As Rents Spike, So Does The Push For Rent Control

With housing costs hiking steadily upward throughout 2022 and little relief in sight, the age-old rent control debate resurfaced in markets as far-flung and politically disparate as California and Florida, and the idea is expected to gain momentum in the new year.

Though rent control has gained only spotty traction throughout the years, renewed efforts could find purchase in states and municipalities across the country, setting in motion changes for the multifamily property sector that has seen exponential growth in the last decade.

"We're going to see a lot more efforts to pass rent control next year," said Jim Lapides, National Multifamily Housing Council vice president of advocacy and strategic communications. "The momentum is there."

Though rent increases have moderated in recent months, they remain painfully high for millions of Americans, bringing rent control to the fore. However, it is forcefully opposed by the multifamily industry, as rent control has the potential to put downward pressure on multifamily valuations. The impact is difficult to quantify across markets, but studies point to that outcome.

For example, a study published in October by Duke Financial Economics Center found that the introduction of rent control in 2021 caused property values in St. Paul, Minnesota, to decline by about 6%, on average, over the first three months. Rental properties were down about 12%, the loss driven by lower future rents, which benefits current renters. 

Lost property value essentially functioned as a transfer of wealth from owners to renters, the report also found. 

NMHC, which advocates against rent control in all cases, expects a number of places to be battlegrounds over rent control in 2023, regardless of the direction of rents in the short run.

That is because rent growth is a more persistent phenomenon than just this year. National median rents rose 149% from 1985 to 2020, compared with an increase in overall income of 35% for the same period, according to Clever Real Estate, a residential agent matching platform, crunching Census Bureau data.

One particular hot spot for a rent control push next year will be Massachusetts, Lapides said, despite the fact that the commonwealth currently bans rent control.

Boston Mayor Michelle Wu made rent control a theme of her candidacy in 2021, and has since been working to encourage state lawmakers to repeal rent control preemption. Gov.-elect Maura Healey reportedly supports revoking preemption, so the measure is a distinct possibility next year.

NMHC also predicts that bills to lift statewide bans on rent control will be introduced — or more precisely, reintroduced — in Illinois and Colorado, and other rent control-related bills to be introduced in Nevada, Maryland and Washington. Also, there will continue to be local pushes in states that allow rent control.

Rent control is traditionally a state and local issue, as with most real estate matters, but the affordability crisis in the U.S. has become such a problem that rent control advocates have even floated the idea of an executive order by President Joe Biden that would impose a form of rent control. 

“The Biden administration [has been] dangerously silent on the single biggest line item in Americans’ budgets — their rent,” People’s Action Homes Guarantee Campaign Director Tara Raghuveer said. 

“Signing this executive order is the clearest way that the president can fight inflation and take on corporate landlords,” Raghuveer said.

The idea of a national rent control order might sound out of left field, but there is a precedent, though an unfortunate one.

In 1973, President Richard Nixon imposed temporary wage and price controls, including rents, via executive order, an act generally agreed to have been costly to the U.S. economy.

The order proposed by activists today wouldn't be as broad as the Nixon rent controls, but would rather mandate rent caps for properties with mortgages backed by Fannie Mae and Freddie Mac. That means that the order could also impact the single-family rental industry, which has grown exponentially in recent years amid the build-to-rent boom that has seen institutional investors jumping into the housing market in unprecedented numbers.

The White House outlined a housing plan in May 2022 with a goal to "ease the burden of housing costs." The document doesn't say anything about rent control or other stabilization schemes. The White House didn't respond to a query about its stance on rent control.

Rather, the plan offered general policy proposals, including rewarding places for reforming zoning to facilitate more multifamily development, rolling out new financing mechanisms for multifamily projects and expanding existing forms of federal funding for affordable housing.

Recommending some federal rent control isn’t the only creative idea renter advocates have drummed up, either.

Kingston, New York, a town of about 24,000 on the Hudson River, declared a rent emergency under the state's Emergency Tenant Protection Act, which allows localities to enact rent stabilization under a local Rent Guidelines Board.

In November, the newly formed board did something unusual, even for New York state, by voting to enact a 15% rent reduction for tenants who sign one- or two-year leases between Aug. 1, 2022, and Sept. 30, 2023, at certain protected properties in the city, totaling about 1,200 units. The idea was to roll rents back roughly to 2019 levels.

“This is a monumental victory not just for Kingston tenants, but for tenants across New York,” Aaron Fernando, a spokesman for For the Many, a Hudson Valley advocacy group, said in a statement after the vote.

Further, Fernando noted, rent activists are pushing for similar moves in cities such as Albany, Buffalo, Newburgh, Syracuse and Rochester, which have much larger housing stock that would be eligible for stabilization. 

A number of landlord-focused organizations pushed back, calling the move "outrageous" and taking it to state court, where it is currently under a stay.

"The decision by the newly created board was certainly unprecedented, and one made without consulting real property data on either the owner or tenant side, which the law required them to do," Vito Signorile, a spokesman for Rent Stabilization Association of NYC told Bisnow.

State officials urged the board to wait for that economic data, but they opted not to, Signorile said. 

"It was done without any real justification, and that's ultimately what the judge decided in the Ulster County Supreme Court," Signorile said, adding that his organization expects the rollback to be thrown out altogether early next year.

Studies of rent control mostly find that the policy inhibits multifamily development and drives rents up. Free market economists have been making that argument for decades, and it is the position held and advocated by landlord organizations, especially the NMHC. 

But, not everyone in commercial real estate is persuaded that rent control is an entirely bad idea.

“Rent control and the Covid moratoria helped keep rents from spiraling out of control in California in recent years and as a result, created investor exuberance, and forced cap rates down to unprecedented levels in other ‘more trendy’ markets,” said New Standard Equities CEO Edward Ring, whose company buys, renovates and ultimately sells apartment projects on the West Coast. 

"What I've found over the years — and I've purchased properties in rent-controlled cities — is that certainty is the thing that drives value more than anything else," Ring said.

The current push for rent control locally is something of a minefield for developers, Ring said. As public sentiment for rent control ebbs and flows, so does policy, creating uncertainty.

"All of a sudden you've got an asset where you bought it under one set of circumstances," he said. "Then you're in a new world."