from the Liberty Unyielding blog
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 7%. For example, Washington, DC’s rent control board allowed landlords to raise rents on most tenants 8.9% in 2023, to compensate for the 6.9% inflation in Washington, DC that occurred in the previous year. But pending bills in Virginia’s legislature would allow local governments to adopt “anti-rent gouging” ordinances, that would define raising rent by more than the lesser of 7%, or inflation, as illegal “rent gouging.”
The legislation states that once a local government has adopted “anti-rent gouging provisions,” it “shall prohibit any rent increase … of more than the locality’s annual anti-rent gouging allowance,” defined as the “percentage increase in the Consumer Price Index...or seven percent, whichever is less.” So if inflation is 8% — as it was nationally in 2022 — the landlord can only raise rent by 7%, at most. And the landlord might not be allowed any inflation adjustment at all, because under the legislation, a local government “may” — not must — “allow rent increases” to compensate for inflation.
So landlords will become poorer and poorer due to inflation under the ordinances authorized by the legislation.
This seems unfair. Why shouldn’t landlords be able to raise rent to keep pace with inflation? Most tenants get pay raises or cost-of-living increases to compensate for inflation. American workers’ wages grew faster than inflation in most of the past decade, and over the cumulative ten-year period. Federal workers commonly get pay raises to offset inflation. Retirees get annual increases in their social security payments based on cost-of-living adjustments. With their increased wages, tenants should be able to pay rent that rises with inflation. But under the legislation, they could avoid doing so, and pay less than the market rate.
Effectively, this legislation would allow local governments to adopt very harsh rent control. Currently, Virginia does not have any rent control laws, either at the local government level, or at the state level. Like most states, Virginia has viewed rent control as a bad idea. Thirty-three states preempt local governments from adopting rent regulation laws.
But this legislation — which is pending in both houses of Virginia’s legislature as HB 721 and SB 366 — would for the first time give local governments in Virginia the power to impose rent control.
Economists oppose rent control because it makes it more difficult for people to find decent housing in the long run. In a 1992 poll, 93 percent of them said rent control reduces the quantity and quality of housing available. As The Wall Street Journal observes, “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.”
Even left-leaning economists mostly think rent control is stupid: the Swedish economics professor Assar Lindbeck, a Social Democrat, said, “rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” Similarly, the liberal Washington Post explains, “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 replacing them with new ones” not subject to rent control. Moreover, “landlords have less incentive to maintain their properties in a rent-controlled environment,” reducing housing quality. “And since rent-stabilization policies often tend to discourage people from moving, they harm worker mobility and the economic dynamism associated with it.” These observations were made by the Democratic-leaning editorial board of The Washington Post, which has not endorsed a Republican for president since 1952.
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. A quarter said they opted against installing fuel computers, which better regulate heat and hot water systems and reduce a building’s energy consumption.
Rent control reduces 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.
In some states, cities and counties already have the power to adopt rent control if they wish, even without the state legislature specifically giving them that power. But that is not yet the case in Virginia. It has a strong “Dillon Rule” that prevents localities from regulating rents, prices, or wages without a grant of authority from the state legislature. That rule prevents the development of a harmful and confusing patchwork quilt of regulation that varies from city to city and county to county. The Dillon Rule promotes freedom of contract, helps Virginia attract businesses and jobs, and helps explain why Virginia has one of America’s better business climates.
Republished with permission from the Liberty Unyielding blog.
