How Does Rent Control Work?

If you're apartment hunting in a city with rent control laws, you may be curious to know how rent control works – and even more curious to know how you can find such an awesome deal.

Let's focus on the first part of the question because finding a rent-controlled apartment often requires excellent sleuthing skills, perfect timing and no small amount of good luck or up-front cash.

Rent control 101

In simplest terms, rent control is a government regulation that limits the price a landlord can charge someone to live in a rental property. Once the limit is reached, the landlord can no longer raise the rent, no matter how long the tenant continues to live in the space.

Rent control started in the 1970s to help people stay in their homes at a time when rents were skyrocketing in cities with limited housing, most notably within California, Maryland, New York and Washington D.C. That said, the majority of U.S. cities do not have rent control laws.

How do the laws affect the rent?

Laws vary from city to city, but they often apply only to properties built before a certain year and don't include newly constructed units. For example, in 1975, a property might have rented for $250 per month and then became subject to rent control. The law might have stipulated that over time, the landlord could raise the current tenant's rent to $300 per month but not more.

In addition, some rent control laws restrict how many times and when a landlord can adjust the price and whether the owner can increase the rent to cover costs of a major property improvement.

While similar to rent control, rent stabilization usually permits a very low, annual percentage increase, which might include a final cap. For example, a rent-stabilized lease might allow the current rent of $1,200 to increase up to 10 percent over time. In that case, a renter could calculate that a 10 percent increase on the original $1,200 would be $120, meaning the rent would not exceed $1,320 per month.

Good for tenants

It's easy to see why tenants love these types of leases. People know what their maximum housing costs will be, and control is helpful for individuals on fixed or limited incomes, especially the elderly.

Eventually, the controlled price will fall below (usually significantly below) current market rates, which keeps renters highly motivated to stay in rent-controlled apartments for the long term – if not forever.

Rent control also makes it harder for landlords to evict tenants. Which could be a good thing if you're late paying rent. But if you have noisy neighbors with bad habits who never intend to move, you might be out of luck.

Landlords could, however, evict or raise the rent on any subletters. It's common that only the tenants named on the original lease can live in the unit at the rent-controlled price. If your best friend has the awesome rent control situation going on and wants to pass along their good fortune to you if they move, be aware that the landlord just might be able to increase the rent to market rates and base the limits off of the new, higher price.

In other situations, you might have to pay a hefty finder's fee to get into a coveted rent control situation.

Not as good for property owners

The very reason that rent control benefits tenants is the same reason it can be hard on landlords. With fixed rents, some property owners spend more money on maintenance costs, fees and property taxes than they make through rental income. Because this can leave buildings in disrepair, some rent control laws require owners to perform a certain amount of maintenance themselves.

In some cities, owners have simply walked away from properties that operate at a loss, and others have torn down their buildings so they can rebuild units for sale, not rent. This makes some argue that rent controls contribute to affordable housing problems rather than help them.

So, if you're one of the lucky ones in a rent-controlled apartment, learn about the local laws and carefully read the lease so you truly get the awesome deal you expected.

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