National Rent Control – Is Rent Control Good or Bad?

National Rent Control: Is Rent Control Good or Bad?

The concept of rent control often sparks debate, particularly among investors concerned about rental property profitability and long-term sustainability. National rent control introduces uncertainty and risk for landlords, impacting the housing supply and overall rent price trends.

With the current administration proposing a nationwide 5% rent cap, it’s critical to assess the benefits, drawbacks, and economic impact of such policies. The proposal specifically targets corporate landlords with 50 or more units, requiring them to cap rents at 5% annual increases or forfeit certain tax benefits.

Although the full details of the plan are still unclear, it is expected that any national rent stabilization policy would resemble existing state and local rent control laws. This raises important questions: does rent control work? What are the effects on housing supply? Is rent control good or bad for long-term affordability? Let’s break it down.

The Advantages of Rent Control: How It Benefits Owners and Tenants

Owner Perspective: Leveraging Rent Caps and Market Trends

A 2018 study by economists Diamond, McQuade, and Qian (DMQ) analyzed the effects of a 1995 rent control policy in San Francisco. The research found that tenants were 8% less likely to move after rent stabilization was enacted.

However, this also led to a 15% reduction in available rental units as landlords converted properties into condominiums. With lower turnover rates and fewer available apartments, rental prices for non-rent-controlled units surged.

In a rent control scenario, landlords may still see advantages, including:

  • Higher occupancy rates as tenants stay longer
  • Lower eviction rates due to tenants avoiding market-rate housing
  • Reduced turnover costs with fewer vacancies
  • Higher rent increases on new tenant leases, allowing for some revenue growth

Even under national rent control, investors can capitalize on market shifts by adjusting pricing strategies and benefiting from higher lease rates on new tenants.

Example of Value Creation Despite Rent Caps

Consider a multifamily rental property where:

  • Operating expenses typically account for 45% of rental income
  • The property generates $1M in rental income, with $450K in annual costs
  • A 5% increase in expenses raises costs by $22.5K annually
  • If 80% of tenants receive a 5% rent increase and new leases increase by 10%, overall rental income rises by 7% ($70K annually)
  • At a 5% CAP rate, this results in a $950K increase in property value, despite rent caps

While rent control limits rental price increases, landlords may still benefit from higher rents on new leases and strong occupancy rates.

Tenant Perspective: The Benefits of Rent Control

For tenants, rent stabilization policies serve as a financial safety net, limiting sharp housing cost increases and preserving affordability.

Key benefits include:

  • Predictable rent prices with a 5% annual cap
  • Easier long-term budgeting and reduced risk of displacement
  • Protection from gentrification-driven rent hikes, ensuring more stable housing costs

For tenants who secure a rent-controlled unit, the policy provides financial security, particularly in high-cost urban markets.

The Downsides: Why Is Rent Control Bad?

Owner Perspective: The Challenges of Rent Control Economics

While rent control economics may benefit tenants, it presents significant challenges for rental property owners.

  • Capped rental income growth limits the ability to adjust rents for rising operational costs
  • Inflationary pressures and rising expenses (e.g., property taxes, insurance, and maintenance) continue to climb
  • Renovation restrictions prevent property owners from repositioning units, affecting value-add investment strategies

In a rent-controlled housing market, investors must shift their focus from short-term rental price appreciation to long-term property appreciation.

Tenant Perspective: The Unintended Effects of Rent Control

While rent stabilization policies provide benefits to existing tenants, they can also lead to negative housing supply issues.

  • Fewer available rental properties – As shown in San Francisco (DMQ Study, 2018), rental supply declined as landlords converted units into condos or withdrew from the market
  • Higher starting rent prices – Since landlords cannot freely adjust rents, they often charge higher rates for new tenants to compensate for lost revenue
  • Declining property maintenance – The same study found that property upkeep suffered, as landlords had little incentive to reinvest in rent-controlled buildings

This raises a crucial question: what are some of the unintended effects of rent control, and how do they impact overall housing quality?

The National Rent Control Pros and Cons Debate

Economists broadly agree that government-imposed price regulations can create unintended consequences. If national rent stabilization policies take effect, it could:

  • Reduce new rental property investment due to lower profit potential
  • Limit housing supply, causing landlords to exit the market
  • Increase market-rate rents, as restricted supply makes available units more expensive

Most multifamily real estate investors model for 3% organic annual rent growth. However, value-add investment strategies often project higher rent increases post-renovation.

Under rent caps, landlords can only raise rents to market rates on vacant units. The biggest risk is low tenant turnover, which can delay renovations and reduce potential returns.

At a national level, policymakers must strike a balance between protecting tenants and incentivizing continued investment in the housing market.

Does Rent Control Work?

The effectiveness of rental policies depends on various factors.

  • For tenants, rent stabilization ensures predictability and affordability
  • For landlords, it restricts revenue potential and discourages investment in new housing development

As debates over national policies continue, investors must stay informed and be ready to adapt investment strategies to comply with potential regulatory changes.

Final Thoughts: Is National Rent Control Good or Bad?

The effects of national rent stabilization are complex. There are clear advantages for tenants, but unintended consequences such as shrinking housing supply, increased rental prices for new tenants, and declining property conditions remain concerns.

Economists frequently cite evidence that price controls often lead to housing shortages and quality deterioration.

For real estate investors, understanding rent control economics is critical when making strategic investment decisions. The key question remains: is it good for affordability, or does it discourage new investment and reduce supply?

Want to Learn More?

Explore the latest insights on multifamily investing, rental property economics, and government housing policies on Rod’s podcast.

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