Rent Control
Brief introduction
Housing rent control is a controversial issue in many aspects of public debates, policy legislation and legal opinions. Despite the fact that landholder groups have frequently claimed vocally in defense of control, leaseholder groups and the enormous majority of contemporary economists have been similarly intense in their disapproval.
This paper examines some key prescriptive issues implicated in rent control, specifically examining the opinion in favor of control affecting issues on deregulated rental fees and claims on tenancy rights. On the other hand, liberalist theories on free enterprise or unregulated economic system where prices are determined by competition between businesses will be also examined.
As a method of this research paper, the review of several literatures will guide the overall examination and analysis of issues.
Literature review
Overview of early urban development and rental system
During the World War II, New York as an emerging financial-commercial state-district has been declared by its local government as an “open city” where trade and commerce were highly promoted and rent control was not imposed. The visiting businessmen and wealthy families has populated the city and begun to develop a diverse-neighborhood community, where realities have been acquired and established transient home for travelers. The local immigration of laborers looking for employment opportunities became the potential customers of transient homes and finally settled as leaseholders or tenants upon attaining the regular employment.
From 1950s to 1960s, the occupancy of transient families has expanded towards the neighboring localities of Boston and Washington DC where numerous commercial-residential units were also established. The rentals of lodging houses and apartment-type residence have eventually increased upon the continuing demand in transient-rental-housing facilities.
The 1969 presidential winning of Richard Nixon has drawn the support of mostly low-income transient families as proponents for governmental action to lowering and regulating the rental fees. In 1971, President Nixon has approved the firstly legislated taxation structure that enacts the lease-holding and landholding revenue schemes, defining the rent control, proprietorship’s wage and prices of lease.
As cited, the years 1980s to early 2000 have documented an estimated of 200 cities and its municipalities allover the US, comprising of approximately 20% annual increase of both domestic and foreign population in rented housing. The year 2000-2007 survey of transient population has remarkably increasing growth rate of 25% in highly urbanized cities and municipalities, such as in Chicago, Philadelphia, Baltimore, Cleveland, and towards New Orleans, Dallas, Houston, Phoenix and the “diverse states” of Idaho, Florida, Texas and Vermont (Copeland & Overberg, 2008).
Managing rent control
As defined by William Tucker of Cato Institute, rent control is the action of a governing body of the national or local government that determines and applies the amount of rental fees to be imposed by landholders or landlords. As cited, numerous states in the US have rent control, like in New York City where the local government generally governs rent control laws. Proponents and opponents collide in great debates when an enactment of a rent control law or amending an existing local government ordinance on rental fees is in progress (Tucker, 1997).
Rent control is being enacted in order to regulate the increase of rental fees and the competition among landholders who develops a commercial-residential area that may soon populate the cities. The urban areas may increase its population which draws impact to the budget of the local government, although local tax revenue is earned from the establishment of commercial-residential housing.
Without rent control, the indispensable tendency of the landholder or landlord is to develop a “metropolis” where “sub-urban” development may have inflationary effects on the economic living conditions. One is the unregulated increase in rents affecting the affordability of “transient housing”. And, secondly the “internal competition” of landholders in acquiring and expanding their real properties, which are defeating the “tenancy act” that regulates the acquirement of expansive private land areas within the jurisdiction of a city government (Tucker, 1997).
Social and economic theories
This section of the paper will discuss the studies and empirical findings relating the social and economic effects of rent control, reflective of succinct arguments or claims of opponents and proponents.
Robert Batemarco in his journal entitled: ‘Three Fallacies of Rent Control’ published in 1997 by the Foundation for Economic Education (FEE), has argued that landholders are denied of their rights to utilize property ownership. Batemarco (1997) emphasized the need to enjoy the rightful ownership is by achieving gains. It may be simplified in Batemarco’s argument that in order to rightfully claim full ownership of a property (realty) is to make use of it for a profitable venture, wherein the landholder’s venturing to offer for lease of a property is beneficial for earning.
Batemarco’s argument on the rightful ownership points out the relevance of “self-economic utilization”, gaining the capital asset (or fix asset) for potential demand of use in exchange of fees or monetized venture. As cited, the argument resembles with Ludwig von Mises (1996) theory that anything is rightfully owned must be optimized according to the needs and activities in an economy (Mises, 1996; in Batemarco, 1997).
As further argued, Batemarco implied the underlying “fallacies” in rent control, such as, (1) rent control is required all over urban places, (2) the “free market” could be too expensive to be afforded, and (3) tenants’ desires should be given preference more than the landlords’.
It may be analyzed that Batemarco’s opposition in the imposition of rent control dwells the “conflict of interest” over the utilization of a property, although given its rightful ownership, which hinders the activities of full-blown economic utilization of the majority stakeholders that requires housing. Like in the case of tenancy in urban centers where housing is critically needed in order to “compete” in the labor market, as translated by the need to employment.
The prevalence of “existing economic forces” within a highly urbanized area may be consisting of the typologies of traders and its commercial institution. The prevailing economic activities may not be totally “co-existent” in a judicious and equitable sharing since only a few acquirers may have advantageous benefits [over a rightful ownership claim] as exemplified by the landholders or landlords.
In sum, it may be further analyzed that the argument to enjoy a rightful ownership must be utilized according to the prevailing law of the lands, the economy of scale and the societal condition of the lease holders or tenants. What it may be referred as an effect in the absence of rent control is the inability of the local government to earmark revenue generation, diminish the “socio-economic diversity” of families (especially of those from the tenants), in which a few cluster of residents differ its economic status or income from a profitable residential commerce.
Senior economist Prince Christian Cruz of Global Property Guide has discussed the ‘pros and cons’ of rent control. In his most recent investment analysis relating the economic situation of developing countries, like Dubai, he cited that rent control may not affect the economic activities according to underlying parameters, such as, (1) implementation of control do not restrict the market competition, (2) upholds the citizen welfare from unwarranted rental increases, and (3) provides legal assistance to settle the contract and obligations by and between the tenant and landlord (Cruz, 2008),
According to Cruz in the aspect of “pros”, rent control is imposed as partly upholding the constitutional right of the citizens, enabling the state law to provide the “right to abode”. This is therefore a common policy of the state to providing the least available co-ownership under the existing tenancy laws. However, since tenancy law covers a “universal code” in rent control, the legal correlation in corporate ownership and co-ownership sharing could be parallel in the aspect of “cons”.
Meaning, proponents favors rent control invoking the constitutional right to abode or the privilege to housing through the least available means which is to rent. On the other hand, opposition disfavors rent control that may be an anti-precedent to other aspects of tenancy provision, like the corporate co-ownership of investors that may be affected by such precedent.
Explaining the “two sides of the coin”, Cruz synthesized a final analysis that imposition of rent control somehow overcomes the “liberalist theory” of free enterprise, wherein flow of economy is unrestrained by a “direct policy framework” but competition is the basis of efficiency and performance. However, the market competition in the establishment of house-for-rents may harshly affect the sustainable approach to urban development as a result of expansive modalities in areas of construction and the inflationary effect upon acquisition of construction materials where monopoly can be engaged by suppliers. In addition, the low-income earners may no longer compete to acquire rightful ownership due price increase in real property that has continuing demand. Likewise, rental fees may continuously increase as a result of eventual realty tax restructuring.
In a similar finding, Kaushik Basu and Patrick M. Emerson (2000) of the Department of Economics at Cornell University have concluded the findings that rent control is necessary in the prevalence of housing market as an emerging industry. As cited, there is a need to clarify that the lack of rent control indicates irrelevant governmental involvement in the flow of urban economy where housing market emerges as an industry (Basu & Emerson, 2000).
Basu and Emerson (2000) simplified the findings that rent control is exactly the legal parlance of contract and obligations to materially apply in the real purpose concerning tenancy, co-ownership and the relevance of the right to abode. In short, application of law to restrain the susceptibility of tenants from the opportunistic tendency of landholder or landlord is the primary purpose of rent control.
Moreover, Basu and Emerson (2000) have critically examined the relevance of rent control as a potential source of government revenue that can be utilized to access the homeless families in acquiring of affordable housing. As explained, the generated realty tax revenues can be used by the government to providing subsidized housing or act as equity of a co-maker (guarantor) in co-financing the housing loans (Basu & Emerson, 2000).
Correlating the above analysis on rent control, the work of Donald A. Krueckeberg (1999) of Rutgers University pointed out that governmental policies on rent control are immediate requirements in tax mapping. As cited, the accompanying trend of housing market must be sensibly responded by the government in order to judiciously generate a budget for urban development of municipalities (Krueckeberg, 1999).
As found in Krueckeberg’s work, urban development do not just indicate the assimilating effect of housing market to the local economy but represents both micro and macro economies where low-income, middle-income and high-income families are all beneficiaries of the urban development. One of the benefits that can be generated from realty tax in housing market is the establishment of basic welfare institutions and facilities, such as schools, hospitals, road network, market centers to name a few. Additionally, the government revenue may allocate financial services on community housing projects that are specifically beneficial for the low-middle-income families that hardly pay the house rentals.
It may be analyzed that rent control is significant to enable an effective and efficient tax mapping. To quote in verbatim, as amended in the Rent Control Charter of 2002 states that: “full disclosure of holdings must be submitted with verified dealings in real property, including but not limited to its ownership, sale or management in the previous three (3) years” (Sec. 1803-a; in Rent Control Charter, 2002).
Under the amended provision of the Rent Control Charter of 2002, the “full disclosure of holdings” envelops the realty tax liabilities of a landholder or landlord. In which case, verification, monitoring and tax assessment can be properly or effectively perform in the procedure of tax mapping.
It appears that the governing rules and regulations in rent control may enable the governmental efforts in generating the local revenues, affecting from the tax mapping on realty taxes. One of the relevance of tax mapping is the “verified capital gains tax”, emanating from rental fees and acquirement of facilities referred to as expansion of commercial-residential units.
It may be synthesized that what Krueckeberg (1999) signified in his study research is the importance of rent control beneficial for dwellers or tenants. Likewise, the benefits can be further extended by the government’s resourcefulness in utilizing the generated revenues that would further enhance the capability to provide welfare and services to tenants.
As a summary of this research paper, the work of Ken Hanly entitled: ‘The Ethics of Rent Control’ published in 1991by the Journal of Business Ethics will be guide the re-examination of the previously discussed social and economic theories.
Hanly (1991) perceived that majority of economists tries to justify the theory of a “free market”. On the other hand, half of the said majority does not have a firmer decision in acknowledging the significance of rent control law. As cited, economists may go blindly in the analysis of a free market, wherein “ordinary people” are the common segment of the society that are affected (Hanly, 1991).
As explained, the ethics in rent control must always favor the desire of the lower segment of society, which refers to the homeless labor force. The ethics in rent control must not be limited of interpretation since it interrelate the activity of economy from the lives of major producers. What Hanly reflected on represents the labor forces that compose the “core” of economies. Accordingly on economic ethics, the producers are the tenants that provides profitable venture to the landlord. The cycle of past and present economic condition has still related the landlord-tenant relationship despite the “clamor” for urban development.
Hanly implied that urban development is nonetheless depicting the theories of urbanization, in which social processes transform growth and development. However, the contemporary urban development seemed deviating the transparency of social progress in the lives of the tenant-residents who are practically homeless families.
It may be interpreted that urban development [as accorded by the theory on urbanization] must be expected of the necessary means of economy that do not only provide employment but as well as housing. As claimed by Hanly, the classification of urban poor families is the homeless, wherein the income is just enough to maintain the daily food requirement and persevered with hardship to pay the rents. On the other hand, it may be a little irony of the situation that despite the prevalence of rent control, numerous families [consisted of domestic and foreign immigrants] are seemed uncontrolled to move from places to places.
The predicament of Hanly reflecting on the economic ethics could be indicative of the situation that urban development may only be concentrated in one “industrial area” where people move in for economic sourcing, in which urban development must supposed to be on a national scope. Accordingly, in aspect of tenancy in the urban areas, rent control may only address the “regulatory effect” for affordable housing and reduction of rentals but not the ethical parameter on how emerging transient families may be able to acquire their own shelter (Hanly, 1991).
Hanly’s perception relates the breadth (scope) of economic theory in rent control which defines the necessity or economic means that effective controlling could be translated into providing the “urban poor families” with the opportunity to acquire their own shelter. On the other hand, the depth (prescriptive or normative principle) of theory addresses the ethical or moral and social responsibility of the urban developers to cast upon the need of the “urban poor families” [who are practically homeless] despite of being a tenant in house-for-rent.
It may be therefore summarized that ethics of rent control displaces the “liberalist theory” of a free market and the “swaying position” of economists who are blinded by the urban development, yet unable to address the pragmatists or realist theory that objectively examines the relevance of rent control in the perspective of economy. At this point of view, the pragmatists or realist theory on the ethics of rent control in an economic setting of urban development addresses the fact that being homeless in a highly urbanized or industrialized area defeats the realization of social progress, wherein the theory of urbanization acknowledges the societal issue of disparity. Typically, when economists find that ordinary
Findings and conclusion
It may be noted that the boom of housing market was brought about by the transference of families in places where source of living can be achieved. Like in New York City, the significance of trade and commerce amidst the economic restructuring after World War II has ushered the urban development.
On the contrary, the housing market [referring to house-for-rents] may indicate a looming economy where homelessness is prevalent. The condition of homelessness correlates the situation of an urban development that is “backward” in developing the socio-economic condition of residents. Urbanization may indicate the “liberalist theory” in the development of enterprise that is only managed and competed by the few, wherein the rich and poor can be determined or identified in the social classification.
The right to abode is a universal and basic requirement in a society where the population survives the economic condition, whereas imposition of the rent control could be supportive in providing affordable home for homeless families. However, rent control may still need the adequately essential policy support to effectively achieve tenancy reform.
In conclusion, rent control may be viewed as serving both desires of proponents and opponents. For proponents, it is in critical reconsideration of obtaining affordable housing. While for opponents, rent control is perceive to be provided with “easement of incentives” which could be through tax discounts or discounted cash flow in purchasing of construction materials for housing. Thus, a diverse community of neighborhood must be envisioned within the premise of rent control, depictive of community empowerment towards a sustainable and equitable function of economy for the overall population.
References
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Basu, K. and Emerson, P.M. (2000). ‘The Economics of Tenancy Rent Control’. Department
of Economics, Cornell University. Retrieved 05 December 2008 from
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Copeland, L. and Overberg, P. (2008). ‘Housing crisis cools migration to former hot spots’.
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Cruz, P.C. (2008). ‘The pros and cons of rent control’. Global Property Guide.
Retrieved 05 December 2008 from
http://www.globalpropertyguide.com/investment-analysis/The-pros-and-cons-of-rent-control.
Hanly, K. (1991). ‘The Ethics of Rent Control’. Journal of Business Ethics, Kluwer
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Rent Control Charter (2002). ‘Rent Control Charter Amendment’. Retrieved 05 December
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Tucker, W. (1997). ‘How Rent Control Drives Out Affordable Housing’. Cato Institute.
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