Patrick O’Connell and Darrell Storholt
I think most liberal policies are paved with the best of intentions. Some are well thought-out, such as the agricultural subsidies implemented by FDR during the Great Depression, which helped repair the U.S. economy and parts of the Affordable Care Act. Government can act as a referee to keep the economy balanced and fair in order to preserve equality. Rent-controlled housing is not one of these well-thought-out liberal policies. It’s beneficial in the short term for low-income tenants but in the long term, they are detrimental to the entire housing market and incentivize the creation of slums.
Rent control is the practice of implementing government caps on how much landlords can charge tenants for rent. It’s born from the necessity to protect tenants from abusive landlords and rampant gentrification. Many proponents of rent-controlled housing see it as a way to curb usury of tenants, given the observation that there is a growing disparity between generational wealth distribution in major cities.
Rampant tenant abuse leads to segregated areas of major cities becoming low income areas where wealth disparity is much more apparent. Without government interference, landlords can raise rent at will. Increases in housing costs for a current tenant might lead to an absorption of any increased purchasing power, that is, should the tenant achieve increased wages, they might still see no increase in standard of living or lifestyle. They would see higher rent as well as the same old substandard housing.
With the implementation of rent control, landlords are required to keep rent below a certain cost. This is a good thing, right? It protects tenants from the landlords. However, rent-controlled housing discourages property owners from improving or maintaining quality of living. If rent can only be so high in certain areas, there is no incentive for property owners to improve their properties or maintain upkeep. If, no matter how much property values rise, rent stays the same then there is no reason to raise the value of said property. It becomes stagnant. Housing that middle-class people can afford will always be middle-class quality. Rich people will always afford the best housing in the best areas. Poor people will be forced to remain in poverty-stricken areas far from the rest of society. This encourages the creation of slums.
In some cases, it encourages landlords to remove available housing from the market, should they find themselves unable to profit from a shrinking profit margin as costs of upkeep increase relative to a fixed contribution from the tenant. Should leasing a property to a tenant lead to a loss in value to the property relative to the financial gains of collected rent, it would be more feasible to remove the house from the market to preserve its value rather than incur these losses, ultimately driving a greater number of low-to-moderate income tenants from the area as an unintended consequence of regulation.
This runs contrary to the improvement of and investment in property such that the value of the real estate increases, allowing for increases in rent, an incentivized system known as gentrification.
While gentrification brings improved property value and standard of living to impoverished areas, it turns out that gentrification is not for everybody. With improved property value and standard of living comes increased rent. Poor people might not be able to afford that rent increase and would have to relocate. The real problem is that landlords might not be able to improve properties or make basic repairs if they can’t increase rent relative to inflation. This brings us to two possible solutions to the situation.
One solution might be a program for Subsidized Gentrification, where landlords or tenants could pull funds out of a tax-funded system to make repairs on rent-controlled houses. This would bring much needed improvement to low-income housing, which is most vulnerable to dilapidation. However, this solution relies greatly on landlords using these subsidies appropriately.
The other solution would be that, instead of restricting rent, we incentivize longer leases with a fixed rent that only changes between lease periods. This would be a modest solution as it would allow landlords to improve property values and raise rent but not at such a rate that tenants cannot keep up financially.