Is Rent Control Unfair to New Tenants?
Like most governmental price-fixing, rent control invites black-market evasion.
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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
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.
-
Stock Market Today: Stocks Drop Ahead of September Jobs Report
Stocks were choppy Thursday as investors took in a higher-than-expected rise in jobless claims and strong growth in the services sector.
By Karee Venema Published
-
Sign up for a two-month free trial of CLEAR Plus and enjoy expedited screening the next time you travel.
Sign up for a two-month free trial of CLEAR and enjoy expedited screening the next time you travel.
By Erin Bendig Published
-
Ways to Protect Borrowers From Predatory Home Lending
real estate Land contracts drain low-income communities of resources.
By Knight Kiplinger Published
-
Should My Neighbor Be Allowed to Turn His House Into a Short-Term Rental?
real estate It's a debate that is raging in all of America’s major cities.
By Knight Kiplinger Published
-
Should Tear-Down Plans Be Disclosed by Home Buyers?
real estate When a house for sale is worth more as a buildable lot than as a small, outdated residence, expect the highest bids to come from buyers intent on demolition.
By Knight Kiplinger Published
-
Should New Residents Contribute Equally to Community Funds?
Budgeting Acknowledging building workers' helpfulness is always appropriate and welcome. But should all residents pay the same amount?
By Knight Kiplinger Published
-
Don't Make a Deal You Don't Intend to Honor
Business Costs & Regulation An ethical businessman bids what he truly believes an asset is worth and what he's fully committed to paying.
By Knight Kiplinger Published
-
Is Gentrification a Plus for the Neighbors?
real estate Gentrification is often used unfairly to describe what should be viewed as a normal and positive stage in the life cycle of cities.
By Knight Kiplinger Published
-
It's Not Okay to Skip Out on a Mortgage
real estate Default is ethical only for people who can no longer afford their home because of circumstances beyond their control, such as job loss.
By Knight Kiplinger Published