The Truth About Rent Control and Its Long-Term Effects | Strategic Success

Rent control policies are a hot topic. Advocates claim they are essential for protecting tenants from exorbitant rent increases, while opponents argue they cause more harm than good in the long run.

However, a report published by the Cato Institute suggests that rent control often lowers the quality and availability of rental housing, messing with the market. When landlords can't charge enough, their income drops, making it hard to maintain properties. This means homes can fall into disrepair.

The report also found that rent control can stop new rental properties from being built because developers and investors might avoid areas with strict rules. This leads to fewer housing choices and higher rents in parts of the market without rent control, which goes against the goal of making housing more affordable.

So, does rent control help or hurt in the long run?

Let's explore both sides of this issue. We'll look at the arguments for rent control, understand its unexpected downsides, and offer practical advice for dealing with today's challenging rental market. 

Rent control is when the government limits how much landlords can charge for rent. The main idea is to keep homes affordable by allowing only small, regular rent increases. While this seems like a straightforward solution, its real-world effects are actually quite complex.

Across Canada, rent control rules aren't all the same. Each province and territory has its own set of guidelines. These policies are designed to shield tenants from sudden, huge rent increases, helping to ensure that more people can actually afford a place to live. But how these rules are put into practice and how effective they are can vary a lot from one place to another.

For example, Ontario's Residential Tenancies Act governs rent control in that province. There's an annual guideline for rent increases, often linked to the Ontario Consumer Price Index (CPI). In 2024, this limit is 2.5%. However, new buildings and additions are often exempt, giving landlords of newer properties more flexibility with their pricing. 

Rent control policies are put in place with good intentions: to make the housing market fair and stable for everyone. These rules are meant to shield renters, particularly those on a fixed income, from unexpected rent increases and financial strain. Even though they're often debated, rent controls try to tackle big housing problems and offer important benefits to many people.

Let's take a closer look into some of the main upsides that supporters of rent control often point out: 

As we've discussed, rent control policies are designed to shield tenants from unexpected and large increases in rent. This means that even when the housing market changes quickly, people in rent-controlled homes can expect their rent to stay the same each month.

For many people, this provides a sense of financial stability, allowing tenants to plan their expenses with greater certainty. This stability can reduce the stress associated with housing costs, enabling tenants to save money or allocate funds to other important areas of their lives. 

Making housing affordable is a big problem in many cities. Often, the cost of living there goes up faster than people's pay. Rent control tries to help low and middle-income families by putting a limit on how much rent can increase. This helps lower the chance of people becoming homeless or unsure about where they'll live.

Families who might otherwise not be able to afford their homes can stay in their neighborhoods. This lets them keep their friends, family, and access to local services. It's especially helpful for vulnerable groups like elderly people or people with disabilities, who might find moving very difficult. 

Rent control can also help keep communities stable by letting long-time residents remain in their homes and neighborhoods. When people can afford to stay, communities become more continuous and unified. Residents who've been there a while often build strong relationships with their neighbors, get involved in local groups, and support local shops.

This feeling of community can make life better for everyone, creating a supportive and connected environment. Plus, stable communities are less likely to see negative effects from people moving in and out often, like higher crime or falling property values. 

Even though rent control policies are meant to help, economists and experts have long argued about whether they actually make housing affordable. They believe that these policies can also have several downsides that, unfortunately, often cause more harm than good.

To better understand why rent control might not always be the best fix, here are some of the main problems with it: 

Rent control lessens landlords' desire to spend money on keeping their properties nice or making them better. When rent increases are limited, landlords have less money coming in to put back into their buildings. This can slowly lead to a drop in the quality of available housing.

Buildings might end up with delayed repairs, old features, and general neglect, making them less appealing places to live. Over time, this decline can even contribute to the decay of entire neighborhoods. 

Rent control can also hurt the supply of new rental homes. Developers might not want to build in places with strict rent control because it could mean less profit for them. The worry that future rent limits could cut into their earnings even more makes building new properties less attractive.

This hesitation in building makes housing shortages even worse, especially in popular city areas. The outcome is more competition for the few available homes not under rent control, which pushes rents to those parts of the market. 

Rent control can also cause housing to be used poorly. Tenants who could actually pay more might stay in rent-controlled places because the rent is so low, even if the apartment isn't quite right for them anymore. This means those homes aren't available for people who truly need affordable housing.

For example, a single person might live in a big apartment that a family could use, while larger families struggle to find enough space. This inefficient use of homes can make housing shortages worse and stop those who need it most from finding suitable places to live. 

The debate over rent control is intricate, with passionate arguments on both sides. As mentioned earlier, affordable housing advocates claim rent controls protect tenants from exorbitant rent hikes and displacement. However, many experts and extensive research suggest that the negatives often outweigh the positives.

The Brookings Institution, a well-respected research group, published an article looking at the economic facts about rent control. Their findings point to several key problems that come with these policies.

For example, they found that the quality and upkeep of rental units can decline because landlords, facing limits on their income, cut back on necessary repairs. This supports the idea that while rent control might seem like a way to make housing affordable, it could actually make the problem worse over time

For landlords and real estate investors, understanding rent control policies is crucial to lowering risks and getting the most out of their rental properties. Since rent control rules vary a lot from one place to another, there's definitely some learning to do when investing in cities that have it.

However, by using these strategies and taking a proactive approach, you'll have a better chance of successfully handling the challenges that come with rent control.

Here are some strategies to minimize and navigate rent control risks: 

As we've discussed, every city, state, and province can have its own rent control laws. It's really important for landlords and investors to fully research these policies before buying a rental property in a new area. This will help you understand things like limits on rent increases, eviction rules, and other key factors that could impact your investment. 

Some locations have exemptions from rent control for certain types of properties or units. For example, Ontario provides exemptions for buildings that were built and first occupied after November 15, 2018.

This means these newer buildings aren't under rent control, and landlords can charge market rates. Knowing about these exemptions can give you a strategic advantage. Investing in properties that qualify for these exemptions can offer more flexibility in setting rents and handling tenant changes.

Consider providing additional services or amenities that are not subject to rent control. Examples include parking spaces, laundry facilities, or upgraded appliances. These extras can justify higher rents and enhance tenant satisfaction, thereby mitigating the financial impact of capped rent increases. 

Property management software isn't just for big companies anymore. Using a good system can really simplify things like tracking expenses, keeping up with tenant communication, and knowing when leases are up.

To avoid putting all your eggs in one basket, it's wise to consider owning a variety of properties. Don't just focus on rent-controlled units. If you invest in a mix—some in areas without rent control, or places with completely different rules—it can really help spread out your risk.

It's a good idea to consult with legal experts, financial advisors, and business coaches who focus on real estate. They can help you grasp rent control laws and manage them effectively. They'll provide valuable guidance on staying compliant, handling risks, and structuring your investments to maximize returns even with rent limitations.

Rent control is designed to protect tenants and make housing affordable. However, it often results in lower property quality, less new housing investment, and other economic problems that harm both landlords and renters. As property owners, it's crucial to understand these effects to manage your properties well and advocate for policies that genuinely improve affordability without negative side effects.