Rent Regulation's Consequences: What's at Stake?

The concept of rent regulation has been exhaustively studied over the years. Sifting through the enormous catalog of empirical studies to discern the various socioeconomic and demographic impacts can be overwhelming. Fortunately, economist Konstantin Kholodilin has made the task a little easier. 
 
Earlier this year, Kholodolin published a nearly exhaustive evaluation of the existing volumes of literature on the subject dating back to the conclusion of the first world war. Poring through some 206 works on the subject (including 112 published empirical studies), his review found that on the micro level, rent controls are effective in slowing the growth of rents for individual tenants. However, these benefits can be counteracted by the wide range of adverse unintended effects, both housing-related and otherwise, impacting renters and the broader community. 

“Rent control, like any other governmental policy, has its intended and unintended effects. Its intended effect is to ensure affordable housing, meaning tenants face a reasonable rental burden.” 
 
But, as Kholodolin’s review of the research reveals, such policies bring with them a myriad of unintended and largely negative effects. Said Kholodolin, “It is important to be conscious of the effects of rent control. Ideally, policy makers should take into account all possible relevant effects, evaluating the inherent costs and benefits. The decision to introduce rent control and its design must rest upon an objective and comprehensive cost-benefit analysis. Only when the net benefit is positive is the policy sensible; otherwise, it produces more damage than utility.”
 
“While rent control does succeed in reducing rents within controlled dwellings, it also generates several adverse consequences that work against its intended purpose.”

Across hundreds of studies, researchers have reached consensus on several of the adverse consequences rent regulation creates: 

Rent Control Deters Community Investment and Stifles New Housing Construction

The majority of researchers (10/16 studies) found that rent regulations deter the development of new housing, particularly rental housing.

“Approximately two-thirds of the studies indicate a negative impact [on construction].” 

Rent Regulation Increases Rents of Uncontrolled Apartments

14/17 studies that examine rent control's effect on rents in uncontrolled apartments found that the policy drove rents higher for these units. 

“Apart from an evident and sometimes intended effect of reducing the revenues of landlords, it can also lead to rent increases for dwellings that are not subject to control.” 

“According to the studies examined here, as a rule, rent control leads to higher rents for uncontrolled dwellings.” 

“The average effect of rent control on uncontrolled rents is 4.8 %.”  

Rent Regulation Leads to Worsening Housing Quality

15/20 studies assessing rent regulation's effect on housing quality found that the policy has a negative impact. 

“The published studies are almost unanimous with respect to the impact of rent control on the quality of housing. All studies, except for Gilderbloom (1986) and Gilderbloom and Markham (1996), indicate that rent control leads to a deterioration in the quality of those dwellings subject to regulations. The landlords, whose revenues are eroded by rent control, have reduced incentives to invest in maintenance and refurbishment, thus they let their properties wear out until the real value of the dwellings decreases and becomes equal to the low real rent.”

“Even tenants in the controlled dwellings can suffer from rent control, as maintenance of such dwellings can be reduced, leading to a decreased housing quality.”

Rent Control Can Reduce Residential Mobility

Nearly every studied (25/26) found that rent regulation policies reduce resident mobility, making it difficult for new entrants to the housing market to find suitable housing options.

“The impact on residential mobility appears to be quite clear: nearly all studies indicate a negative effect of rent control on mobility.”  

Along with input provided by AOBA member companies, the following data sources and references were used in compiling the attached report:  

• Konstantin A. Kholodilin.  “Rent Control Effects Through the Lens of Empirical Research:  An Almost Complete Review of the Literature.”  Journal of Housing Economics, Volume 63.  March, 2024.