The Basics of Rent Control Laws
Rent control refers to a variety of laws and regulations that limit the amount a landlord can charge for renting out a home, as well as what can be done to the property while renting it. While laws vary by state and in some cases, municipalities, rent control typically seeks to keep rent affordable and limit the number of units that get taken off the market.
Rent control also provides legal ways to evict tenants under certain circumstances, which includes non-payment of rent, violating rental agreement terms, staying after their lease has expired, or if the landlord wants to move in themselves (or a family member), but only under certain circumstances by state law.
States that currently have rent control include:
Oregon
California
New Jersey
New York
Maryland (Baltimore City and Baltimore County)
Washington D.C.
Rhode Island
Vermont
Connecticut
Hawaii (city of Honolulu)
Pennsylvania (Philadelphia)
Rent control is not new, as it’s been around since the late 1940s, and many states have incorporated it into their respective housing laws . Over time, rent control laws have evolved and endured legal challenges, creating a complex background on what works, what doesn’t, and what impact it can have on housing availability, affordability, and the business of being a landlord.
Some scholars argue that rent control laws have caused the housing market to suffer, and have encouraged the very behavior that it sought to eliminate. Others argue that if rent control laws had not been enacted, the market could have spiraled out of control and pushed out lower-income families.
Housing itself is a constitutional right, protected by the 14th Amendment against discrimination. The 14th Amendment also gives state and local governments the right to provide for the health, safety, morals, and general welfare of their citizens, which forms the basis of tenant protection laws, including rent control. It prevents unreasonable governmental action and ideologically based decision-making for those actions that are reasonable. Courts will generally give strong deference to the judgment of state and local legislatures (in this case, housing authorities).
Prominent Supreme Court Decisions Affecting Rent Control
The U.S. Supreme Court has reviewed and ruled on several cases that involve rent control laws. Some of the earliest decisions, such as Ferguson v. Skrupa (1963), upheld the constitutionality of rent control laws. In that case, the high court refused to strike down rent control laws that established rental fees and terms.
The case of Lindsey v. Normet (1972) challenged Oregon’s Residential Landlord and Tenant Act which stripped many of the rights that were traditionally conferred to landlords. The case stemmed from an apartment complex that was denied its right to evict a tenant after the tenant refused to pay the increased rent that was due at the end of the initial term. For the first time, the Supreme Court addressed rental real estate practices; however, the court ultimately ruled against deference for local legislation.
In 1992, the Supreme Court once again evaluated the constitutionality of rent control laws with Eastern Enterprises v. Apfel. In a split decision of 5 to 4, the court ruled in favor of Eastern Enterprises. In this case, the 1970 Coal Industry Retiree Health Benefit Act (CIHRA) was the law being challenged. The law was enacted in response to a crisis when the market gave out on coal. Eastern Enterprises was a company that had been called on to comply with the law. When Eastern Enterprises challenged the law, it claimed that it was unconstitutional because it violated the Takings Clause. The Supreme Court agreed with the four dissenting opinions that the CIHRA was unconstitutional.
Landlords should take note that even though the Supreme Court has evaluated the issue of rent control laws, jurisdictions can make their own laws. New York City might enact rent control laws that are completely different from the laws that are enacted in California. Because of the differences, tenants and landlords should carefully read their local rules and laws to determine what the bidding laws are and how they may impact the business.
The Influence of the Supreme Court on Pursuing Rent Control
Commencing in the 1970s, the U.S. Supreme Court and the lower federal courts have steadily interacted with the evolution of the rent control landscape as it has applied to apartments.
In 1971, the U.S. Supreme Court ruled against the rent increase being proposed in New York City’s Stuyvesant Town, which would have allowed rents to rise by 49%. "We are convinced," said a plurality opinion authored by Justice Potter Stewart, "that rent controls do, in fact, impose some burden on landlords and that the burden is not a de minimis one. Moreover, we think it clear that the burden is borne most heavily by those responsible for maintaining and improving the stock of apartments." (That case, New York State Division of Housing and Community Renewal v. Vestal Co., 407 U.S. 47 (1971)).
In 1982, the Supreme Court became more specific in explaining when laws regulating rent increases may be invalid. The Court held in Pennell v. San Jose that City of San Jose’s motion to deny a rent increase to all tenant households earning $25,000 or more in gross income reached a degree of generality that "simply has no meaningful relationship to the object of the legislation." In writing the opinion, Justice Sandra Day O’Connor likened it to economic conditions once argued by slaveholders. "The notion that a slavery system based upon subjugation of human beings can be justified by oodles of economic studies is reminiscent of the lawyer who argued for slavery in the name of free market principles," she wrote.
With the 1980’s, the Court’s view of rent control regulation began to shift. What emerged was growing deference to the states’ ability to maintain the existing stock of rental units. In both 1988 and 1990, the Supreme Court found no problems with local ordinances permitting a city to adopt its own rules based on its own objectives, including laws requiring the proportionate sharing of rent increases between owners and tenants, even if the laws required owners to absorb all the costs of certain forms of capital improvements to structural apartments (Andrus v. Los Angeles, 446 U.S. 547 (1980) and Block v. Hirsh, 256 U.S. 136 (1900)).
The exception lies in policies that are unconstitutionally vague, and thus, under the Due Process Clause, applied in an arbitrary and discriminatory way. For example, the law must make clear what is expected of owners. The 1989 Supreme Court ruling in City of Eastlake v. Forest City Enterprises held that the Ohio state law did not describe with the requisite specificity cost of living and the "other just and equitable factors" to be weighed when city housing officials consider requests for certain rent increases.
As the Supreme Court has created a broad map for municipalities, issues may arise when lower courts view rent control as a taking without paying just compensation. First, the situation often arises when rent control law freezes rents for businesses like markets, salons, and dentists. Second, this may arise when privacy concerns are targeted. Columbia Pictures Indus. v. Liberatore, 821 F.Supp. 777 (N.D.N.Y.1993).
To the extent that cities continue to expand their rent control laws to include some or all types of residential housing, challenges against the statute as applied will continue to be analyzed under the general standards of the federal Constitution: Validity under the law, limitations on rent adjustments, the kind of housing types protected, and how landlords may be required under the law to allocate their costs.
Contemporary Challenges and Controversies
Proponents of rent control argue that it is a necessary tool to combat the affordable housing crisis by ensuring that residents have stable housing costs and by preventing gentrification and displacement. They contend that rent control allows more families to stay in their communities, bolsters community cohesion, and increases education stability for children. Advocates also point out that, despite limiting the ability of landlords to increase rent, rent control laws commonly allow landlords to increase rents at rates commensurate with inflation. Furthermore, proponents argue that the social benefits conferred by rent control laws outweigh any offsetting economic cost.
In contrast, opponents of rent control assert that it decreases the amount of rental housing generally available in the market, drives up rents on units not covered by rent control, and reduces incentives for landlords to upgrade properties . They argue that the chilling effect on new construction means that landlords cannot recoup the expense of building new multi-family housing and that the limits on rent increases below the rate of inflation make it more difficult for landlords who do manage to build new housing to achieve a profit. Opponents also argue that new construction is the only sustainable fix to the affordable housing crisis and that rent control laws prevent the economic conditions necessary for new construction from coming about.
Regardless of which position one argues, one thing is clear – the disposition of fresher rent control cases by the Supreme Court will have profound ramifications on how states around the country decide the issue.
The Judicial Future of Rent Control
Looking forward, the Supreme Court’s decisions on key cases involving rent control laws are likely to impact the development of future legislation. As with any area of law, the makeup of the justices can have a significant influence on how the law evolves. Many housing advocates view the Court under Chief Justice Roberts as being unfriendly to the types of affordable housing legislation law that has been enacted throughout the country, especially in the Northeast and West Coast—two regions with severe affordable housing shortages. A shift in the Court during or after the next election could bring about a reversal in housing policies that advance the legislative trend to promote affordable housing and its associated economic benefits.
As it stands now, however, it’s difficult to predict how some pending rent control cases will be resolved . For example, in a pair of recent appellate rulings involving California’s statewide rent control law (the California Tenant Protection Act of 2019), both the Second and Ninth Circuits have ruled that the law constitutes a physical taking and must comply with the government-owned component of the nexus analysis. But the issue whether the takings inquiry applies at all in cases of rent control is currently before the United States Supreme Court in Patrick v. City of Grand Haven. In this case, the Court agreed to decide, among other issues, "[w]hether the compelled expenditure of the property owner’s funds to subsidize the housing of others rises to the level of physical appropriation of property for Takings Clause purposes." The high Court could follow the Ninth Circuit on this issue, or it could adopt the more general view espoused by the Second Circuit. Either way, the controversies surrounding rent control laws are far from over.