Rent Control Talks Will Be Coming Back

With a less than 2% vacancy rate for rental units, it’s only a matter of time before the various political parties bring up rent control. After all it’s the ideal time, we have a big election coming up and looking out for the little person (the renter in this case), will be a perfect posturing opportunity.
In a supply and demand marketplace like the rental market, the current low vacancy rate is creating an ideal situation for rents to start increasing and increasing quickly. These increases will, as usual, catch people off guard and create a backwash of ill intent towards the money grubbing landlords out there who are trying to make a buck off the little people. Many who also lost money during the downturn, but that doesn’t count.
What a perfect situation for politicians to come up as heroes looking out for the little guy and smacking down the rich land owners. Except for the most part, it’s rhetoric, it’s missing some important understanding of rent controls true effects and it’s actually hypocrisy.
Politically jumping on the rent control bandwagon for positioning is fantastic. The speeches about looking out for the little person (the renter in this case), and putting a cap on the profits landlords are making is brilliant.
Most current homeowners gloss over this as it doesn’t affect them (or so it appears) and it likely won’t be an important motivator for their votes. The large population of renters see it as an important campaign point and become an important, and did I mention large, demographic section of potential votes. Meanwhile the small segment of the population that comprises the ranks of the landlords becomes inconsequential when compared to the large group of renters.
The timing couldn’t be better, but it’s the ramifications of rent controls actually being permitted that couldn’t be worse. Here’s a very popular quote (or at least one of the variations of the original) from Swedish economist Assar Lindbeck “Rent control appears to be the most efficient technique presently known to destroy a city – except for bombing”.
For the people busy promoting rent controls there is another popular quote they will likely use if they actually managed to push rent control thorough. “It seemed like a good idea at the time!”
Therein lies the problem, rent control solves the problem initially, but the new problems it creates are what destroy the market over time. By capping rents, the incentive for landlords to maintain properties decreases as the amount of money available disappears. It also decreases the incentive for developers to build new rental buildings as the incentives (profit) have been removed.
With decreased maintenance and minimal amounts of new rental stock being added to the market, over time the condition and qualities of the properties starts to decrease faster and faster. In as little as a few years, this can have a drastic affect on the entire market and drive more landlords out of the business, shrinking the available market even further. Ultimately, it can lead to a market of very affordable properties that should really be condemned.
Now perhaps I am looking at the most negative prospects, but talk of rent controls affects my business very seriously, so I look at what could play out very seriously. If (or more accurately when) this comes up again, be sure you understand the full impact a program like this would have on the communities around you.