Update on Multifamily Rent Control Prospects
April 24, 2019 | James Sprow | Blue Vault
In a February article, Blue Vault illustrated the economic arguments for why rent controls do not succeed in providing more affordable rental housing for those who may be priced out of the market. Recent articles in the Wall Street Journal and Bisnow chronicle the efforts by proponents to enact rent control s in different states. Oregon recently enacted legislation to cap rent increases to 7% plus the local inflation rate. California, Colorado, New York and Illinois have also seen rent control proposals revived. California had papers filed with the Attorney General’s office to put a new rent control measure on the ballot, despite Prop 10, that would have repealed the state’s limits on local government rent controls, losing big on the ballot in 2018.
An article in Curbed San Francisco on April 23, stated the following:
“After the announcement, Sid Lakireddy, president of the California Rental Housing Association, issued a statement condemning the measure, saying, “It has been proven time and again that rent control does not work” and praising Senate Bill 50 instead.”
“The question of whether rent control works is a divisive one. An oft-cited 2018 paper by Stanford economists found that rent control measures in SF drove up rents in non-rent-control units and increased the danger of eviction, but also found that rent control was the only thing keeping thousands of people from being priced out of San Francisco entirely.”
As stated in our February article, the beneficiaries of new rent control measures are often the existing tenants who are protected from rent increases. However, rent controls may negatively impact those who are seeking apartments in a market, as new supply is constrained. Both landlords and developers will adjust to the controls over the long run, resulting in less supply than would otherwise be the case.
Nontraded REIT Capital Raise vs Redemptions
The Wall Street Journal reported on April 24:
“In New York, where a bill to cap rent increases on apartments statewide has the support of the chairman of the State Senate’s housing committee, multifamily building sales in the first quarter of 2019 dropped to their lowest point in six years.”
There are always unanticipated consequences when government interferes with markets to attempt to benefit a particular group. For example, while most New York proposals focus on already covered existing rent protections, a possible consequence of increased regulation would be to boost rents on market-rate apartments, as it reduces new investment in multifamily properties.
Not all of the positive effects of rent control legislation accrue to existing tenants. For example, owners of rent-controlled properties are actually likely to have higher occupancy rates as tenants in rent-controlled units are more reluctant to move. This slower turnover reduces the costs to landlords associated with finding qualified tenants and predictable streams of revenue can be a benefit to owners.
Sources: WSJ April 24, 2019; Bisnow April 23, 2019, Blue Vault
