4 Negative Effects of Rent Control

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4 Negative Effects of Rent Control

Staff Writer · Apr 2, 2010

Although the general idea behind rent control was to supply affordable housing to people, in the long run, it can have negative effects on the economy as a whole. The practice not only promotes discrimination but reduces the economic incentive for landlords to upgrade or repair properties as well as develop and maintain new real estate.

1. Rent Control Discriminates Against People Who Are in Need of Housing

With rent control in force, many people who need apartments are discriminated against as they’re limited with respect to their choices of housing. As rent control shows favor to those occupying these types of apartments over those who are in need of a place to live, people looking for an apartment are stymied in their selection and what they can afford. In a free market, if rents are higher, people can share the space and therefore landlords profit as well as renters who can still live in a nice place that’s affordable too. As a result, apartment space is better utilized and overall upkeep is maintained.

2. Necessary Repairs or Remodeling Can’t Be Made Because Rents Can’t Be Raised

In many instances, the necessary repairs or refurbishments that need to be made in rent-controlled buildings can’t be facilitated because landlords do not have the funds to do so because of inflation. Therefore, many residents can feel angry toward their landlord because of his refusal to update or fix the property and the landlord is unhappy because he’s forced into taking losses or minimal returns on his investment. Even if he wants to make repairs or updates, his cash flow situation is too weak to justify the expense.

3. Rent Control Can Destroy the Incentive to Build New Properties

Many potential landlords will not invest in properties or build new properties as the restrictions imposed by rent control make it impossible to keep up with any rise in inflation and find the needed capital to construct new apartment homes. Where owners of luxury properties are incentivized to operate at a profit, people building low-rent or rent-controlled properties do not have the same economic incentives in which to see consistent profits or a rise in the amount of money they produce from owning such properties.

4. Buildings Can be Abandoned Because of Deterioration and Lack of Housing

Because of deterioration and the lack of surrounding housing, landlords can be forced into abandoning their properties because they can’t sell them or pay the required real estate taxes. Tenants, too, leave because a building can’t be repaired or updated. Also, as stated, housing is not built in the surrounding areas either because apartments have much higher rents than they normally would in a free market without the constraints of rent control or builders will not manufacture new apartment homes because they feel they can’t make a profit.

Although the idea behind rent control is a noble one, it’s not a positive economic move if you want to keep up with inflation, adequately, utilize space optimally or maintain apartments to the satisfaction of others.

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