by Hans Bader

Raising rent to keep up with inflation isn’t what most people would consider “rent gouging,” even when the landlord has to increase rent by more than 3%. For example, Washington, D.C.’s rent control board allowed most landlords to raise rents in recent years at annual rates such as 8.9% and 6.2%.

But a recently-introduced bill in Virginia’s legislature, SB 1136, would allow local governments to adopt “anti-rent gouging” ordinances. These ordinances would define raising rent by more than 3% as illegal “rent gouging.” Indeed, even a 1% or 2% increase could be deemed rent gouging, because SB 1136 would require the local government to set an “annual residential anti-rent gouging allowance that is no more than three percent,” but which could be less than 3%, such as 1%.

Virginia does not currently let local governments impose rent control or rent regulations. Virginia’s Dillon Rule requires an enabling statute before local governments can adopt a rent-control ordinance.

Under SB 1136, even if inflation were 7% — which was the inflation rate in 2021 — the landlord could only raise rent by 3% at most, effectively reducing rent by at least 4% after inflation. Another bill pending in Virginia’s legislature, HB 2175, would also authorize local “rent gouging” ordinances, but instead of capping rent increases at 3% or less under those ordinances, it would cap them at inflation or 7%, “whichever is less,” or by an even lesser percentage chosen by the local government as its “anti-rent gouging allowance.” So under that bill (HB 2175), rent would fall after adjusting for inflation whenever inflation exceeds 7%, while at best keeping pace with inflation when inflation is less than 7%.

That decline in rent due to inflation seems unfair. Why shouldn’t landlords be able to charge rents that keep pace with inflation, when landlords’ costs tend to rise with inflation (such as property taxes and land values), and most tenants’ pay keeps pace with inflation? Average wages have risen faster than inflation since 2014, going from $24.48 per hour in July 2014, to $35.61 in November 2024. That’s an increase of 45%, compared to inflation of about 33% since then. The Virginia minimum wage has risen from $7.25 in 2014 to $12.41 today. That’s an increase of 71%. Even most tenants who are retired can pay more in response to inflation, because retirees get annual increases in their social security payments based on cost-of-living adjustments.

Effectively, SB 1136 would let local governments impose very harsh rent control. Currently, Virginia does not have any rent control laws, either at the local government level, or at the state level. It is one of 33 states that preempt local governments from adopting rent control, often based on the conclusion that rent control is economically harmful and creates housing shortages.

Around 93% of economists say rent control is bad, because it reduces the quantity and quality of housing — such as in a 1992 poll of the members of the American Economic Association.

In 2023, The Wall Street Journal said, “If there’s any consensus in economics, it’s that rent control achieves the opposite of its intended goal. It leads to housing shortages by discouraging new development and maintenance of existing properties.” When a county in Maryland imposed rent control, some housing projects stopped as a result.

Similarly, the liberal Washington Post said, “Rent-control laws can be good for some privileged beneficiaries, who are often not the people who really need help. But they are bad for many others.” For example, after San Francisco imposed rent control, “landlords responded by converting their buildings into condos they could sell or business properties they could lease without rent-control restrictions — or by demolishing their old buildings.” “And since rent-stabilization policies often tend to discourage people from moving, they harm worker mobility and the economic dynamism associated with it.”

Rent control also reduces the quality of housing over time. As the liberal Brookings Institution notes, “Rent control can also lead to decay of the rental housing stock; landlords may not invest in maintenance because they can’t recoup these investment by raising rents.”

When landlords can’t raise rents to pay for repairs and renovations, they may let apartment buildings decay. After New York limited rent increases to pay for major capital improvements to 2 percent, landlords cut back on such improvements. A survey of rent-stabilized landlords found that when rent increases were curbed, three out of four reported cutting back on essential building-wide repairs, such as a roof or boiler replacement, since the rent law passed. Nearly 90 percent said they had forgone kitchen or bathroom renovations. Just over half decided against revamping their buildings’ security systems to include cameras or video intercoms or adding storage lockers for deliveries to thwart porch pirates. Efficiency upgrades have also been pushed to the back burner. Over 40 percent of respondents said they would not replace lighting with LED fixtures that use 90 percent less energy — a budget saver for tenants.

As the Washington Post notes, “landlords have less incentive to maintain their properties in a rent-controlled environment,” harming housing quality.

It is dumb for local governments to impose rent control, because that can reduce the value of housing stock, shrinking the property tax revenue that funds schools and local governments. “Researchers at the University of Southern California said rent control hurt property values in St. Paul, Minn. by $1.6 billion,” reported Market Watch.

Hans Bader is an attorney living in Northern Virginia. The column is republished with permission from Liberty Unyielding.