In the few months since St. Paul’s draconian rent control law went into effect, landlords, tenants, government officials, and housing activists have all expressed displeasure and confusion with the ordinance. The latest confusion revolves around the process to appeal for a rent increase greater than that allowed by law. And it illustrates the subjective nature of rent control.
While the law limits rent increases to 3 percent, the ordinance does allow for some exceptions. Property owners can increase rents up to 8 percent, so long as they self-certify that the property meets certain conditions, such as an increase in property taxes or utility costs. Tenants can appeal to city officials. City officials will then decide if the increase is necessary for the landlord to get a “reasonable return” on his investment.
A “reasonable return” can vary significantly. One investor might find a return of 5 percent to be acceptable, while another may want a 10 percent return. What is reasonable for one investor might not be reasonable for another. That is a decision that each investor must make for himself based on his own needs and desires. However, St. Paul’s rent control law removes this decision from the property owner and vests it in government officials.
Since the ordinance does not define “reasonable return,” government officials can use whatever criteria they choose to make such a determination. City officials admit that they are unsure how to apply the law, which means that they will have to “wing it”—figure it out as they go along. Whatever decisions they make will undoubtedly be guided by political expediency rather than objective principles. This is the subjective nature of rent control.
It is impossible to objectively define “reasonable return” in a manner that applies to all housing investors. City officials will have to walk a tightrope to find a number that is acceptable to all parties. The attempt to please everyone will ultimately please no one.
But the economic issue is secondary to the moral issue. Rent control allows government officials to control virtually every aspect of a landlord’s business. He cannot operate his business as he deems best. He can only act with the permission of bureaucrats and politicians. No matter what return is allowed, it isn’t reasonable because reason has been removed from the equation.