There is already a soft cap on rent increases. One way landlords screen tenants is based on their rent to income ratio. 30% is the industry standard, although in certain areas it may be as high as 40%, but the tenant is at risk of not being able to pay rent because their finances are so tight. Remember how 60% of Americans can’t handle a $1000 expense? These are the people who fall behind on rent. If an applicant’s income is $3000 a month, they should have no difficulty getting approved for a $900-1200 apartment. That’s just the landlord protecting himself. If a landlord raises rent by $1000 after we get the Freedom Dividend, the new rent to income ratio raises to 55%, a risk he wouldn’t take with a new renter anyway, so why would he take that risk with his current tenant? If the current guy moves out, the new tenant would need a total income of $6300 to qualify for the apartment, putting it out of range for most Americans. Raising the rent by $1000 ensures you can’t replace the tenant.

What would a landlord likely raise the rent to? Something that stays within the 30%-40% ratio. So for the situation above, and for other situations where you are renting within your means, the rent increase would most likely be between $300-400, depending on how stringent they are with the ratio. This is on the high side, because other market factors will lower rents.

What if all landlords raise their rents simultaneously by $400? They won’t. Landlords have different priorities, and some have very low risk tolerance and they’ll do almost anything to keep a good tenant. Others can’t afford a vacancy because their mortgage eats up most of the rent, and vacancies mean money out of pocket. Others have no idea how to properly price an apartment, and pick a number that they feel is appropriate. Some can’t wait for months to rent to the perfect tenant at a high rate. Etc etc. Also, not all leases are due at the same time, and many places have laws where if rent is to be raised by more than a certain percentage, the landlord must give 60 or 90 days notice. Therefore, a fraction of all apartments will barely get rent increased at all.

Vacancies hurt profits. Landlords want money, but they also loathe vacancies. There is a ton of work that goes into the apartment whenever a tenant leaves. There’s always damage to the unit. There is obvious wear and tear. There are problems the tenant ignored or forgot to inform the landlord, like leaks and mold. There’s cleaning. Either the landlord has to pay someone or has to do it themselves. They gotta take time out of their day, evening, weekends and do open houses and showings. There’s screening tenants, calling references. Vacancies can cost thousands of dollars in terms of work done and out of pocket costs. If a long term tenant leaves, there’s often a remodel or appliances are replaced. Additionally, there’s missed rent, which is usually at least a month before you start collecting because the applicant has to put in their 30 days notice, as few tenants can afford to pay double rent. Each month of vacancy is equivalent to losing 1/12th annual income. I know of several landlords who gave discounts when a truly good tenant complained about financial difficulties. Once again, there is a tremendous financial downside when tenants leave, especially long term tenants. The risk of vacancy prevents price gouging.

Competition between landlords. Half of apartments are owned by business entities. But the other half are owned normal people who don’t have thousands upon thousands of dollars in their coffers to weather a long term vacancy. Everyone assumes landlords make a killing, but that’s not necessarily true to your advantage. A $200k house might rent for $1200, but the mortgage and expenses is $1000, leaving a monthly pretax profit of $200, so a 2 month vacancy wipes out an entire year’s earnings. These small landlords are therefore incentivized to rent quickly, and the best way to become competitive is to reduce the rent. So whereas larger rental conglomerates may try to hold out for more “qualified” renters and stick to their high $400 rent increases, they too will lose money unless they charge market rate. Being less greedy actually saves landlords time and money, thus keeping rents low.

Setting tenants free from renter prison. If your rent were $1000 a month and you wanted to look for a similar apartment, you would need to have available the first month, last month, security deposit, sometimes cleaning deposit. You’ll need this a month ahead of time cuz you’re going to give 30 days notice to your current landlord, and this is before getting your old security deposit back. How many people have $3500 sitting around? Not to mention the hassle of moving, changing addresses, buying furniture to better fit your new place, etc. 60% of Americans can’t even afford an unexpected $1000 expense, that means they can’t afford to move. They’re trapped. But the Freedom Dividend gives them a way out cuz they can save money faster, then move away from an overpriced unit.

Moving away for better opportunities. Lower demand for rental housing also lowers rent. Keep in mind that everybody gets $1000 a month, which will create jobs everywhere, but especially in small towns. A small town of 10k adults, where rent and the cost of living is cheap, gets an infusion of $120M a year. The residents, living paycheck to paycheck, will spend this money in their community, spurring the purchase of goods and services, which requires hiring more people. For years, children have grown up in these areas but many have moved away to the big cities in search of job opportunities. Now FD will bring jobs and opportunities back. Labor costs differ by industry, service industry is around 50% of sales, manufacturing is 30% of sales. If one third of the Freedom Dividend is used to pay for labor, that would be $40M a year in new jobs. Average income for a small town worker is $30k, cost to employers is another $10k for taxes and benefits. $40M buys 1000 new full time above living wage jobs!!!! The community and the big city will provide workers who want an easier way of life. Moving is normally risky and expensive, but the Freedom Dividend allows people to uproot themselves and set up somewhere else. This exodus of workers from the congested cities will reduce demand for housing in metro areas, thus lowering rent even further.

Homeownership. Increase in homeownership will also decrease rent. The way homes are purchased today in the city, people save for years to get a down payment of 20% and finance the rest. Houston’s median home price is around $200k. With a $40k down payment and $160k loan, monthly expenses would be about $1000. To qualify, your income would need to be over $3500 a month, achievable on one living wage + one minimum wage incomes. And now you’re thinking, if everyone has an extra $1000 a month, wouldn’t homeowners increase home prices by $100k or more? No, because if the cost of the home increased by that much, the buyers wouldn’t be able to afford the down payment and would have to wait a few more years to save another $20k. Also the mortgage to income ratio, the safety mechanism for loans, would show that the buyer is so risky that the loan wouldn’t be approved anyway. (After the sub prime lending crisis, banks have become more risk averse) Furthermore, there is no way sellers are going to let their properties sit on the market for 2 years if they need the money now, and raising prices slows the sale. 45M Americans rent, and one of their biggest regrets is not buying a home. Home owning is cheaper than renting in 41% of counties in the US. Across America there are thousands of small towns ranging from 5000 to 50k residents, where homeownership is possible today for around $100k. The Freedom Dividend makes homeownership even more accessible. So, while prices will go up slightly for home purchases, homeownership will not be stifled by greedy sellers, homeownership will reduce the number of renters, thus lowering demand for renting and rents in general.

Rent control is the nuclear option. Many big cities already have rent control or rent cap laws that prohibit exorbitant rent increases. Some are tied to inflation or some cost of living index, which protects a lot of people in high cost areas like New York City and San Francisco. Furthermore, there is nothing preventing local counties from passing rent control laws if there is demand for it, and a UBI allows more renters to contribute to political campaigns that advance their tenant-centered agenda.