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What Is ‘Just and Reasonable’ in Rent Control? Why Historic Cost Is More Rational Than Current Value
Author(s) -
Kaish Stanley
Publication year - 1981
Publication title -
american journal of economics and sociology
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.199
H-Index - 38
eISSN - 1536-7150
pISSN - 0002-9246
DOI - 10.1111/j.1536-7150.1981.tb01379.x
Subject(s) - landlord , economics , renting , market value , legislation , value (mathematics) , interest rate , inflation (cosmology) , present value , microeconomics , monetary economics , law , finance , mathematics , statistics , physics , theoretical physics , political science
A bstract .Rent control legislation must allow landlords to earn a “just and reasonable return” on their property. If the law prevents a landlord from attaining such a result he is entitled to seek relief by administrative or judicial process. The customary measure of ‘just and reasonable return’ is the current interest rate applied to current, fair market value. During a period of inflation such a calculation results in too high a measure. Because both interest rates and the value of tangible property rise together, rentals must increase at twice the inflation rate to meet the standard. Recent legal opinions evidence no appreciation or awareness of this. Furthermore, in a rent‐controlled situation it is impossible to establish a valid current market value for a property. Both difficulties are overcome if a ‘just and reasonable return’ is based on historic cost rather than current market value. Arguments in favor of historic cost are made employing capital market analysis and classical rent theory.