Rent control disproportionately hurts small landlords

Proponents of rent control often claim that greedy corporate landlords hold so much market power that they can raise rents excessively. Therefore, enacting rent control is one way to ensure that corporate landlords subsidize housing for poor tenants, who would otherwise be displaced due to high and rising housing costs.

Providing access to housing is indeed a noble goal.

But as research has shown time and again, rent control is an ineffective way to solve the affordable housing crisis. Rent control reduces housing supply, leads to the deterioration of housing units, encourages housing misallocation, lowers property values, and erodes the property tax base.

Beyond that, research evidence does not support the idea that rent control enables the distribution of rent subsidies from corporate landlords to tenants. On the contrary, research evidence shows that rent control disproportionately hurts small landlords since they are less likely to substitute to other types of real estate that are exempt from rent control.

Small landlords are less likely to convert to non-rent-controlled apartments

One of the ways through which landlords escape rent control is by converting units to other types of real estate that are exempt from rent control. These include luxury units, owner-occupied condos, or newly developed buildings.

Rates of conversion, however, differ among small and corporate landlords. Because corporate landlords have much easier access to capital, they convert at a higher rate. Small landlords are usually unable to cover the high costs associated with conversion.

Researchers from the University of Stanford, who analyzed how the expansion of San Francisco’s rent control law to cover small multi-family housing — or mom and pop ventures with 4 units or less — affected conversions, prove this phenomenon.

As the authors find that:

..properties that have a corporate landlord at the time of the rent control expansion decrease their supply of rent controlled housing by 64 percent, while properties owned by individuals only decrease their supply by 14 percent. Corporate landlords replace this lost housing supply by increasing their supply of non-rent-controlled rentals by 20 percent and by selling to owner occupants, increasing their size by 10 percent. Corporate landlords primarily evade rent control by investing in new construction rentals, the most capital-intensive version of rent control evasion. Since corporate landlords likely have much cheaper access to capital than individuals, they can evade rent control at almost four times the rate of individual landlords.

On the surface, rent control may look like a transfer from greedy corporate landlords to tenants. The reality, however, is that small, credit-constrained mom-and-pop landlords usually end up paying for the full or disproportionate share of the cost of benefits that tenants receive in the form of lower rent when they are in a rent-controlled apartment.

Rent control is, in other words, a regressive tax mostly paid by small landlords and not corporate landlords.