Finding affordable housing can be challenging, especially if you’re looking for a rental. Combining a high rental rate with utilities and other living expenses becomes problematic and even unrealistic for many people. In fact, the costs associated with renting are the reason many people seek out rent-controlled housing. Today, we will review the importance of understanding rent control, which states have rent control laws, the pros and cons, and more.
Contents of This Article:
What Is Rent Control?
Rent control, or rent stabilization, refers to government policies and regulations designed to limit the amount landlords can charge for rent. Oftentimes, these types of policies are put in place to address housing affordability concerns and prevent excessive rent increases. That said, whether you’re a landlord, tenant, or rental property manager in Baltimore, staying informed about rent control is important.
Typically, rent control involves putting a cap on how much a landlord can charge for rent at a certain property. When rent is “controlled,” landlords cannot unfairly raise the price each year for existing tenants. These caps are usually tied to a certain percentage increase, often based on factors like inflation rates or local economic conditions. Some rent control policies also involve setting maximum rents for different types of units or properties.
Rent control aims to protect tenants from unnecessarily high rental rates. However, it can have potential drawbacks and unintended consequences. Additionally, different regions and jurisdictions may implement rent control differently, and it’s essential to understand what rent stabilization means.
Before we review some pros and cons, let’s discuss in which states rent control is relevant and the differences between rent control and rent stabilization.
Which States Have Rent Control Laws?
Rent control laws can vary from state to state and even within cities and municipalities. In addition, some states may have local jurisdictions with their own rent control regulations. However, not every state has strict laws regarding rent control. In fact, rent control is prohibited in 37 states in the US.
Currently, only California and Oregon have statewide rent control regulations. However, other states with county and city rent control laws include the following:
- New Jersey
- New York
- Washington DC
Keep in mind that while there may be state rent control laws, most rent control rules and regulations vary by city and county. For instance, in Washington DC, some properties are exempt from rent control, including those built after 1975, owned by an individual with four or fewer rental units, or subsidized by the district or federal government.
Additionally, in states like Maryland, there are no statewide rent control laws. In fact, Takoma Park is the only city still enforcing rent regulation, but only in the form of rent stabilization. Each year, the city publishes an annual rent stabilization allowance, which sets a maximum rental rate that may be charged based on the yearly increase of the region’s Consumer Price Index.
Importance of Understanding Rent Control vs. Rent Stabilization
It’s important for tenants, landlords, and property managers to understand rent control and how it works. After all, if you live in a state or city with rent control laws, you’ll want to know how they may affect you, whether you’re a landlord or a tenant. However, rent control is often confused with rent stabilization.
Rent control typically sets a maximum limit on the rent landlords can charge for their rental units. Government authorities generally set these limits, usually tied to factors like the unit’s historical rent, the cost of living, and the overall housing market.
That said, rent control policies are usually more strict and can significantly limit a landlord’s ability to increase rents, even between tenants. In some cases, rent control might include provisions related to eviction procedures and the rental unit’s condition.
On the other hand, rent stabilization is a milder form of rent regulation where rent increases are limited but not as strict. For instance, under rent stabilization, landlords can increase rents, but there are usually caps or guidelines that dictate the maximum allowable increase. Generally, these caps are tied to factors like inflation or other economic indicators. That said, rent-stabilized units are subject to more moderate increases than regular market rates, offering tenants some level of protection against excessive rent hikes.
Rent-controlled housing is usually much harder to find. First of all, it’s only prevalent in a few states and regions, and the building must meet specific criteria. However, rent-stabilized housing is more common and more accessible for renters. Next, we’ll go over how rent control works and the pros and cons for renters and investors.
How Does Rent Control Work?
Rent control works by imposing regulations on the amount landlords can charge tenants for rent and the conditions under which rents can be increased. The specific mechanisms can vary depending on the jurisdiction and details of the policy, but here’s how rent control generally works.
- Rent Increase Caps
- Maximum Allowable Rent
- Tenant Protections
- Registration and Reporting
Rent Increase Caps
Rent increase caps are a fundamental aspect of rental control policies. These caps restrict the extent to which landlords can raise rents over a specified period, typically on an annual basis. For instance, a policy might state that landlords can only increase rents by a maximum of 3% per year.
Rent caps are usually expressed as a percentage of the current rent or are linked to economic factors like inflation rates. By implementing these caps, authorities aim to prevent sudden and excessive rent hikes that could lead to financial strain for tenants or even displacement from the property.
Maximum Allowable Rent
Some rent control systems set a maximum allowable rent for each rental unit, which serves as the upper limit landlords can charge for their tenants.
This maximum rent is often determined using a combination of factors, including the initial rental price, property characteristics, and local regulations. The ultimate goal is to balance providing affordable housing and ensuring landlords have a reasonable return on their investment.
Some properties or landlords might be exempt from rent control policies due to specific circumstances or property types. For instance, exemptions can range from excluding single-family homes, newly constructed units, or owner-occupied properties from rent control regulations. These exemptions recognize that different types of properties and situations may warrant different treatment to ensure fairness in the rental market.
Tenant protections are a crucial part of rent control policies intended to prevent unfair and unjust evictions. These provisions require landlords to have valid reasons, like non-payment of rent or lease violations, for evicting tenants. By placing these eviction restrictions, authorities aim to protect tenants’ rights and prevent landlords from using eviction to replace tenants and increase rents without cause.
Registration and Reporting
Many jurisdictions with rent control regulations require landlords to register their rental properties with local authorities and report essential information about prices and increases. This data collection serves multiple purposes, like transparency in the rental market, ensuring landlords follow established rules, and providing policymakers with insights to assess the effectiveness of rent control policies.
Pros and Cons of Rent-Controlled Properties
Most investors tend to shy away from rent controlled-properties–usually for good reason. However, rent-controlled properties have both advantages and disadvantages, and their impact can vary depending on the specific circumstances. For instance, factors like local regulations and housing market conditions can have a significant impact. Here are some of the pros and cons associated with rent-controlled properties.
Benefits of Rent-Controlled Properties
- Creates Stability- Rent control helps ensure that housing remains affordable for tenants, especially in areas with high demand and limited supply. As such, they can provide stability and security for renters.
- Long-Term Tenants- Rent control can lead to more long-term tenants, ultimately creating a safer and more stable neighborhood. Additionally, long-term tenants can reduce vacancies and turnover costs for landlords.
- Tenant Protection- Rent control policies protect tenants against sudden and extreme rent increases, reducing the risk of displacement and homelessness.
Disadvantages of Rent-Controlled Properties
- Less Profitable- Rent control policies can discourage landlords from investing in property maintenance and improvements, as rent caps limit their potential returns.
- Poorly Maintained- With fewer financial incentives, landlords might be less inclined to make necessary property repairs or updates. In turn, it may result in declining housing quality over time.
- More Regulations- Rent control policies can create more work for landlords. With more documentation and compliance regulations to worry about, it creates additional administrative work.
Find the Right Management Solution With BMG
Understanding rent control laws and regulations is important for all tenants, property managers, and investors. While rent control doesn’t apply to all states and regions, landlords must know how to set fair and competitive rental rates. Additionally, renters should know how to find affordable rental housing that fits their budget and needs.
Setting fair rental rates takes research and due diligence. However, landlords with several properties, especially in areas like Washington DC, or Maryland, may have trouble keeping up with rent control laws or regulations. As such, it helps to have a reliable property management team by your side to help guide you through the important tasks of owning and managing rentals.
Bay Property Management Group offers comprehensive rental management services, including marketing, tenant screening, maintenance, rent collection, and more. Contact us BMG to learn more about our services in Baltimore, Philadelphia, Northern Virginia, and Washington, DC.