Understanding Rent Control States: Balancing Housing Affordability and Landlord Profitability

Which states have rent control laws that limit how much landlords can raise rent? This article breaks down rent control policies in different parts of the United States, looking at how they try to keep housing affordable for renters while still allowing landlords to make a profit.

By
Nichole Stohler
|
Last Updated
April 1, 2024
Understanding Rent Control States: Balancing Housing Affordability and Landlord Profitability

Rent is a major expense for millions of Americans, and in recent years, the cost of housing has been on the rise. In 2021, average rent across the country rose by over 18%, although it has stabilized since then, with rent increases softening in 2023. To help keep housing affordable for tenants and still allow property owners to make a reasonable profit, some states have implemented rent control laws that limit how much landlords can increase rent.

Rent control is a controversial topic, with supporters arguing that it prevents huge rent hikes that could price tenants out of their homes, while critics claim that rent control discourages new construction, potentially leading to housing shortages.

Given the significant impact rent control laws have on the overall housing market, it's important to understand how these policies work in different states across the country. This article explores how these laws came about, what the rules cover, and how they affect residents and property owners.

Federal rent control laws

The United States doesn't have a federal rent control law that sets rent prices across the country. Instead, state and local governments decide on rent control policies. The federal government did have temporary rent controls in place after World War II due to housing shortages at that time, but they eventually lifted these measures.

The federal government offers programs to help make rent more affordable for certain groups, such as low-income families and those with disabilities. One such program is Section 8 housing, where local housing authorities determine if a household qualifies based on their income being below 50% of the area's median income level.

Under Section 8, qualified households receive rental vouchers that they can use with private landlords. These vouchers cover a portion of the rent while the tenant pays the remaining amount. Landlords have the option to voluntarily accept or decline these Section 8 vouchers.

How do state and local rent control laws work?

The implementation and enforcement of rent control laws vary depending on the state and local jurisdiction, with some states banning rent control altogether while others allow local governments to establish their own policies.

State rent control policies

Currently, 33 states have banned cities and counties from establishing any rent control measures. But, as housing affordability gains more attention, local governments are pushing back on preemption laws.

This leaves 17 states, along with the District of Columbia, that either permit rent control or do not have specific laws prohibiting it. In these areas, the approach to rent control can vary significantly, from comprehensive statewide policies to more localized regulations within certain cities or counties. States like California, New York, and Oregon have prominent rent control laws that offer various degrees of regulation.

Local implementation and administration

For states that permit rent control, it's up to their local governments to implement and administer the rent regulations through their own rent boards or commissions. The specific rules can vary between cities.

In places with rent control, landlords need approval from the local rent board before raising rents above certain amounts or terminating leases. A rent increase letter informing tenants of an approved rent hike must follow proper procedures created by the rent board.

Rent control vs. rent stabilization

Rent stabilization is a form of rent control ordinance, but it's different from rent control in terms of its flexibility and broader applicability.

  • Applicability and coverage: Rent stabilization typically applies to a larger number of housing units than rent control. Unlike rent control, which often covers older units with specific historical criteria, rent stabilization can include newer buildings and is more widespread in jurisdictions that adopt it.
  • Annual rent increases: A key difference lies in the management of rent increases. Instead of setting strict limits on rent hikes, stabilization permits annual increases based on a percentage determined by a local rent board or similar governing body.
  • Investment incentives: Rent stabilization often includes provisions that encourage landlords to maintain and improve their properties. Landlords may be able to apply for larger rent growth to cover significant renovations or upgrades. This helps make sure that buildings stay in good repair and that the housing stock does not deteriorate.
  • Tenant protections: Rent stabilization still provides strong protection for tenants. This includes the right to renew leases and limitations on eviction designed to provide housing stability and predictability.

States with rent control laws

Here's an overview of rent control policies in a few different states:

California

When it comes to rent control, California is unique compared to most other states. There's a statewide law, but cities can also add their own stricter local rent control rules on top of that.

State law

In 2019, California passed a law that limits annual rent increases to 5% plus inflation based on the regional Consumer Price Index.

So, if inflation is 3%, the maximum rent increase would be 8% for that year. However, this statewide limit doesn't apply to newer buildings less than 15 years old or single-family homes owned by individuals rather than corporations. This law expires in 2030 unless extended.

Local rent control measures

What makes California stand apart from other states is that it allows cities to adopt even stricter local rent control laws than the statewide limit. Cities like San Francisco, Los Angeles, Oakland, and others have their own local rent control rules. The local laws are comprehensive, like requiring a valid reason for evictions or putting tight limits on rent growth between tenants.

The details can differ from one city's rules to the next. So, as a landlord in California, you have to follow the statewide rent cap while also potentially facing additional rent control rules from your local city. It makes for a complex set of regulations.

There are efforts by tenant groups to strengthen rent control further across California, but statewide ballot initiatives to do so have failed to pass in recent years. For now, it remains a combination of statewide and local policies.

District of Columbia

D.C. has had strict rent control rules in place since 1985. Under D.C.'s rent control, there are rules that landlords must follow for rent increases. Landlords can only raise the rent once per year on rent-controlled units, and mid-year increases are not allowed.

Those annual rent hikes are limited based on inflation. In most cases, the maximum increase permitted is 2% plus the inflation rate for that year. However, governments strictly cap rent increases at 5% annually for elderly or disabled tenants, no matter the inflation.

So, D.C.'s rent control creates modest rent increases tied to inflation rather than allowing big jumps. As a landlord, you can't raise the rent by whatever amount you'd like in a given year.

Between the rent increase caps and eviction protections, D.C.'s rent control aims to provide stability and predictability for both tenants and landlords about pricing and turnover of rental units. It's considered one of the strictest rent control systems in the country.

Maryland

Maryland doesn't have statewide rent control policies. Instead, it allows local jurisdictions like counties and cities to implement their own rent control measures. Areas in the Baltimore metro region have taken that route, especially for designated affordable housing communities.

One example is the city of Takoma Park, which has established rent control regulations limiting property owners to one rent increase per year. In addition, these annual rent increases are capped and tied directly to the regional Consumer Price Index for inflation for that year.

So, if inflation is running at 3% based on CPI data, then the maximum you could raise the rent is 3% for that year's increase. The city publishes the allowable rent adjustment percentage every spring once the latest inflation numbers are available.

While not every city or county in Maryland has the same rent control rules, the regulations in places like Takoma Park demonstrate the impact of local rent control ordinances.

Massachusetts

Massachusetts has a unique history when it comes to rent control, with a period of implementation followed by a repeal and a shift toward local policies. In 1970, Massachusetts implemented rent control rules, but voters repealed them through a public vote in 1994.

Today, Massachusetts does not have broad rent control policies at the state level. A few municipalities, like Cambridge, still have their own local rent control rules. But for the most part, rent regulation is no longer a major factor across Massachusetts like it once was.

New Jersey

In New Jersey, there is no statewide rent control policy. Instead, the state allows municipalities to establish their own local rent control laws. Over 100 cities and towns throughout New Jersey have implemented some form of rent control within their borders, with rules and regulations varying from one locale to another.

Some cities may have basic rent increase limits, while others have more comprehensive rent control measures. As a tenant or landlord, it's best to check directly with your local city or town hall for the specific details of any rent control ordinance that applies to your area.

New York

New York has some of the oldest and most extensive rent control policies in the country, with the system in New York City dating back to the 1920s.

Traditional rent control

In NYC, traditional rent control applies to residential buildings constructed before February 1947 where the same tenant or their family has been continuously living since 1971. The city sets a maximum base rent for these units, which is adjusted every two years to account for changes in operating costs for the landlord.

When a rent-controlled tenant or their family moves out, the unit becomes either rent-stabilized under different rules or deregulated entirely, depending on the situation.

Rent stabilization program

The rent stabilization program covers many more residential properties in NYC built before 1974. It's not as restrictive as rent control, but it still limits how much landlords can increase rent each year through set percentages.

Rent regulation outside New York City

New York state law permits other counties and municipalities to have their own rent regulation programs modeled on these NYC systems if they meet certain criteria around housing supply.

Rent control remains a significant factor across many parts of New York, especially in the city's older housing stock. The debate between landlords and tenants has been ongoing for decades, with landlords arguing it stops investment and development while tenants say it promotes affordable housing access.

Oregon

Oregon made national news in 2019 when it became the first state to implement statewide rent control laws, limiting how much landlords can increase rents each year.

Every September, officials recalculate the permitted rent increase percentage based on inflation data, typically setting it at around 7% plus the inflation rate over the prior 12 months. For example, if inflation were 3% for that year, the maximum rent increase allowed would be 10%.

There are some exceptions to the rent cap, though. For example, it doesn't cover any units that are part of the government's affordable housing programs or newer rental properties that are less than 15 years old.

How do rent control laws affect landlords and property owners?

Rent control laws can challenge landlords and property owners in managing their rental business. Here are some of the key issues they face:

  • Limited rent increases: One of the biggest problems is that rent control laws strictly limit how much you can raise the rent for tenants, even if your costs for taxes, maintenance, repairs, and utilities keep rising year after year. This can make it hard to keep up with increasing expenses, especially in areas with high inflation.
  • Approval for improvements: Let's say you want to renovate or upgrade your rental property. Under most rent control, you need approval from the rent board before increasing rent to cover the costs of those improvements. Getting that approval can be difficult.
  • Can't adjust to market rates: When a long-term tenant moves out, you may want to adjust the rent to current market rates in your area. Some rent control prevents you from doing that, and you must stay at the current rate, even if the rent for similar units is much higher.
  • Rent boards may not understand: The people on rent control boards are typically community members, not real estate experts. Their decisions on rent increases may not account for the real challenges and financial realities landlords face as property owners.
  • Extra fees: Aside from existing property taxes and expenses, many rent control programs charge landlords additional fees to fund the rent regulation system. So, not only do the laws limit rent increases and profits, but they add an extra financial burden.
  • Legal and administrative complexities: The complexity of rent control laws across different jurisdictions creates a learning curve and potential legal pitfalls for landlords. Managing these complexities may require legal counsel.
  • Impact on housing supply and development: There's a broader economic argument that rent control could deter new construction or the conversion of existing properties into rental units. This could potentially worsen housing shortages in areas with high demand and stifle the growth and diversification of the housing market.

Tenant perspectives on rent control

Understanding tenant perspectives can provide insight into how these regulations impact those they aim to protect. Here are some key areas to consider:

  • Affordability and stability: Rent control can make housing more affordable for tenants, enabling them to live in areas they might otherwise find too expensive. It also provides stability, helping families plan their finances without fear of unexpected rent increases.
  • Protection from displacement: Especially in fast-growing cities, rent control can protect tenants from being displaced due to rising rents.
  • Quality of housing concerns: Some tenants worry that rent control might discourage landlords from maintaining or improving properties, potentially leading to a decline in housing quality over time.
  • Access to housing: Rent control can make certain apartments more affordable, but it can also lead to a tighter housing market, making it harder for new tenants to find rent-controlled units. This can inadvertently raise prices in the non-rent-controlled sector.

States with rent control

Rent control is a complex issue with both pros and cons. Supporters say it protects tenants from excessive rent increases and keeps housing affordable. Critics argue it discourages new housing construction and investment.

The decision to have rent control laws is up to policymakers and the communities they represent. They must consider the potential benefits and drawbacks, looking at local housing markets, economic factors, and the needs of both tenants and landlords.

Approaches to rent control vary widely across the United States. Some states have statewide rent control policies, while others allow local governments to implement their own rent regulations. Meanwhile, many states have no rent control measures at all.

Ultimately, the effectiveness of rent control policies depends on various factors and may differ from one location to another. As housing affordability continues to be a pressing issue in many parts of the country, the debate surrounding rent control is likely to remain a topic of discussion among policymakers, housing advocates, and the general public.

Rent control cities FAQs

What states have banned rent control?

Several states have banned rent control policies, allowing landlords to increase rents without restrictions. Among these states are Arizona, Arkansas, Colorado, and Florida. Meanwhile, several other states have not taken a stance on rent control, leaving the decision to local jurisdictions.

How many states have passed legislation prohibiting rent control?

According to data from the National Multifamily Housing Council (NMHC), around 30 states have passed laws that either prohibit or limit rent control policies in some way.

What is the most a landlord can raise rent?

There's no federal law limiting how much landlords can raise rent. In states without rent control, landlords can increase rent as much as they want when a lease is up for renewal.

In places with rent control or rent stabilization policies, there are caps on how much rent can go up each year; 3-5% in many cases.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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