When all is said and done, 2019 may be remembered as the year of rent control.
California, New York, and Oregon passed new statewide legislation in 2019 under the guise of rent reform, and Illinois is considering following suit. With the nation’s housing deficit now running at more than 1 million units, and rents continuing to rise in many markets across the country, the clamor for rent control has only increased in recent years.
“Since 2017, 14 states and the District of Columbia have attempted to expand rent control either through the legislature or via the ballot box,” says Jim Lapides, vice president, strategic communications at the National Multifamily Housing Council, a trade association that represents apartment groups. “Those 14 states and the District represent more than half of the existing rental apartment homes in the country.”
But while rent control is typically seen as a policy area that mostly applies to multifamily apartments, what’s different in 2020 is that single-family homes have now been sucked into the debate as well. Both the California and Oregon laws apply to single-family homes in some form while they were typically exempt from past rent control measures. In other words, rent control is no longer just a multifamily issue.
“Given the rising count of single-family rental units and the small but growing share of single-family built-for-rent construction, rent control policies are a risk for the single-family market as well,” Robert Dietz, chief economist at NAHB, wrote in the October issue of BUILDER. “Moreover, by distorting market signals of the relative prices of renting and owning a home, rent control can also negatively affect demand for for-sale housing.”
Brad Dillman, chief economist at Atlanta-based Cortland, which owns and manages more than 60,000 apartment homes nationwide, says he definitely falls in NAHB’s Dietz’s camp. “Rent control doesn’t work,” Dillman says. “It carries with it a variety of unintended consequences.”
A better solution, housing advocates say, are incentive-based programs, such as the highly successful federal low-income housing tax credit, or, more recently, the federal Opportunity Zone (OZ) incentive, which is intended to stimulate economic development and job creation in distressed low-income communities by incentivizing long-term capital investment.
“OZs are something that should, in theory, help more supply come to market,” Dillman says. “It incentivizes capital to move to those jurisdictions, and we’ve seen data that shows increased transactions in areas where that legislation went into effect.”