What you should know about Rent Control
In most U.S. communities, supply and demand sets housing costs.
Housing located within easy reach of amenities such as shopping, entertainment, parks and workplace costs more because people are willing to pay a premium for a prime location. These cities often work with developers to make sure there is affordable housing by using zoning and other local regulations.
Some cities have experimented with laws which limit the amount a property owner can charge a renter.
Property owners in cities with rent control find themselves caught in a vise as they are limited as to what they can charge for rent but are faced with a constant increase in property taxes, fees, and other inflationary costs that come with property ownership.
And renters face challenges because property owners may not have the funds to make improvements and upgrades due to caps on rent. They may find their options for housing limited because some property owners might choose to get out of the rental business altogether.
4 big reasons why Rent Control hurts rather than helps
San Francisco, a cautionary tale
In 1994, San Francisco imposed strict rent control to address surging rent increases. City leaders thought setting a ceiling on how much rent could be charged would address a housing shortage for moderate and low wage earners.
They were wrong. A study released in 2018 showed that instead of encouraging affordable housing, the policy had actually decreased regulated units by 15 percent. In other words, there were fewer properties on the market as property owners determined they could not make ends meet renting and converted many of their apartments to condos.
San Francisco’s experience is not unique. Communities such as Cambridge, Mass., Berkley, Calif., and Santa Monica, Calif., all saw decreases in regulated units over time.
Unintended consequences of Rent Control
In an area with rent control, a lucky few will reap the benefits of artificially low rents. For those who live outside the areas with rent control, the costs of housing typically increase.
The policy might seem like it benefits moderate wage earners, but studies have found that’s not necessarily the case. A study of tenants living in rent-controlled units in New York City found that more than 10 percent of 2,300 rent stabilized units there had incomes of more than a half a million dollars.
Government budgets can take a huge hit. Since rent controlled properties aren’t getting as much maintenance or seeing upgrades, assessments will be lower. Lower assessments mean lower tax levies. Lower tax levies translate into shrinking government budgets, resulting in service cuts or even higher taxes.
Rent control kills development, guarantees a never-ending cycle of affordable housing shortages and property tax increases, and ensures a rental property falls into disrepair due to lack of funds.
Why diminish the value of your condo investment?
Many in Illinois see condos as an investment. Owners like having the flexibility to live in condos, or, should needs change, rent them out.
Under Rent Control, the attractiveness of condos as an investment is dramatically less because there is a limit on how much a property owner can charge.
According to an independent study, condo values might drop by as much as 10 percent. For the city of Chicago, that might mean a decrease in value of $2.8 billion over the first 10 years under Rent Control.
That’s a big hit for any current or future investor.