No Evidence Yet Of Impact From Oregon Rent Control Law

Early this year, Oregon enacted the nation's first statewide rent control law with the passage of Senate Bill 608. The measure limits rent increases at lease renewal for properties older than 15 years, and rent increases for units occupied more than a year.

So far, Oregon's rent control — the basic mechanism of which is capping potential rental growth each year, rather than freezing rents or fixing a schedule of increases — hasn't had an appreciable impact on apartment markets in the states, especially metro Portland, according to CBRE.

The company says that rent control has the potential to impact a market in a number of ways, including on investor sentiment, investment volume, asset prices and development activity.

CBRE, citing its in-house capital market specialists, notes that investors remain interested in Portland-area multifamily properties. Also, it found that while investment volume has slowed in the region since a year ago, that might be because of a lack of product, not rent control.

The company notes there is no evidence of lower property values in the market yet, with cap rates for multifamily generally stable. As for development, CBRE says the data isn't clear, possibly because there hasn't been enough time since Oregon's law was passed to make an assessment on its impact.

Because rent control is a lightning-rod issue, there is no shortage of reports and studies on the matter. Other assessments of rent control are predicting a negative impact on U.S. apartment markets, including Portland. In November, the National Apartment Association's 2019 Rent Control Study looked at the impact of rent control on Portland, as well as Denver, Chicago and Seattle.

The NAA report posited a 7% rent cap (Oregon's law provides for maximum 7% annual increase plus inflation statewide, or about 9% recently). Assuming a 7% cap, the report predicts a shortfall of nearly 2,800 apartment units not built in Portland by 2030 because of rent control, leaving the market with fewer units than it needs to meet demand.

Rent control, asserts the NAA, also puts the squeeze on landlords, and thus encourages deferred maintenance. The report predicts that more than 21,000 units in the Portland market would be at risk by 2030 because of deferred maintenance. 

Another recent study by the Stanford Graduate School of Business found that rent control in San Francisco in recent decades has produced winners and losers, and not necessarily all tenants were winners, or all landlords losers. The city's rent control caps annual increases, but also provides a way for rents to be lowered in case the landlord isn't providing certain services, and makes evictions more difficult.

After San Francisco expanded rent control in 1994, the biggest winners were existing renters at the time, especially older residents who stayed put, the report says. 

On the other hand, people who came later faced a growing scarcity of rental housing. The number of rent-controlled units in San Francisco declined by 25% between 1994 and 2010, and the total stock of rental housing dropped about 5%, the report says.

Rent control, or at least efforts to get around rent control, also had the unintended impact of skewing new development in San Francisco toward upscale housing, the report says. New construction didn't fall under rent control, so landlords often demolished old rent-controlled housing to make way for new high-end apartments.