Rent regulation

Based on Wikipedia: Rent regulation

"Rent control appears to be the most efficient technique presently known to destroy a city—except for bombing."

That provocative statement came from Assar Lindbeck, a Swedish economist who spent his career studying housing markets, in 1971. Nearly two decades later, Vietnam's Foreign Minister Nguyễn Cơ Thạch offered an even more striking confession: "The Americans couldn't destroy Hanoi, but we have destroyed our city by very low rents. We realized it was stupid and that we must change policy."

These quotes capture something essential about rent regulation: it's one of the most contentious policies in economics, a rare topic where the profession reaches near-consensus while politicians and voters often reach the opposite conclusion. How can something that sounds so straightforwardly beneficial—protecting tenants from unaffordable rent increases—generate such fierce debate?

The answer lies in the gap between intention and outcome, and in the surprisingly complex web of effects that ripple out from what seems like a simple rule.

What Rent Regulation Actually Means

When people say "rent control," they're usually referring to one specific thing: caps on how much landlords can charge. But rent regulation is actually a broader system that typically includes several interlocking pieces.

First, there are the price controls themselves—limits on what landlords can charge for rent. Second, there are eviction controls, which establish the legal standards a landlord must meet to remove a tenant. Third, there are maintenance obligations that require either the landlord or tenant to keep the property in decent condition. And finally, there's usually some kind of oversight system—a regulator or ombudsman who enforces these rules and resolves disputes.

The price control piece is where things get interesting, because "rent control" isn't one policy but a whole spectrum of approaches.

At one extreme, you have what economists call "first generation" rent control, or a rent freeze. Under this system, rents are locked at whatever level existed when the law was passed. No increases allowed, period. This was common during wartime emergencies—about 80 percent of American rental housing was put under such controls in 1941 during World War II.

At the other extreme, you have "vacancy decontrol," sometimes called "second generation" rent control. Under this system, rents can rise to market rate whenever an apartment becomes vacant and a new tenant moves in. But once someone is living there, increases are limited—often tied to inflation or some percentage cap. This is the most common form today.

In between sits "vacancy control," where prices are regulated even between tenancies. A new tenant pays roughly what the previous tenant paid, regardless of what the market would bear.

These distinctions matter enormously. The effects of a wartime rent freeze are very different from a system that allows rents to reset between tenants.

The Economist's Case Against

In 1992, researchers surveyed 464 American economists—professors, graduate students, and members of the American Economic Association. They asked whether respondents agreed that "a ceiling on rents reduces the quantity and quality of housing available."

Ninety-three percent agreed.

That's a remarkable level of consensus for a profession famous for its disagreements. As the old joke goes, if you laid all the economists in the world end to end, they still wouldn't reach a conclusion. But on rent control, they largely do.

A 2012 poll by the Initiative on Global Markets asked 41 prominent economists whether rent control in cities like New York and San Francisco had "a positive impact over the past three decades on the amount and quality of broadly affordable rental housing." Thirteen strongly disagreed. Twenty disagreed. Only one agreed.

What drives this consensus?

The core argument is straightforward. When you cap the price of something below what the market would naturally set, you create a shortage. Landlords who can't charge market rents have less incentive to maintain their properties, leading to deteriorating quality. Some convert their rental units to condominiums, which aren't subject to rent control. Others simply sell their buildings. New investors look at the capped returns and decide to put their money elsewhere, so fewer new rental units get built.

Meanwhile, tenants in rent-controlled apartments have strong incentives to stay put even if the apartment no longer suits their needs—perhaps it's too large after the kids move out, or too far from a new job. This "lock-in effect" means the housing stock gets misallocated. A single person might occupy a three-bedroom apartment while a family of five squeezes into a one-bedroom, simply because the single person got there first and the rent is too good to give up.

There's also what economists call "deadweight loss"—economic value that simply evaporates. Some transactions that would have benefited both parties don't happen at all. A landlord who would have happily rented at market rate and a tenant who would have happily paid market rate never connect, because the controlled price discourages the landlord from offering the unit.

The Evidence From Real Cities

Theory is one thing. What actually happens when cities implement rent control?

San Francisco offers a particularly well-studied natural experiment. In 1994, voters passed a ballot initiative extending the city's existing rent control to small apartment buildings with four or fewer units built before 1980. This covered about 30 percent of the city's rental housing.

Researchers studied what happened over the following decades. They found that landlords removed 30 percent of the newly controlled units from the rental market entirely. Some converted apartments to condominiums. Others restructured them as "tenancies in common," a legal arrangement that effectively turned rentals into ownership units. The result was a 15 percent decrease in total rental units citywide and a 7 percent increase in overall rents.

The tenants who stayed in rent-controlled apartments benefited. But the policy shrank the overall rental market and pushed up prices for everyone else.

Cambridge, Massachusetts tells a similar story. When the city deregulated its housing market, economist David Sims found that rent control had done little to encourage new construction but had "encouraged owners to shift units away from rental status." In other words, landlords responded to controlled prices not by building less but by exiting the rental business altogether.

The World War II experience in America showed another pattern. When 80 percent of rentals were put under price controls in 1941, landlords discovered they could sell their units at uncontrolled prices rather than rent them at controlled ones. The result was an increase in homeownership and a decrease in available rentals.

Berlin tried something dramatic in 2020: a complete rent freeze, unprecedented in the German housing market. Sitting renters benefited from stable prices. But the supply of new housing dropped substantially, hurting people searching for apartments. The policy was repealed in 2021.

The Case For (Or At Least, It's Complicated)

Despite the economic consensus, rent control remains popular with voters and politicians. Are they simply ignoring the evidence, or is something more nuanced going on?

Some economists have begun to push back against the consensus, or at least to complicate it. A 2021 study from Columbia Business School argued that rent regulation provides "insurance benefits" that "disproportionately benefit low-income households." Yes, there are costs—distortions in housing and labor markets. But there are also real gains in housing stability for vulnerable people.

A 2016 study from New York University's Furman Center made a similar point. Rent regulation might be poorly targeted as a pure redistribution program—it doesn't consistently reach the poorest renters. But "as a program to promote longer-term lower rent tenancies for the tenants who benefit from it, even in hot rental markets, it seems to succeed."

This highlights a tension in how we evaluate the policy. If you measure success by total housing supply or average rent levels, rent control looks bad. But if you measure it by whether specific tenants can stay in their homes through periods of rapid gentrification, it looks better.

There's also a question of alternatives. Economists generally prefer housing vouchers—direct payments to low-income renters that let them afford market-rate apartments—or expanding programs like the Low-Income Housing Tax Credit, which subsidizes construction of affordable units. These approaches increase housing supply rather than restricting it.

But voucher programs require ongoing government funding, and affordable housing construction takes years. Rent control can be implemented immediately through legislation. For politicians facing an immediate affordability crisis, it's the policy that's actually on the table.

A Global Tour of Rent Regulation

At least 14 of the 36 countries in the Organisation for Economic Co-operation and Development (OECD)—the club of wealthy democracies—have some form of rent control. The details vary enormously.

Germany takes a characteristically systematic approach. Rental regulations fill sections 535 through 580a of the Civil Code, the Bürgerliches Gesetzbuch. The law distinguishes between what you can charge when a lease begins and how much you can raise rent during the lease. In most of the country, starting rents are freely negotiated. But in designated "strained housing markets," they're capped.

Once a tenant is in place, rent increases must follow the Mietspiegel—literally "rent mirror"—a database of local reference prices collected from new contracts over the past four years. Landlords can only raise rents in line with what similar apartments in the same area charge. Any increase above 20 percent over three years is considered usury and is illegal.

German tenants also enjoy strong protections against eviction. Courts require good reason and typically at least three months' notice. Leases run indefinitely unless explicitly time-limited. Many German states have constitutional provisions guaranteeing adequate housing.

The Netherlands caps annual increases at inflation plus one percent—calculated as 3.3 percent in 2022.

France ties increases to a national Rent Reference Index, with a special cap of 3.5 percent introduced in July 2022.

China announced new nationwide regulations in August 2021, capping maximum yearly increases at 5 percent in all urban areas—affecting most of the country's roughly 250 million renters.

Egypt presents perhaps the most extreme case. The country has had rent control since 1920—over a century. Under this system, tenancies could pass down through generations, with families paying less than one American dollar per month in 2025 for apartments they'd occupied for decades. In 2025, legislation finally ended this system, allowing rents to jump 10 to 20 times in the first year, then 15 percent annually for seven years before reaching market rate. One tenant who had lived in the same apartment since 1984 saw his monthly rent increase from 40 Egyptian pounds (about 82 American cents) to 6,000 pounds (about $124).

The Oldest Rent Control

Rent regulation isn't a modern invention. It was used in Rome as early as 1470.

The context was the treatment of Jewish residents in the Papal States. Jews were forbidden to own property, which made them entirely dependent on Christian landlords. Those landlords took advantage, charging exorbitant rents to people who had no other options.

In 1562, Pope Pius IV granted Jews the right to own property worth up to 1,500 Roman scudi and enacted rent stabilization. In 1586, Pope Sixtus V went further, issuing a papal bull ordering landlords to rent houses to Jewish tenants at reasonable rates.

The motivation—protecting a vulnerable minority from exploitation by those with market power—echoes through five centuries of rent control debates. The trade-offs and unintended consequences that economists worry about today were presumably present then too, though no one was running regression analyses on 16th-century Roman housing markets.

The British Experiment

The United Kingdom offers an instructive case study in policy reversal. Rent regulation covered the entire private rental market from 1915 to 1980—sixty-five years of controlled rents.

Then the Conservative Party, under Margaret Thatcher, began dismantling the system. The Housing Act of 1980 started the deregulation. The Housing Act of 1988 finished the job, abolishing regulation for all new tenancies. The new framework was simple: landlords could charge whatever they wanted.

Today, rent regulations survive only in a small number of council houses—public housing administered by local authorities. And even there, the rates set by councils often mirror the escalating prices in the unregulated private market.

The result has been a transformation of British housing. Private renting has grown dramatically as a share of the market. Rents in major cities, especially London, have soared. Whether this represents a success (more rental housing available) or a failure (less affordable for ordinary people) depends on your perspective and priorities.

The American Patchwork

In the United States, rent regulation is a state-by-state affair, creating a patchwork of different rules.

The constitutional questions were settled decades ago. In 1921, the Supreme Court held in Block v. Hirsh that rent regulation in the District of Columbia, as a temporary emergency measure, was constitutional. Three years later, in Chastleton Corp v. Sinclair, the Court struck down the same law—but on the grounds that the emergency had passed, not that rent control was inherently unconstitutional.

After President Franklin Roosevelt's New Deal in the 1930s, the Supreme Court largely stopped interfering with economic regulation, and many states adopted rent control rules. In 1986, Fisher v. City of Berkeley confirmed that rent control didn't violate federal antitrust law.

Today, four states have some form of rent control. New York's system is the most famous, with its complex web of "rent stabilized" and "rent controlled" apartments, each with different rules. San Francisco, as we've seen, has extensive regulations. Oregon became the first state to implement statewide rent control in 2019, capping annual increases at 7 percent plus inflation.

But many states have gone the opposite direction, passing laws that prohibit local governments from implementing any rent control at all. This "preemption" approach reflects a view that rent control is so harmful that cities shouldn't be allowed to experiment with it.

What Actually Works?

If rent control has so many problems, what should we do instead to make housing affordable?

The policy alternatives cluster around two approaches: demand-side and supply-side.

On the demand side, housing vouchers let low-income renters pay market rents with government assistance making up the difference. The tenant gets stable housing, the landlord gets full market rate, and the incentives to maintain property and build new units remain intact. The catch: voucher programs require ongoing appropriations from legislatures, and current programs serve only a fraction of eligible families.

On the supply side, the focus is on making it easier and cheaper to build housing. Zoning reform—allowing denser development, mixed-use buildings, and accessory dwelling units—can increase supply without direct government spending. Streamlining approval processes can reduce the years-long delays that add to construction costs. The Low-Income Housing Tax Credit program subsidizes developers who build affordable units.

The Reason Foundation, a libertarian think tank, argues that restrictive zoning and building regulations are the real culprits behind housing unaffordability. They inflate development costs, limiting the construction of rental units at any price point. Reduce those regulatory burdens, the argument goes, and the market will provide more housing.

But supply-side solutions have their own political challenges. Existing homeowners often oppose new development that might change their neighborhoods or reduce their property values. The benefits of new construction are diffuse—spread across many future residents—while the costs fall on current residents who show up at zoning meetings.

The Fundamental Tension

At its core, the rent control debate reflects a tension between two legitimate goals that sometimes conflict.

One goal is housing stability for current residents. People build their lives around where they live—their jobs, their children's schools, their social networks, their sense of community. When rents spike, they're forced to move, disrupting all of this. Rent control protects against that disruption.

The other goal is housing availability for everyone. When rent control shrinks the rental market and pushes up prices for uncontrolled units, it helps current tenants at the expense of people trying to find housing. The family that would have moved to the city for a new job, the young person trying to leave their parents' home, the immigrant seeking opportunity—they face a tighter, more expensive market.

Most economists emphasize the second goal, pointing to the aggregate effects on housing supply and overall affordability. Many voters and politicians emphasize the first, seeing the concrete benefits to real people in rent-controlled apartments.

Perhaps the most honest conclusion comes from Peter Tatian of the Urban Institute, who reviewed the research in 2013: "Rent stabilization doesn't do a good job of protecting its intended beneficiaries—poor or vulnerable renters—because the targeting of the benefits is very haphazard." The families who happen to be in controlled apartments when the rules take effect benefit. Everyone else—including many poor and vulnerable renters who weren't lucky enough to already have a controlled apartment—may be worse off.

It's a policy that helps the visible at the expense of the invisible, that solves today's crisis while potentially deepening tomorrow's. Whether that trade-off is worth making depends on how much you weight the certain, immediate benefits against the uncertain, diffuse costs—and on whether you believe the alternatives are politically achievable or just economists' fantasies.