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One of the main problems in the contemporary society is getting affordable housing. Real estate developers are doing everything to provide people with quality houses that meet their needs, and at competitive market prices. Demand for housing has always been high, especially after the turn of the century.
Therefore, it is important to ensure that property owners manage the available houses in a manner that will satisfy the market demand (Tucker 19). One of the most effective strategies applied in satisfying the demand and supply of affordable housing is rent regulation. Rent control refers to a system of laws administered by governments to regulate rents of residential houses and commercial properties.
It is a price control measure that dictates the limit on the amount of rent that a property owner can charge (Lett 100). Rent regulation protects tenants against exploitation by the proprietors. Rent control regulations vary depending on the legal power in the place that they apply.
Rent control helps to boost the economic value of real property through a steady return on their investments for proprietors. The concept of rent regulation was developed in response to an argument by economic experts that the supply function in the housing market was inflexible. This means that it cannot adjust readily to the demand function in the same market (Tucker 23).
Currently, there are over forty countries across the world that applies the concept of rent regulation. Rent control uses a number of provisions that have had a huge impact on the development and value of real estate properties. Economic experts argue that rent regulation helps to stabilize global economies, by enabling people to have a sound economic culture (Turner 62).
They argue that people develop value for money through changes in rents and size of houses. Experts predict that rent for houses will increase but the space is likely to reduce. People will in turn opt for lesser space at the same cost depending on their economic capacity. The economists also argue against the use of rent controls because they can have negative effects such as shortage of houses (Tucker 31).
Advantages and disadvantages of rent control
Just like any other price regulation strategy, rent control has its own advantages and disadvantages. The pros and cons of rent regulation apply evenly across all the key players in the housing industry (Tucker 40). Studies have shown that people in urban and rural areas prefer to live in rent-regulated housing. This shows that the advantages of rent regulation outweigh the disadvantages. However, it is important to note that property owners also benefit from rent regulation (Lett 109). The advantages of this concept are very many.
First, tenants enjoy lower rents, especially in metropolitan areas. According to provisions used in the United States, property owners can only increase rent once in a year (Lett 116). In addition, the property owners are also provided with the rates at which they can increase rent depending on various regulatory factors.
These factors are economic performance, as well as demand and supply in the market. This means that tenants are always safe from exploitation by proprietors because they do not suffer from irregular rent increments. Lower rents play a crucial role in improving the quality of life of people because it provides them with an opportunity to get quality and affordable housing.
Second, tenants enjoy more security and protection living in rent regulated housing (Lett 121). Proprietors who apply rent regulation policies are supposed to provide security services to their tenants as part of providing affordable housing.
Real estate experts argue that rent regulation gives protection to tenants against acts such as unwarranted eviction. According to rent regulation provisions, unwarranted eviction refers to any action by a proprietor that compels a tenant to leave their premises without a justifiable reason or a notice of at least thirty days (Tucker 48). Tenants are only viable for eviction if they commit serious offenses such as defaulting on paying rent, illegal use of property, and violation of lease conditions among others.
Another advantage of rent regulation is that it reduces the rate of mobility with people searching for better houses. Experts argue that people living in rent-controlled housing feel discouraged to move out, especially in metropolitan areas where the cost of housing is considerably higher (Turner 76). Property owners also benefit a lot from rent regulation because of a higher return on investment index. Studies have established that rent-controlled housing have a higher demand in the market.
This means that proprietors enjoy a constant flow of income throughout the year because of full occupancy of their houses. Rent regulation also helps property owners to plan their finances in an effective manner. This helps them in developing value on their investments (Turner 83). With regular income throughout a year, property owners have an easier time developing more investments, thus boosting economic growth.
Rent regulation also has a number of disadvantages. One of the most notable disadvantages is a reduction in the quality of housing. Economists and real estate experts argue that rent regulation discourages property owners from making regular maintenance on their houses (Tucker 54). Good maintenance of houses is essential for achieving good quality and attracting competitive market rates.
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Proprietors with rent-controlled housing do not bother to upgrade their houses for the fear of not recovering the money spent on maintenance in time. Their ability to make maximum profit from their investment is thwarted by the regulations on rent. This is the reason they are reluctant to reinvest their little gains back into maintaining the houses (Lett 130).
This situation is very different among property owners whose houses are free of rent regulation. For them, maintaining and upgrading their houses is easier because the tenants carry the burned of all the expenses through increased rents.
Another disadvantage is that in certain areas of jurisdiction, rent increases apply only to new tenants occupying a building. This means that property owners have little chances of making meaningful profits out of their investments. This situation is worsened by the fact that people living in rent-controlled housing have the least mobility in terms of changing houses (Lett 139). The fact that authorities receive very little tax revenue from houses with rent regulation also motivates governments to impose such policies on property owners.
Rent control provisions and their effect on real estate industry
Rent control provisions refer to the stipulated conditions that property owners should observe regarding their rent-controlled housing. The provisions vary depending on the legal power in various countries and regions across the world. The provisions represent the cognitive process of thinking that allows property owners to the essential things to do when something regarding their tenants occurs (Tucker 61).
For example, rent control provisions do not allow proprietors to evict an individual without providing a notice. This provision creates room for another condition that requires all tenants to develop and sign a leasing agreement with a client. The lease agreement should be used to make decisions about the future of tenants regarding their efforts in agreeing to the terms and conditions of the lease (Turner 92).
Property owners have an ethical responsibility to ensure that they do not exploit tenants with high rents. Another important provision that most property owners need follow, is the need to maintain and develop their properties. All property owners have an ethical responsibility to ensure that tenants live in the best environmental conditions.
Rent regulation provisions also provide proprietors with the limits to apply in leasing their properties (Turner 109). These conditions play a crucial role in providing both the property owner and the tenant with an equal bargaining power during the leasing process.
Real estate experts argue that it would not have been possible to implement the concept of rent regulation if both property developers and tenants failed to buy into the idea. Property developers sacrifice a chance to make maximum profit from their investments for a steady flow of income, albeit in a controlled environment (Turner 133).
Proprietors of rent-controlled housing pay fewer taxes compared to their counterparts who work without any regulations or stipulated conditions. Experts argue that rent control regulations have influenced the development of the global real estate industry in both negative and positive ways.
Positively, they have helped to solve the housing problem, as people are now managing to live in good houses because of their affordability (Tucker 19). Rent control provisions have also helped to stabilize the real estate industry, as property developers have developed effective strategies for reaching equilibrium in the supply and demand curve for the housing market. Negatively, rent control provisions have led to a drop in the desire among developers to invest in real estate because the return on investment is very low (Turner 140).
Property developers are not motivated to continue developing houses because there is less freedom over their property. The value of houses has also reduced due to the rent control regulations that have made it hard. When people are not changing houses, the demand and supply for houses will change differently (Turner 144).
The concept of rent control has been a revelation to many people since its inception. Currently, there are over forty countries across the world that applies the concept of rent regulation. Communities living in urban and rural areas are now enjoying the comfort of affordable housing because of rent control. Rent control helps to boost the economic viability of real property because property owners have a steady return on their investments.
The concept of rent regulation was developed in response to an argument by economic experts that the supply curve in the housing sector is not flexible, thus cannot adjust readily to the its demand. Rent control provisions refer to the stipulated conditions that property owners should observe regarding their rent-controlled housing. Property owners have an ethical responsibility to ensure that they do not exploit tenants with high rents.
Lett, Monica. Rent Control: Concepts, Realities, and Mechanisms. New Jersey: State University of New Jersey, 2002. Print.
Tucker, William. Zoning, Rent Control, and Affordable Housing. California: Cengage Learning, 2007. Print.
Turner, Margery. Housing Market Impacts of Rent Control: The Washington, D.C. Experience. New York: The Urban Institute, 2008. Print.