5 Negative Effects of Rent Stabilization

Rent stabilization is a set of laws that guarantee a tenant three basic protections: the right to possession, the right to no increase in rent and the right to repairs on the property. Created after WWII when housing prices increased sharply, the laws were intended to induce tenants to rent apartments. Rent stabilization does not exist in all states, and does not apply to condominiums or cooperatives. However, while rent stabilization is attractive because it provides lower rents, it is not without its negative effects, including the following 5:

1. Reduction in Quality of Housing

In a rent stabilized apartment the rents on the units are reduced, meaning that the landlord does not receiving as much income. Because of this, there is often less incentive for the landlord or building owner to invest in repairs or to update the apartment’s amenities. Often, therefore, rent stabilized apartment buildings fall into disrepair, which in turn attracts less desirable tenants and lowers the community’s property values.

2. Reduction in Quantity of Available Housing

Rent stabilized apartments are in high demand, but are very rarely available. The disinclination to vacate rent stabilized apartments means there are fewer options for apartment seekers. Additionally, because there is less income from rent stabilized units, there is less incentive for builders to develop new apartments.

3. Biases against New Tenants

If some tenants have rent stabilized apartments, a landlord may try to close the gap between income and expenditures by charging more on the non-stabilized apartments. New tenants often find that they must pay a much higher amount for rent than other tenants. It may be possible that these higher rents deter new residents.

4. Lack of Diversification

Eliminating rent as the basis for a tenant to choose a residence opens the door to discrimination. As rent stabilization reduces the amount of available housing, certain classes or ethnicities may be unable to reside in the area. The result is that in many neighborhoods that contain rent subsidized apartments, there is a severe lack of social and racial integration.

5. The Ripple Effect

If rents in one area are stabilized, the same may not be true for surrounding neighborhoods. Should the area be a desirable place to live, rents may be increased by the demand for living there. A municipality may also begin to favor chain stores rather than residential buildings or small businesses because they are able to collect more taxes from the bigger, box stores.

While there are certainly drawbacks to rent stabilization, the laws are also beneficial to many tenants with lower incomes or less mobility with their employment. However, seriously analyze the positives and negatives of a rent stabilized apartment prior to signing any lease agreement where such apartments exist.