William Smith - Rent Control in North America and Four European Countries: Regulation and the Rental Housing Market

First published 1998 by Center for Urban Policy Research

Published 2019 by Routledge

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Library of Congress Cataloging-in-Publication Data

Keating, W. Dennis (William Dennis)

Rent control: regulation and the rental housing market /edited
by W. Dennis Keating, Michael B. Teitz, Andrejs Skaburskis.

p. cm.

Includes bibliographical references and index.

ISBN 0-88285-159-4 (alk. paper)

1. Rent controlUnited States. 2. Rent controlCanada.

I. Teitz, Michael B. II. Skaburskis, Andrejs.

KF6068.R3K43 1998

346.7304344dc21

97-26456
CIP

ISBN 13: 978-0-88285-159-4 (pbk)

ISBN 13: 978-1-138-53181-9 (hbk)

R ent control, the governmental regulation of the level of payment and tenure rights for rental housing, occupies a small but unique niche within the broad domain of public regulation of markets. It is, perhaps, the only form of price regulation in which the regulation occurs at the level of the individual transaction. Because every housing unit is differentat a minimum by virtue of its unique location in three-dimensional space, but in reality because of a host of subtle sources of variationthe price of housing cannot be defined on the basis of a common unit of quantity, as it can for most other goods. The price of housing cannot be regulated by establishing a single price for a given level of quality, as other commodities such as electricity and sugar have been regulated at various times. Rent regulation requires that a price level be established for each individual housing unit, which in turn implies a level of complexity in structure and oversight that is unequaled.

At the same time, rental housing occupies a very special status in the eyes of its occupants. It is costlyaccounting for a third or more of most renters budgets. It is difficult to substitute; finding a new unit requires extensive searching and involves substantial moving costs. Since any given unit is the focus of an individuals or a households personal life, it takes on a deep psychological significance as a place of security and self-definition. That the subject of housing can evoke strong emotions should not surprise us; it touches peoples most sensitive concernstheir pocketbooks and their sense of personal well-being. Regulation in such a sensitive environment cannot be simple or easy.

Nonetheless, again and again in the history of cities across the world, we find efforts to control the price of rental housing. Almost from the outset, concerns about the price and quality of rental housing have evoked movements to regulate its provision in the market. Such efforts have ranged from nonideological ad hoc attempts to soften the impact of specific pressures on rents, such as those that occur in times of shortage during war, to comprehensive efforts by socialist reformers and revolutionaries to transform the very nature of housing ownership and supply. Both the First and Second World Wars, for example, provided a substantial impetus to rent control in North America. Beyond the effects of war, housing reformers efforts arose from the perception that without controls the market would provide rental housing for poor and working-class households only at a low level of quality, as judged by the conventional middle-class standards of the time. Furthermore, the price of such housing was perceived as burdensome, and the conditions of occupancy too often insecure or degrading. The stock figure of the grasping and heartless landlord continues to be part of the cultural heritage of the modern world, although, to be sure, that image has its roots in rural tenancy.

Residential rent control has never been universally adopted. Rather, it seems to persist stubbornly in the face of powerful forces that seek its elimination. In capitalist societies, price regulation is always a dubious enterprise, standing in opposition to free-market competition and to the forces of supply and demand. Still, despite their shortcomings, market-based capitalist societies have raised the productivity and standard of living of their members to levels unequaled in human history. Within these societies, the logic of price formation through the market is both widely recognized and supported by the web of social institutions and power relationships that constitute the societies essential fabric. Only where market forces are clearly distorted, as in the case of natural or artificial monopolies, has regulation been widely endorsed and adopted. Certainly, among economists, who are the voice of conventional understanding of economic issues, rent control has long been anathematized as wasteful, inefficient, and inequitable. Few people of any walk of life would advocate price regulation of other commodities. Perhaps it makes more sense to ask why residential rent control is still with us.

The purpose of this book is to explain carefully and in full measure the nature of rent control as it has evolved in North America in the twentieth century. For several reasons, this is not an easy task. Rent control is one of the most frequently debated and emotionally charged issues addressed at the state and local levels in American life. The threat of its appearance evokes intense fear, opposition, and attempts to enact preventive legislation on the part of rental housing owners and their allies. Where rent control exists, the possibility of change or abolition gives rise to heated debate and intense political conflict, as evidenced in 1997 in New York City as this is being written. Inevitably, those who write about topics like rent control face the likelihood that they will be labeled as partisan toward one side or the other. Indeed, no one comes to such a subject without values that implicitly favor a particular position. Even so, walking in a minefield tends to make one especially careful of the path taken. We have attempted to traverse the field of rent control in a way that is reasoned and respectful of reality, as revealed by the best research that we can find. This book is not a tract, either for or against rent regulation.

Even if the problem of bias can be dealt with, residential rent control is still a formidably difficult subject. As a policy, it affects so many aspects of life that no single disciplinary perspective can reveal its meanings and ramifications. For this reason, the first part of this book is organized on thematic lines, drawing on research from a variety of theoretical perspectives and disciplines. We begin in , respectively, examine rent control from the perspective, first, of legislation and administration, and second, from the perspective of the courts and litigation. Although rent control is often perceived in monolithic and simplistic terms, in fact, the state and local legislative origin of rent control regulation has resulted in a rich variety of forms and degree. The range of what is permissible has been explored, tested, and established by a combination of political conflict and accommodation in the legislative process and by litigation in state and federal courts. The peculiar nature of residential rent controli.e., its regulation of the specific rent for each unit, though with generic permissible levels of change in rentsrequires that the legislation be written in such a way as to permit a form of administration that differs substantially from that of most types of regulation. The impact and effectiveness of the regulation are in turn greatly shaped by both legislative form and administrative practice. Given the complexity of formulas and the disagreement about such basic questions as how to measure the return on investment realized by landlords or the impact of rent adjustments on tenants, both legislation and administration have been continuously subjected to litigation and court tests. These tests have turned heavily on the issue of constitutionality of rent regulation and, once it was found to be constitutional, on the rights of owners to adequate returns on their investments.