Rent Control vs. Rent Stabilization: What’s the Difference?

Simply put, rent control and rent stabilization regulate apartment prices to protect tenants from unfair rent increases and to keep housing affordable for renters, while still allowing property owners to increase rent at a regulated, fair rate.

Currently, four states and Washington, D.C., have some form of rent control in place (California, New York, New Jersey, Maryland), 37 states prohibit rent control and nine states allow rent control but have no cities that implement it. Because rent control and rent stabilization are controlled by the state, and not the federal government, policies vary from state to state.

Source: NMHC

So, what's the difference and how does it apply to you? We'll explore the history of rent control and rent stabilization, talk about the differences between the two and highlight the pros and cons of rent stabilization.

History of rent control and rent stabilization

Rent regulations came about after WWII as major metro cities faced severe housing shortages and sharp increases in rent. To help reduce the number of evictions and keep housing costs affordable, cities in New York and California created policies like rent control and rent stabilization.

Nowadays, rent control and rent stabilization is still prevalent in four states, but the number of apartments protected is dwindling.

What is rent control?

Rent control means a tenant's monthly rate is pretty much frozen and can't be increased by the landlord at the end of the lease. Living in a rent-controlled apartment is like finding a pot of gold at the end of a rainbow. To qualify as a rent-controlled apartment, the building and tenants must meet very specific criteria:

• The apartment building was constructed before 1947
• The apartment has been occupied by the same family since 1971
• Rent-controlled apartments can only be passed down to family members, so you won't be able to lease one unless it's currently in the family
• To pass a rent-controlled apartment from one family member to another, the successor must be living in the apartment for two consecutive years before they inherit it

If people don't meet these criteria and an occupant dies without a successor, the formerly rent-controlled apartment will be removed from regulation and will likely lease for current market value.

Rent-controlled apartments are rare and are decreasing in number. In 1950, there were more than 2 million rent-controlled apartments. But in 2017, there were only 22,000 left. Unless you have a family member that meets the above criteria, you won't be able to move into a rent-controlled apartment.

What is rent stabilization?

Now that we've covered rent control, let's talk about rent stabilization. When many people talk about rent control, they probably mean rent stabilization, which means rent can only increase by a small, set percentage each year. The good news is that rent-stabilized apartments are much more common and accessible than rent-controlled apartments.

Rent stabilization is a way to regulate the cost of rent for certain residential buildings in some cities. Renters and apartment complexes that are under rent stabilization must meet these qualifications:

• The building was constructed before 1974
• The building has six or more units
• The rent is less than $2,700 a month. Once rent reaches this limit, the rent stabilization pricing may end.
• The renter earns less than $200,00 a year. If the renter earns more than $200,000 for two years in a row, the landlord can deregulate rent and increase it to market standards.

Property managers are not obligated to tell you if the apartment building falls under rent stabilization protections. If you're curious about your own apartment building or looking to move into a rent-stabilized complex, you can ask the city and request documentation about rent history or check out this website for more information (specific to New York only).

Pros and cons of rent regulations

The upside and downside of rent-controlled or rent-stabilized apartments depends on the stakeholder. If you're a renter, you'll benefit from these regulations and if you're a property owner, you'll likely feel the negative effects.

4 perks of rent stabilization

1. Rent prices are stable and predictable with minimal, regulated increases each year
2. Provides affordable housing options in expensive metro cities
3. Increases housing security because people won't have to move due to expensive rent
4. Renters are offered a guaranteed right to renew their lease

3 cons of rent stabilization

1. Property owners won't make as much of a profit on rent-controlled or rent-stabilized apartments compared to other properties
2. Rent regulations can inhibit property owners from maintaining and remodeling apartment buildings because the upkeep would increase the value of the building, but rent would remain the same
3. Developers may avoid new construction in areas with multiple rent-stabilized buildings because they won't be able to compete with lower-priced apartments in the same neighborhood.

Will they disappear?

As rent continues to increase across the country, rent-stabilized apartment buildings become diamonds in the rough. Check your state's laws and policies regarding rent control and rent stabilization to see how it may benefit you.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional financial or legal advice as they may deem it necessary.