RATIONALE BEHIND STANDARD RENT

A basic policy rationale behind rent regulation is to protect tenants from displacement in tight rental
market. Rent control is usually an intervention through measures put in place by government on the
pretext of protecting the urban dwellers from being pushed off the open market in the course of
securing accommodations by putting a ceiling on the maximum rent payable on all classes of residential
properties. Such measures include legislation on to check incessant and arbitrary increases in rent
brought about through the interplay of demand (which rises at geometric rate) and supply (which rises
at arithmetic rate} of residential accommodation thereby causing galloping increase in rent from year to
year.

Prior to 1997, arbitrary rent increases, unlawful ejection of tenants, Lengthy and un-ending litigations
between Landlords and tenants were rampant. Continuous increase in population especially in urban
areas of Nigeria has led to astronomical increase in the demand for affordable housing whilst the supply
side remains for the most part, underdeveloped and unable to meet the growing demand.

While most rent control laws are biased towards tenants, some are actually benign due to the way in
which they are implemented – or not implemented, as the case may be. Non-implementation is a
surprisingly widespread phenomenon.

A common (and much abused) justification for rent control is the right to housing, which is sometimes
protected by the constitution.

Another justification is to correct market inefficiencies such as information asymmetry and high
transaction costs. Because of the high cost of moving, tenants can arguably be pressured by landlords to
accept rent increases. Tenants may also be unaware of the real condition of units until they move in. If
the tenant complains, the landlord may threaten to increase the rent.

Standard contracts perform a service to both landlords and tenants. In many cases in modern society,
the state intervenes in contractual relations between individuals in order to provide simplicity, clarity,
and order. Both landlord and tenant are helped if standard provisions exist, for instance, which
determine what should be agreed on - the initial rent, rent adjustments, date of payment, penalty for
delays, conditions for eviction and such. These can provide both flexibility and security.

The principal argument against rent control is that it tends to distort economic incentives, leading to
inefficient distribution of resources.

 Rent control reduces the incentive of landlords to supply rental units. Rental units tend to be in
scarce supply under rent control. Ironically this leads to an escalation of complaints against the
landlord class. Vacancy levels tend to be relatively low and available units tend to be rented only
under strict conditions, again aggravating relations between landlords and tenants.

 Rent control discourages landlords from maintaining and repairing units till the end of a
tenancy.

 There is also an incentive for landlords to discriminate against tenants likely to stay for a long
time, like retirees or couples with children.

 In some countries, landlords collect key money to offset the losses occasioned by rent control.
 Rent control tends to lead to bullying and illegal behaviour by landlords. If rent increases are
allowed between vacancies, landlords will try to evict tenants in any way possible. This will likely
translate into demands for government protection for tenants, i.e., into a further layer of
bureaucracy and policing.

 Tenants in tenancy rent controlled units are less willing to move to other places, despite the
possibility of earning higher wages.