Housing affordability remains one of the most talked-about issues in major U.S. cities and understandably so. For millions of renters, wages haven’t kept up with rising rents, and affordable units are becoming harder to find. Policymakers, under pressure to protect tenants, often turn to rent control or rent stabilization laws in an attempt to create fairness and predictability.
At first glance, these measures sound like a win-win: renters gain protection from steep rent hikes, and communities enjoy more housing stability. But as history repeatedly shows, good intentions don’t always guarantee good outcomes especially when market realities are ignored.
That’s the cautionary tale Daniel Kowalski of the Foundation for Economic Education (FEE) explores in his article, “Rent Stabilization Proponents Hate to Learn from the Past.” The story centers on New York City, where new regulations have once again created challenges that mirror those of decades past.
What Rent Stabilization Really Means
New York’s rent stabilization program was designed to prevent drastic rent increases while allowing landlords to earn a modest return. Roughly one million of the city’s 2.3 million apartments are rent-stabilized, covering millions of residents. The rules dictate how much landlords can raise rent each year, ensuring that tenants aren’t priced out of their homes overnight.
Unlike rent control, which freezes rents almost entirely, rent stabilization allows limited annual increases usually tied to inflation or a rent guidelines board decision. It’s a compromise that tries to balance tenant protection with landlord sustainability.
However, in 2019, New York State passed the Housing Stability and Tenant Protection Act (HSTPA), which made sweeping changes. Among other restrictions, it:
-
Eliminated “vacancy bonuses,” which previously allowed rent increases when tenants moved out.
-
Limited rent hikes for renovations and repairs.
-
Made it nearly impossible for landlords to remove apartments from stabilization, even if they invested heavily in upgrades.
-
Imposed stricter rules on evictions and security deposits.
The goal was to protect tenants more aggressively but it also dramatically limited landlords’ flexibility to manage their properties or recoup costs.
History Repeats Itself
The article reminds readers that this isn’t the first time New York has faced the unintended consequences of rent regulation. In the 1970s, similar laws led to a cascade of property neglect and urban decay. Landlords, unable to raise rents to cover expenses, deferred maintenance or abandoned buildings entirely. Some even resorted to arson to collect insurance money on properties that had become financial losses.
The result was devastating: neighborhood decline, shrinking housing supply, and unsafe living conditions for tenants ironically, the very people rent laws were meant to protect.
Now, fifty years later, history appears to be repeating itself.
A Growing Crisis for Rent-Stabilized Units
According to Kowalski’s article, the economic strain on landlords of rent-stabilized buildings has grown severe. In 2022, about 176 stabilized properties in New York went into foreclosure a number that has doubled each year since. Many owners are now operating at a loss, unable to raise rents enough to keep up with rising costs in taxes, utilities, insurance, and maintenance.
In fact, the Community Housing Improvement Program estimates that 10% of all rent-stabilized apartments are losing money meaning owners are paying out of pocket to maintain their buildings.
When profit disappears, so does motivation to invest in upkeep. Buildings deteriorate, repairs get delayed, and tenants end up in worse living conditions. And as more landlords struggle, lenders become hesitant to finance rent-stabilized properties, further discouraging investment and shrinking the long-term housing supply.
The Policy Paradox
This situation highlights a key paradox: policies meant to make housing more affordable can actually make it scarcer and more expensive.
When investors and developers see that the government might cap their potential returns, they become reluctant to build new rental housing. Over time, this drives up demand for the few market-rate units available, pushing rents even higher for everyone else.
It’s a cycle of good intentions gone wrong:
-
Rent controls are imposed to help tenants.
-
Landlords stop investing because returns are capped.
-
Properties decline or disappear from the rental market.
-
Supply shrinks, pushing prices up elsewhere.
-
Tenants face fewer choices and ironically, less stability.
This pattern has been documented not just in New York, but also in cities like San Francisco, Los Angeles, and Stockholm all of which have struggled with housing shortages linked to similar regulatory environments.
A Better Way Forward
The lesson isn’t that all regulation is bad but that balance matters. Protecting tenants from sudden rent spikes is important, but ignoring the economic realities of property ownership can lead to long-term damage.
Here are a few takeaways for both policymakers and property managers:
1. Data Over Emotion
Housing policy must be guided by real-world outcomes, not just political pressure. It’s critical to study past failures before enacting sweeping reforms. The data from New York’s rent-stabilized market is a powerful warning sign that needs serious attention.
2. Incentives Drive Behavior
If landlords can’t cover basic costs, they will cut corners or exit the market entirely. Effective housing policy should balance affordability for tenants and sustainability for owners.
3. Encourage Supply, Not Just Control Demand
True affordability comes from building more housing, not from freezing prices. Streamlining zoning laws, reducing permit delays, and incentivizing new developments can ease pressure without crippling existing owners.
4. Public-Private Collaboration
Governments can partner with developers and property managers to create incentive programs such as tax credits or low-interest loans for maintaining affordable units without strict rent caps.
5. Ongoing Evaluation
Rent stabilization laws shouldn’t be static. They should evolve based on annual performance data tracking vacancy rates, maintenance conditions, and foreclosure numbers to ensure they’re achieving the desired outcomes.
The Bottom Line
Rent stabilization was born from compassion but compassion without pragmatism often backfires. The New York example shows what happens when policymakers focus only on short-term tenant relief and neglect the long-term health of the housing market.
For property managers and investors, it’s a stark reminder that regulations shape behavior and understanding those rules is key to keeping properties profitable, compliant, and well-maintained.
At the end of the day, sustainable housing policy must do more than freeze rents. It must ensure that both tenants and owners can thrive in a stable, well-maintained, and growing rental ecosystem.
Source:
Daniel Kowalski, “Rent Stabilization Proponents Hate to Learn from the Past.” Foundation for Economic Education (FEE).
https://fee.org/articles/rent-stabilization-proponents-hate-to-learn-from-the-past/