The pros and cons of Newark’s rent control regulations
Earlier this month, Newark announced changes to its rent control regulations. The reasons for rent control are fairly obvious in the way that it protects tenants against landlords and keeps them from being priced out of neighborhoods that they wish to live in. This seems on its face to be noble and a way of protecting the working class fathers, mothers, and children who are the backbone of a community. However, when rent control exists in an urban environment where most housing was built before 1950, with aging wiring and plumbing, older heating systems, plaster walls and ceilings and has been exposed to steady use for a long period of time, it begs the question of whether the same incentives to keep good tenants paying affordable rents have the unintended consequence of creating financial disincentives to making repairs and updates.
One thing is certain. Many of the rental units in Newark are dated. Many rely on older heating and electrical systems which are not up to today’s demands. Central air conditioning is rare. Rental units with a kitchen which is less than 10 years old are rare.
The previous set of rules allowed a landlord to increase rent by up to 20% if $5,000 per room in a vacant unit was spent on repairs and renovations. The positive of this rule was to provide a goal with a reward for landlords, namely a way to obtain a significant rental increase if they made significant and meaningful improvements to a rental unit. Lets take the example of a standard 2 bedroom rental unit. It probably has either 4 or 5 rooms. That means in order to qualify for up to a 20% increase in rent, a landlord would need to invest $20-25,000 in the unit. Imagine an older, dated unit – that might rent for $1,100 per month. Effectively, by investing $20-25,000 a landlord can raise rent on that unit by $220 per month (or $2,640 per year), assuming the market will bear that. One of the problems with this rule is that it does nothing for a conscientous landlord who does minor repairs. In fact it may create an incentive to delay small improvements. Wait until several repairs pile up to make it possible to cross the threshold and thus allow for a rent increase. The other problem is that a $20-25k improvement may be a cost level which is out of reach for many of the smaller landlords who own one or two small rental properties. Give up… declare that figure unattainable and do nothing, allowing the unit to slowly deteriorate and collect a gradually increasing rental amount.
In changing the regulations, Newark officials changed the threshold for 20% to 8 months of rent. Taking that dated 2 bedroom apartment example this reduces the cost substantially to $8,800 of investment to allow the landlord to increase rent by 20% (or $220). How will this affect the quality of rental units in the city? It’s hard to say but with this change the fact remains that there will be a continued incentive to delay minor repairs to allow the threshold to be reached. On the tenant side, there is fear that the change will cause significant rent increases without significant improvements in condition. In another wrinkle, an unscrupulous landlord might stretch out a major needed renovation into 2 or 3 segments, thus allowing the landlord to stack 20% increases sequentially on top of each other.
Unfortunately, this is the problem with arbitrary limits and a one size fits all approach. Sadly there’s too much fear in Newark to trust the market and lift rent control regulations which arguably have been one of the factors holding back revitalization. But who can blame tenants for mistrust given the vast numbers of poorly maintained older rental units in the city?
