Should renters be protected from excessive increases in their cost of living? That’s essentially the question raised by a pair of bills being debated by the legislature’s housing committee. It is a thorny question prompting passions on both sides, as is typically the case whenever people’s interests are threatened.
There are two bills proposed for different types of rentals. The first, House Bill 6588, restricts landlords from raising rent during a tenant’s first year of occupancy and during public health emergencies. It would also cap annual increases to be calculated by the state Department of Housing, and require landlords to give tenants 90-days notice before any increase would take effect.
The second, House Bill 6589, would restrict annual rent increases at mobile home parks to 4% plus the rate of inflation. The mobile home rent restrictions would also apply during a public health emergency and extend for a year immediately afterward. Both bills provoked a sometimes fiery debate during a lengthy legislative housing committee meeting last week:
The situation has reached a crisis point following the COVID-19 pandemic when tens of thousands of Connecticut residents became unemployed. Unacceptably high inflation has hit renters and landlords alike, forcing building owners to raise rents to offset increased expenses.
Meanwhile, home ownership, the gateway to upward mobility for many renters, has become even more expensive in Connecticut because of upward pressure on real estate prices caused by the pandemic-induced urban exodus from New York. Furthermore, the Federal Reserve Bank has begun aggressively raising interest rates to stave off inflation, making mortgages more expensive.
Former New York Mayor Ed Koch, a lifelong Democrat, described himself as a “liberal with sanity.” Like many of the thinkers I admire, I believe in markets and their power to right many wrongs, while acknowledging there are cases where the markets do not serve us well. In other words, a “capitalist with sanity.”
Healthcare, for example, with its perverse incentives for insurance fraud, and unnecessary tests and procedures, is one such example of economic activity that doesn’t respond terribly well to market inducements and demands some level of regulation. You can add the housing rental market to that list.
There are a number of aspects of renting that are already regulated. Rentals must adhere to local zoning, building, safety, and health codes. And landlords and tenants do indeed respond to market conditions. If landlords set rents too high, they will have a shortage of tenants. If tenants think a proposed rent increase is too high, then they are free to find another place to live.
But therein lies the rub. Moving is extremely disruptive and can be expensive. It is a huge commitment that requires time and energy to search for a replacement unit. Rent control advocates insist this relationship puts tenants at an unfair disadvantage. But finding a new tenant is also pricey for the landlord, who will have to weigh that factor against the expense of not getting the desired rent increase and uncertainty over the quality of the replacement tenant.
My preferred solution would be for renters to organize themselves in the same way workers can for collective bargaining. There are several tenant unions in Connecticut. Individual buildings can also be organized into tenant associations.
These associations have grown in number over the past year, with at least five new tenant unions formed with the help of a group called Connecticut Tenants Union. Finally, based on the passage of House Bill 5205 last year, municipalities whose populations exceed 25,000 are required by state law to establish fair rent commissions to police excessive rental charges.
Another possible solution is for towns and cities to build more affordable housing, but we all know how difficult that can be when taxpayers rise up to preserve the status quo. Even in Connecticut’s largest cities, housing growth since 2017 has been sluggish despite the high demand and the fact that Connecticut has the lowest vacancy rate in the US.
That leaves us with the option of imposing rent controls on the markets, an action I typically resist. Common sense tells us that if you disincentivize an activity such as renting to tenants, then you will see less of it. If prospective apartment building buyers look at the market, they may well decide to back off after concluding that the state will not give them the flexibility to raise rents at a level sufficient to cover their expenses and make a living on top of that.
Overly stringent rent controls also increase the likelihood that building owners will convert to condominiums, as happened 20-30 years ago in San Francisco, or transition them to Airbnb-style short-term rentals (STRs), thus freeing them from rent control but reducing the supply of rental housing. So unless rent-control advocates want to restrict condo or STR conversion as well, perhaps they should be careful what they wish for.
So we are left with the question of whether Connecticut should join California and Oregon as the only states to enact statewide rent control policies, or whether we should join Maryland, New Jersey and New York — currently the only states that allow local governments to enact rent-control policies.
Rent control advocates should urge the General Assembly to grant that control to the towns and cities, then put pressure on municipal officials to take action. That would be better than enacting a statewide rent-control law that applies across the board and doesn’t allow for differences in the state’s regional microeconomies.
The state has an interest in the stability that rent control can provide to neighborhoods, but the General Assembly should resist the urge to use the heavy hand of the legislature to impose it on all of Connecticut’s 169 municipalities.
According to the state Office of Legislative Research, the last time the legislature took action on rent control was in 1956 when lawmakers repealed a 1947 law allowing cities and towns to control rents through locally appointed boards. Maybe it’s time for the General Assembly to reverse itself once again.