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A tenant of a rent controlled apartment has a set maximum to the amount of rent they will ever be charged for as long as the landlord maintains the property according to the laws and receives the accompanying tax benefit.
According to the basic theory of supply and demand, rent control causes housing shortages that reduce the number of low-income people who can live in a city. Even worse, rent control will tend to raise demand for housing and therefore, rents in other areas.
Rent controlled properties create substantial negative externalities on the nearby housing market, lowering the amenity value of these neighborhoods and making them less desirable places to live.
On the other hand, most studies show that even though rent control is great for tenants who get it, the policies can lead to higher rents and fewer units over all.
According to the basic theory of supply and demand, rent control causes housing shortages that reduce the number of low-income people who can live in a city. Even worse, rent control will tend to raise demand for housing and therefore, rents in other areas.
A oft-cited 1981 study on rent control in many countries concludes that these controls result in a decrease in the supply of housing units. The thinking behind the conclusion as it applies to new construction is that investors do not want to risk capital investment in an area in which profits are constrained.
Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases' affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood.
Milton FRIEDMAN: Rent control is a law that supposedly is passed to help the people who are in housing. And it does help those who are in current housing. But the effect of rent control is to create scarcity, and to make it difficult for other people to get housing.
The principal argument against rent control is that it tends to distort economic incentives, leading to inefficient distribution of resources. Rent control reduces the incentive of landlords to supply rental units. ... Ironically this leads to an escalation of complaints against the landlord class.
Standard economic theory is that rent control does not work, because if you force rents down, landlords may decide not to rent out their properties, which reduces the amount of rental property available.
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