Re-evaluating rent control
Date posted: November 6, 2012
Several U.S. cities impose controls on the amount of rent landlords can charge tenants. On the surface, this may seem like a good idea. But are there also some unintended consequences? N.C. State University economist Mike Walden responds.
“This has long been an area of interest to economists as well as policy makers. And we actually have some new analysis on what happens after rent controls are lifted from a situation (involving) Cambridge, Massachusetts, where there were rent controls for a number of decades and then those rent controls were taken off.
“What you saw in Cambridge was initially a dramatic increase in rent. Rents have been regulated. Landlords have been prevented from increasing rent, so it’s expected once those controls were lifted rents would go up and consequently you did see a lot of tenant turnover — people who simply couldn’t afford the higher rents move out.
“But also on the upside, you had an amazing increase in investments and improvements by owners of those previously rent controlled units. Why they didn’t do it before was, I think, simple: They didn’t — could not — charge the rent to pay for those improvements. So as a result of these improvements you saw an increase in the value of the units, and you saw an increase in property taxes paid by the owners of the units.
“So, I think essentially what you get therefore what the lesson here is you get with rent controlled units is you do get low rents, but oftentimes you get a lower quality unit.”
Category: Economic Perspective