Is Rent Control Unfair to New Tenants?

Q: I recently rented an apartment in a city with rent control (or "rent stabilization," as they call it). I just learned that I'm paying significantly higher rent than several neighbors are paying for identical units, just because they've lived here for many years. As best as I can tell, they are affluent professionals who earn a lot more than I do. Do you think this is fair?

No, I don't. Rent control causes all the well-known market distortions common to every kind of price control, such as artificial shortages and disincentives to investment and innovation. But rent control also causes ethical problems because the benefits it confers on some lucky longtime residents are often offset by higher rents paid by newcomers.

Your city apparently allows "vacancy decontrol," which permits a landlord to raise the rent to market level when a unit changes hands. And, like most rent-control programs, it probably exempts newer apartment houses -- those that were built after, say, the mid 1970s.

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Rent control is one of many social programs designed to benefit urban residents of modest means, including the elderly poor and disabled. But most cities with rent control have no "means testing" of tenants -- an income or asset limit -- to qualify them for the annual cap on rent increases, often limited to inflation plus a percentage point or two; continued tenancy in a rent-controlled unit is sufficient.

Like most governmental price-fixing, rent control also invites black-market evasion. In New York City, it's well known that some highly prized apartments secretly pass from one longtime tenant to the next (usually a relative or friend, but sometimes a stranger) without changing the name on the lease, to avoid triggering vacancy decontrol. A fee called key money is paid to the original tenant for illegal assumption of the lease, and the landlord is defrauded of the higher rent due him.

Have a money-and-ethics question you'd like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.

Knight came to Kiplinger in 1983, after 13 years in daily newspaper journalism, the last six as Washington bureau chief of the Ottaway Newspapers division of Dow Jones. A frequent speaker before business audiences, he has appeared on NPR, CNN, Fox and CNBC, among other networks. Knight contributes to the weekly Kiplinger Letter.