As the topic of real estate — and by extension, real estate law — is of great interest to me, I investigated real estate practices in India for our trip. One of the defining features, I learned, of the real estate market in India is the widespread use of rent control. This in turn led me to a paper analyzing the effects of rent control in India.

Satvik Dev, a member of the Centre for Civil Society, describes in his paper “Rent Control Laws in India a Critical Analysis,” the history, benefits, and costs of rent control. <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=926512> Dev’s paper begins with a general introduction to rent control, which is the legal enforcement of a maximum amount of rent that can be charged for a particular building. Each of the arguments for and against rent control are presented and analyzed in turn. He concludes with an appendix detailing the rent control laws in 25 of India’s states.

Rather than immediately banish all rent control laws, Dev recommends reforming existing laws as they have “gross inconsistencies.” For example, not all Indian states provide exemptions for new constructions “which would encourage fresh supply in the rental housing markets.” Many states also do not allow any increase in rent unless improvements are made to the premises. As Dev suggests, provisions like these should be standardized across India’s various states.

Even more troubling than inconsistent laws, Dev states, “In absence of the price rationing system, as in the case of rent controls, landlords often adapt discriminatory and crude preferential measures in rationing out the scarce supply of rentable housing among the many buyers.” In other words, rent control laws encourage landlords to use discrimination when selecting potential renters.

For example, let us say a bigoted landlord of the Feline-Faith religion would like to rent out an apartment. A renter of the Canine-Conviction is willing to pay $800 per month to rent from the landlord, while another renter of the Feline-Faith is only willing to pay $600 per month for the same apartment. If the landlord discriminates against the Canine-Conviction renter based on religion, the landlord essentially pays a penalty of $200.

Now let us suppose the government intervenes and decides “$800 a month is outrageous.” Rent control is imposed, and $500 per month is the maximum rent allowed.

With rent control, the landlord no longer has a financial incentive to choose one renter over the other; all renters pay $500. The bigoted landlord must still discriminate (economically) between buyers and will select the fellow member of the Feline-Faith. In essence, rent control has subsidized discrimination (the bad kind).

In India, rent control could easily subsidize discrimination between peoples of various religions, castes, or even genders. Discrimination under this system would also be very difficult to prove in a court of law. It would thus be very easy for prejudiced landlords to escape detection.

What do you think? Should India repeal its rent control laws? Have you ever experienced or heard of cases of landlord discrimination?

—Alex Thornton