas, the landlord is unable to raise the rent on a tenant due to the formal agreement first set in place with the tenant when they first moved in; if “Alison” lived in the same apartment unit for over 27 years, her rent would never go up under the laws of rent control.
Because of this, many landlords would either resort to either trying to force out the tenant or attempt to pay her to move out because they know they are losing money by her staying and know that they would ventually be able to recuperate the money lost with a future tenant.
Matt Losak, a tenant, believes that renters need laws to be created in order to protect him and others alike against financial abuse from landlords; while landlords also have to abide by these laws, the government requires them to also apply for approval in order to set rent increases needed for repairs and or improvements for tenants safety, which can take an unspecified amount of time to hear back on a decision (Pros and Cons).
One of the very first things that we discussed in class, as Principle One informing us that “There Ain’t No Such Thing as a Free Lunch” (Mankiw 4), in order for a person to get something they want, there has to be a tradeoff, it is inevitable. People want to have their cake and eat it too, but do not realize what else they may be giving up in exchange. The reason why rent control exists, is because of the problem with scarcity.
Highly populated major cities have a limited amount of space, which has to accompany people’s needs of housing. This is when tenants start to notice the Law of Demand and how it is affecting the rental market; the only reason why people notice his, is because it affects them directly. Just as with any other good, when the price rises, the quantity demanded falls and once the price falls, the demand rises, causing a shortage for apartments.
No matter which situation prevails, a person will always be mad; either they will not be able to find an apartment or they will not be able to afford an apartment. Artificially low rent discourages construction and maintenance causing fewer apartments to be available without rent control (Frank). If rent is established at less than equilibrium levels, then the demand will ltimately exceed the amount supplied causing the market of those with the willingness to pay to shrink (Mankiw 136).
Because of the incentives it creates, Rent Control has turned landlords into a new profitable profession. Peter Dreir an Occidental College professor and housing specialist made the statement, “Landlords won’t walk away as long as they are making a decent return” (Frank). Drier’s statement is very accurate, Residential landlords are not very mobile: they tend to have a long-term interest in their properties, only abandoning then when market rates fall below a certain level due to crime, overty, or an economic depression.
A landlord is just like any other person with a job, if you are satisfied with the return of your profession, then you will stay. Though many will not like it, Rent Control is actually a feasible solution With Rent Control, at some point everyone will benefit from it. The economy gains from it since people are able to have money to spend elsewhere in the community, many tenants benefit from the law since it puts them first in the order of service, and landlords are able to earn a steady flow of profit from tenants.