Economists of all stripes vilify rent control, from liberal economist Paul Krugman to libertarian Thomas Sowell. The consensus is so pronounced that rent control is used in as an illustration of bad economic policy in academia—literally a textbook example of what not to do.
Washington state, nevertheless, recently passed rent control into law.
To address high rents and a lack of affordable housing one might seek measures designed to increase housing supply. In fact, Washington’s governor did that on his first day in office and again on the same day he signed rent control into law. More on that in another post.
For now, this article explores the consensus view of economists regarding rent control, then summarizes the provisions of the new Washington rent control law.
Economists condemn rent control as bad policy.
One peer-reviewed economics journal article beings with “rent control is usually introduced to economics students as a price ceiling and an unambiguous source of inefficiency.” [1]
Blair Jenkins, the author, makes clear that she is reviewing professional literature. She organized the judgments of economic research using only articles that met certain criteria: the articles focus on rent control policies; data come from U.S. cities; and at least one author must be an economist. Jenkins proclaims that she was scrupulous to include articles that “go against the main tendency” so as to “assure the reader that my efforts have not accommodated a ‘picking and choosing’ bias on my part.”
Jenkins concludes that “the preponderance of the literature points toward the conclusion that rent control introduces inefficiencies in housing markets. Moreover, the professional literature on the whole does not sustain any plausible redemption in terms of redistribution.” Empasis mine.
First-generation rent controls.
Rent control comes in different forms. A hard freeze on rent that does not allow increases at all (a/k/a “first generation” rent control) is universally derided by economists. “The results (of economic research) of first-generation controls are uncontroversial.” Even economists who offer a revisionist view of other forms of rent control do “not dispute that first-generation controls were harmful (they almost certainly were).” While short-term freezes might have a place in wartime or other temporary emergencies, “long-term rent freezes are undoubtedly harmful to economies.”
“[T]he cumulative evidence – both quantitative and qualitative –strongly supports the predictions of the textbook model [of rent freezes] in virtually all respects. The decay and shrinkage of the rental housing markets…caused by long-term rent control are persuasively documented.”
“Rent controls prohibit prices from rising above politically-determined levels.”
Under rent control, “fewer housing units are supplied than demanded, resulting
in a shortage.”
Jenkins observes that “there is a clear consensus among economists,” including even revisionists, “that first generation controls are bad” before quickly moving on to “consider studies that examine other forms of rent controls, often referred to as second generation controls.” Emphasis mine.
“Second generation” rent control laws, instead of simply freezing rents, limit increases in rent. Some forms of second-generation rent control, like that in Washington, allow rents to increase relative to inflation rates.
The effects of second-generation rent control are more difficult to predict and measure. “Because second-generation controls do not fit the typical model of a price ceiling, it is difficult to know their effects.” Nevertheless, economists generally conclude that second-generation rent controls have negative effects.
Rent controls provide an added incentive for residents to remain in the unit, even if the unit no longer fits their needs and lifestyle. Meanwhile, the unit is not available to other tenants looking for that type of unit.
“It is shown that tenants as a class do not benefit, but rather…some tenants are benefited (those in the controlled sector), and other tenants are hurt (those in the noncontrolled sector). Taking dead-weight losses into account, even some of the tenants in the controlled sector are hurt.”
Many economists conclude this leads to inefficiencies in the labor market. Jenkins quotes several economists on this point. “As sitting tenants are reluctant to move from a rent-controlled apartment, they are less likely to accept a higher-paying job in another city. …In addition to the inefficient use of time and resources associated with extended commutes, it is not too much of a leap to postulate that a related consequence of rent control must be a decline in the quality of job matches for residents….If households are less inclined to move due to rent control, they are also less inclined to react to changes in labor market conditions…..One consequence of the ‘lock-in effect’ is increased unemployment as workers are less willing to commute longer distances to find and hold jobs.”
Rent controls also have a negative effect on maintenance. Landlords who can collect a lower rent amount have less incentive to maintain the rental. “[W]hy should a landlord maintain a $1000-value property for which she can only collect $750?”
While this, like other effects, is more nuanced with second-generation rent control, many economists suggest that all rent controls, including second-generation rent controls, will simply result in reduced maintenance on controlled units.”
Jenkins again illustrates the point with quotes from various economists.
“The landlord will let unit quality deteriorate to the point where the controlled rent is actually the market price. After all, the landlord has no incentive to make the apartment any nicer than he must in order to keep it occupied.”
“I continue to believe that even second-generation rent control creates strong disincentives for quality provision when the unit is occupied.”
“[L]andlords cut back on operating and maintenance expenses and allow their property to deteriorate, the quality and flow of housing services to tenants are reduced: Heat may be lowered and supplied more erratically, halls may be swept less frequently, the exteriors may be allowed to chip and peel, the plumbing my drip and leak, and there may be an increase in roaches or mice infestations as exterminator visits are reduced.”
Rent control will generally lead to a decline in maintenance expenditure by the landlord.”
“[C]utbacks are typically slow to show their effects. For example, tenants may be unaware that landlords under control may now repair leaking roofs rather than replace them, or that formerly annual services may now be performed every two years.”
I am not an economist, and a complete review of the economics of rent control is beyond the scope here. Suffice it to say that most economists have a negative view of rent control, and even revisionists must account for inherent problems with the policy to pitch a more nuanced view of rent control to their professional peers.
We will move on to a summary of the new Washington rent control law. As with any subject touching on law, it is best to get independent legal advice. The way courts will interpret any new set of laws is always only an educated guess and will vary. Also, no summary can address every person’s particular circumstances.
The particulars of Washington state rent control.
Und the new Washington rent control law
- Caps increases at the lower of 7% plus inflation, or 10%
- Prohibits any rent increase in the first 12 months of a tenancy
- Requires all rent increases to utilize mandatory language
- Requires all rent increase notices to be served like a predicate notice (pay or vacate and similar notices), and
- Rent increases require 90 days’ notice
There are exemptions for the first 12 years of after new construction, landlords who share their housing unit with a tenant, public housing and nonprofit, and a few other less common scenarios.
A separate law changes the particulars of how predicate notices, and thus rent increase notices, must be served. Although this law does not go into effect until July 27, 2025, one interpretation of the law is that it applies to any notice that itself goes into effect on or after July 27, 2025.
Since the rent control law requires 90 days’ notice, under this reading of the law any rent increase notice must be served under the new provisions of the predicate notice statute, not the current version. Also, any rent increase notice already served before the rent control law that was still pending when the rent control law was signed by the governor must be re-served. None of this is explicitly spelled out in the new laws (because, of course it isn’t), but it is a possible, if not likely, reading.
A tenant served with a noncompliant rent increase notice must provide the landlord an opportunity to cure by adjusting the rent amount to comply. The tenant may also terminate the tenancy.
The tenant or the Washington Attorney General may sue the landlord and be awarded any excess amounts paid, up to three months rent, and costs. The Attorney General may bring such an action regardless of whether the tenant gave the landlord an opportunity to cure.
This is a brief overview of a new law yet to be interpreted by the courts. The application of any law will vary depending on circumstances. If you have further question or concerns you should consult with an attorney.
[1] Blair Jenkins, Rent Control: Do Economists Agree?, 15-1 Econ Journal Watch 73 (2009).