Under policies that are known variously as rent regulation, rent control, or rent stabilization, governments regulate rents by limiting property owners’ ability to set prices for their housing units. While simple in concept, these price controls become more complicated as jurisdictions translate policy into practice. Here, we offer insights we gathered from rent regulation experts in a recent series of webinars and other conversations. The Federal Reserve Bank of Minneapolis presented the events in partnership with Urban Land Institute Minnesota to respond to a growing interest in rent regulation policies within the Ninth Federal Reserve District and across the nation.
Conversations about rent stabilization have become more common during this period when rents are increasing and federal aid to help people afford rental housing is decreasing. Renting a home is now less affordable than it was at the turn of the century, particularly for low-income renters.
As Brookings Institution Senior Fellow Jenny Schuetz pointed out at one of our events, local governments bear the costs of unstable housing for their residents but often lack the financial resources to provide housing vouchers or subsidize affordable housing at scale.
While the low direct costs of rent regulations may appeal to local policymakers, Schuetz said, it’s important to remember that they are not means-tested—and may create costs for renters in ways that are harder to observe. As discussed below, the design of a rent stabilization policy will have important implications for the way rental regulations impact tenants and the broader housing market.
Rent regulations shaped and implemented in significantly different ways
Most states have laws that either prohibit localities from passing rent regulations or require local rent regulation ordinances to be approved by state legislators. Where rent regulation is possible, two states, four counties, and more than 160 municipalities regulate rents within their boundaries. That includes significant parts of three of the nation’s largest metropolitan areas—New York City; Los Angeles; and Washington, D.C.
In Minnesota, the sole state in the Ninth Federal Reserve District where cities have implemented rent controls, state law allows local rent control policies only if a municipality’s voters approve them in a general election. St. Paul’s electorate was the first to do so, in November 2021, and the approved policy took effect in May 2022. In that same 2021 election, Minneapolis residents voted to authorize their city councilors to discuss rent regulations, but any policy passed by the Minneapolis City Council then must be approved by the city’s voters during an election.
“Jurisdictions can—and do—make many different choices in designing rent regulations,” said Sophie House, director of law and policy at the Furman Center at New York University. “Each of these choices has a trade-off. We need to think about them in context.”
Variations in policies start with the buildings covered
Rent regulations typically do not apply to all rental units within a jurisdiction. Policymakers instead exempt units based on a building’s age, size, or ownership.
Such price-control exemptions are crafted in response to concerns about how rent regulations influence a rental market. For example, proponents of building-age-based exemptions argue that excluding newer units limits rent regulations’ potential to depress rental housing production. The proponents also point out that tenants of new, unsubsidized units are almost always higher-income households that are not at risk of income-based displacement. These exemptions can be set based on a specific date of construction or be “rolling.” In San Francisco, all units built after 1979 are exempt, barring any update to the city’s rent regulation ordinance. In Oregon, new units are exempt from price controls for 15 years.
Other exemptions are often touted as tools to maintain the diversity of housing available to renters. For example, if rent regulations cover single-family homes, landlords may be more likely to sell their properties to owner-occupants. Some jurisdictions include a carve-out for small landlords. Advocates for such policies argue that rent control puts higher costs on owners with fewer units because associated administrative costs are spread over fewer tenants.
St. Paul is the first jurisdiction in the nation to cover every residential rental unit within its boundaries. The share is more limited in many cities. For example, in San Jose, California, units built after 1979, single-family homes, and duplexes are all exempt from price controls. That means only about a quarter of that city’s occupied rental units are covered.
Varied approaches to, flexibility within rent-growth caps
Wherever they operate, landlords with units covered by rent regulation can only raise the rent by a maximum allowable increase each year. These caps are also commonly set in relation to inflation, often using data from the Consumer Price Index (CPI). For example, in Berkeley, California, the cap is set at 65 percent of the CPI.
Rates can also be set above the CPI. In Oregon, landlords can’t raise rents more than the CPI plus an additional 7 percentage points. Policies like Oregon’s are called “anti-gouging” measures because they prevent relatively high rent increases.
Some policies give more flexibility to policymakers who determine the cap. New York City’s mayor appoints a Rent Guidelines Board to, among other duties, determine the rent cap annually.
The headline price control number within rent regulations doesn’t typically match the maximum rent increase allowed. Rent regulations generally allow landlords to file for exemptions to the rental cap to offset capital investments in their properties. In some cases, landlords may also pass on expenses such as property tax increases or utility-rate hikes to their tenants.
The practices for filing for an exemption vary by jurisdiction. For example, St. Paul’s policy sets a 3 percent annual cap on rent growth. But landlords can self-certify for exemptions that allow them to raise rents by up to 8 percent under a wide range of circumstances. Among those: if operating costs increase or if the landlord makes capital improvements to a property.
According to some experts who joined us in our conversations, rent regulation tends to decrease capital improvement investments in rental units. Some opponents of rent regulation argue that this means a market with price controls only supports lower-quality housing. Proponents of rent regulation point out that some capital improvements—like new countertops or more expensive bathroom fixtures—are not about a tenant’s comfort or a unit’s safety or habitability.
There may also be a measurement issue here. In some cases, the impact of rent regulation versus capital investments on unit quality is difficult to determine. For example, where price controls exist, tenants may feel more protected from landlord retribution, making them more likely to report problems with their units that result in repairs.
“Many tenants are going to be hesitant to bring up concerns in their units for fear of eviction, particularly tenants who are undocumented or tenants of color,” said the Urban Institute’s Christina Stacy. “So, we also need to have those regulations in place that protect them.” Proactive code enforcement, she said, is also preferable because it doesn’t require tenants to take any risks.
Whatever their impact on landlord behavior may be, many of the exemptions in rent regulations are crafted as part of these policies’ allowance of a “reasonable rate of return” for rental units’ owners. Some policy experts believe this feature is necessary to maintain the constitutionality of rent regulations.
Without a “reasonable rate of return” allowance, rent regulations could be construed as an illegal “taking of property.” That is, regulations that don’t allow such a rate of return would inhibit landlords’ use of their property enough that a court could overturn the regulations. Indeed, some attorneys and landlord advocates contend that rent regulations are unconstitutional.
Rent caps’ influence on markets can change over time
As markets move, the implications of a rent cap can change. Take Minneapolis: from 2015 to 2018, the median home rent increase hovered around 2 percent per year. But, within the same period, one in ten units saw rent increases of at least 10 percent.
Mike Wilkerson, a presenter at our second event and a senior economist with the ECONorthwest consulting firm, found similar variations in rental units in Portland and Seattle. “We looked at the data to find out how often rents were increasing by more than 10 percent,” he said. “And the answer was: it depends on the market conditions.”
In a typical year in Portland, he said, fewer than 5 percent of rental units would see an increase in their rent by 10 percent or more. When market conditions were hot, rents would go up by 10 percent or more on as many as 25 percent of one-bedroom units.
Policies determine allowable rent increases for new tenants
What happens to the price of a rent-controlled unit when a tenant moves out? In most policies, a vacancy creates an opportunity for landlords to charge a new tenant more than they would’ve been allowed to charge the prior tenant. When this is the case, that sort of rent regulation is said to feature “vacancy decontrol.”
There are several variants of vacancy decontrol. Regulations with a “vacancy bonus” allow for rent increases beyond the typical cap but still limit the maximum increase. In other jurisdictions, landlords can “bank” any allowable but unrealized rent increases throughout a tenant’s lease and then apply the banked increases when a tenant leaves.
Without vacancy decontrol, landlords are incentivized to raise tenants’ rents as much as possible each year. That’s because each year’s maximum allowable rent increase becomes a “use it or lose it” opportunity for the landlord. On the other hand, opponents of decontrol policies argue that such rules incentivize landlords to push tenants out of their homes in order to charge higher rents to new occupants. With decontrol in place, landlords may prefer short-term tenants such as students.
Enforcement and administration
As a jurisdiction figures out its rules for a rent regulation regime, it must also determine who will administer and enforce those rules. In some cases, an existing department may manage rent regulations. In other cases, policies may be set and enforced by an elected or appointed board. Or, as in Oregon, disputes about rent regulations between a tenant and a landlord may wind up in civil court.
All of these decisions have implications for the direct public cost of price controls. Jurisdictions must find ways to pay for inspectors, attorneys, judges, or other staff required to settle disputes, maintain records, and do all the other work affiliated with a rent regulation regime.
Some jurisdictions finance all or part of the costs of rent control by charging a fee. Berkeley, for example, charges landlords up to $250 per year, while elsewhere in the San Francisco Bay area, the City of Oakland charges a $101 fee that may be explicitly split between a tenant and property owner. Other jurisdictions rely on appropriations from a city council or draw on funds from federal block grants.
Matt Brown, an attorney for the Berkeley Rent Stabilization Board, argued that elected boards are more likely to pursue strong protections for tenants. If administered within a department, he said, rent regulation work may be less visible, subject to competition for resources, and more vulnerable to conflicting policies developed by other departments.
Regardless of the entity managing a rent regulation regime, part of the regime’s efficacy will be determined by tenants’ knowledge of its features. Our experts argued that rent regulation should be “simple and understandable for the folks it is designed to protect,” as Sybil Hebb of the Oregon Law Center put it.
Other features may determine a rent regulation policy’s efficacy in protecting tenants. Here are a few: the maintenance of a rental-registry database that tracks yearly rents for units, the methods a jurisdiction uses to communicate with tenants about their rights, and the venue chosen to settle disputes over rent increases or exemptions for landlords.
Decisions made or processes created by the administrators of a rent regulation policy can also influence tenant experiences. For example, if the process for having capital improvements approved is onerous or time-consuming, landlords may delay or avoid repairs to rental units.
Defining and examining efficacy
These policy choices may influence how price controls impact a rental market. But before policymakers, economists, or anyone else can assess rent regulations’ efficacy, they must evaluate possible outcomes.
Impacts on housing development
Shane Phillips, the housing initiative project manager at UCLA’s Lewis Center for Regional Policy Studies, offered a metaphor in line with much of the conversation during our series. If the struggles of low-income tenants are tied to a housing shortage, rent control is like a painkiller, he said.
“We don’t withhold painkillers from people just because they don’t treat the underlying disease,” he continued. “But doctors also recognize that painkillers have their own risks and harm . . . and ultimately, are most dangerous when doctors misunderstand [those risks] or are misinformed.”
There are two ways that economists and others often attempt to gauge the impact of rent control on the housing market. In the first method, researchers look at how housing developments are typically financed. They then calculate how different aspects of a rent regulation regime may influence the attractiveness of a property for a developer or investor.
To perform such an analysis, researchers work to understand the motivations of different types of investors. David Garcia, policy director at the Terner Center for Housing Innovation at the University of California, Berkeley, explained that there are two large categories of real estate financiers. He said about two-thirds of the money for a multifamily project typically comes from a more cautious lender like a bank. In contrast, a third of a project's funds usually come from equity investors.
Lenders underwriting debt are most interested in the ability of a housing development’s revenues to cover regular debt payments and operating costs. In other words, a debt investor will ask: Will the rents collected by a building owner likely cover a building’s operating costs, plus its debt payments, with wiggle room if the project hits bumps along the way or faces an unexpectedly poor market?
Equity investors, meanwhile, are more interested in the value of a project over the long term. Their investments are based on an expectation that their stake in a project can be sold for a profit. For this to occur, the value of a building and the land underneath it need to appreciate over time.
Housing developments compete against a broad universe of investment options with varying rates of return and risk, not just against other residential projects. “It’s important to understand that these groups can invest in anything,” Garcia said. “If a project can’t demonstrate [a rate of return] they would prefer, they can invest their money in more safe things.”
Different rent control policies may factor into the decisions by a bank or equity investor to commit to a housing project. Rent caps may increase the perception of risk involved in a project, for example, because the development’s owners may not be able to raise rents to cover unexpected losses or changes in market conditions.
Wilkerson’s team at ECONorthwest looked at hypothetical housing development proposals to estimate which features of a rent control policy would have the largest implications for a project’s value in California’s San Francisco Bay area. “At a high level, exemptions for [new construction] were more impactful than incremental changes [to the level of] rent limits,” he said. “Vacancy decontrol was the most impactful.”
The second way that economists can attempt to estimate the impact of rent control is by looking across housing markets and comparing those with and without rent regulations in place.
Each market is complex and differs significantly across (and within) metropolitan areas. In addition, there’s diversity among the rent regulation policies in the United States. As several experts told us during our sessions, this variation complicates efforts to evaluate rent regulation policies and arrive at generalizable findings.
“It’s difficult to produce robust studies of rent regulation,” said the Furman Center’s Sophie House. “Rent regulation laws don’t change often, and when they do, they don’t change randomly. Cities and states that enact rent regulation are different from those that don’t.”
“It’s easy to look for immediate impacts [of a policy change],” said Matthew Murphy, a former rent control official in New York City and now the executive director of the Furman Center. “But in the long run, it’s really more about [changes in] demographics and demand.” He pointed out the different ways New York City’s housing market has moved despite consistently being subject to rent regulations.
Despite these challenges, some economists have used real-world data to examine how rental markets may change after a change in rent regulation policy. Three Stanford University researchers looked at a 1994 update to rental regulations in San Francisco. These researchers found that the policy change didn’t necessarily impact new construction, but did reduce the overall supply of rental housing.
In the study, landlords of rent-regulated units were more likely to remove them from the regulated rental market altogether. They could do so by selling the units to owner-occupants or even demolishing a property and rebuilding it as higher-end housing.
The authors of the San Francisco study also considered the effects the policy change had on renters. They found that tenants with low incomes were more likely to stay in place if they lived in a rent-regulated home than if they did not.
On the other hand, the researchers also pointed out that low-income renters would have difficulty moving into the city. That’s because the policy’s negative impact on the number of rental units raised prices.
Taking a holistic view
Rental regulations don’t operate in a vacuum and are not the only policy pursued by local jurisdictions that can help— or harm—housing stability for renters. During our series, Jackelyn Hwang, a Stanford professor, shared her own research comparing rent regulations in the San Francisco Bay Area. Her work considered rent regulations’ effects along with other city-level protections for renters.
Hwang found that low-income renters in areas with rent regulations were less likely to move. She also found that when they did move, they were more likely to move into higher-poverty neighborhoods, and households with low incomes were also less likely to move into rent-regulated jurisdictions.
“Our research shows that there is a serious trade-off between direct displacement and exclusionary displacement,” Hwang said. “While rent stabilization may be effective in keeping people in place, it has to be paired with something that ensures people [have] places to go.”
However, Hwang’s work also suggests that the “strength” of a jurisdiction’s overall tenant protections matters for tenant stability. In cities with “just-cause” evictions, for example, tenants with low incomes were less likely to move. Just-cause eviction laws limit the reasons landlords may evict a tenant, typically allowing for evictions only in cases of non-payment of rent or other lease violations.
Panelists across all four events agreed that improved economic security for low-income renters could be directly supported by an increase in the supply of affordable units.
“Rent regulation can provide stability to people who can get access to rent-regulated units,” said the Brookings Institution’s Jenny Schuetz. “It’s not directly a way of addressing the lack of supply. A well-designed [rent regulation] policy may not discourage units from being added, but it does not add units.”
The Lewis Center’s Phillips pointed out that the nation’s longest-running rent regulations were often passed after the implementation of other local policies that likely have a more considerable negative impact on housing production. He pointed to changes to zoning codes that make it more expensive to build dense housing as one example. Michael Spotts, a senior visiting fellow at the Terwilliger Center for Housing, cautioned that advocates for supply also need to be mindful of how their policy choices may influence outcomes for low-income tenants.
“We have to look at the dimensions of supply,” he said. “What’s being built, where, and by whom? These different dimensions of supply dramatically impact affordability writ large. Is your path of least resistance going to incentivize redevelopment of a certain kind of property that’s currently serving low-income or vulnerable tenants?”
Our four-part series offered engaging conversations around the most pressing questions for policymakers thinking about, implementing, or reconsidering rent regulation as an approach to support low- or moderate-income renters. As evidence develops, the Minneapolis Fed will continue to monitor the particular impacts of price controls on markets, landlords, and tenants.
Libby Starling is the Minneapolis Fed’s Community Development and Engagement director. She is responsible for the Bank’s efforts to promote the economic resilience and mobility of low- to moderate-income individuals and communities across the Ninth Federal Reserve District.