Under tenancy rent control, rents are regulated within a tenancy but not between tenancies. This paper investigates the effects of tenancy rent control on housing quality and maintenance. Since the discounted revenue received over a fixed-duration tenancy depends only on the starting rent, intuitively the landlord has an incentive to spruce up the unit between tenancies in order to “show” it well, but little incentive to maintain the unit well during the tenancy. The paper formalizes this intuition and presents numerical examples illustrating the efficiency loss from this effect. Tenancy rent control is a form of rent control in which rents are regulated with in a tenancy but may be raised without restriction between tenancies; more specifically, the starting rent for a tenancy is unregulated but the path of nominal rents within a tenancy, conditional on the starting rent, is regulated, typically causing rents to rise less rapidly over the tenancy than they would in the absence of controls. Many, perhaps most, jurisdictions around the world that previously had traditional first-and second-generation rent control programs (Arnott, 1995) have moved in the direction of tenancy rent control as a method of partial decontrol.

In jurisdictions that have stricter forms of rent control, tenancy rent control may be an attractive method of partial decontrol. Because the starting rent adjusts to clear the market, tenancy rent control does not generate the excess demand phenomena (such as key money, waiting lists, and discrimination) of stricter rent control programs, and should have a less adverse effect on the matching of households to housing units3. Tenancy rent control continues to provide sitting tenants with improved security of tenure; for one thing, rent regulation within tenancies precludes economic eviction; for another, because tenancy rent control, like other forms of rent control, provides landlords with an incentive to evict tenants, it is invariably accompanied by conversion (rehabilitation, demolition and reconstruction, and conversion to condominium) restrictions. As well, tenancy rent control may be a politically attractive method of partial decontrol since it continues to provide rent protection to sitting tenants, who are typically the strongest opponents of decontrol. These benefits must be weighed against the costs. The most obvious costs are the tenant lock-in created by tenancy rent control and the unfairness of the preferential treatment of sitting tenants.