Decreasing housing affordability has pushed/kept more people in the rental market, thus increasing demand for rental properties and the rate of rent growth.
We have frequently written about the increasing risks of rent control over the past several years as legislative and ballot initiatives have become more widespread. The negative impacts of rent control on additional capacity additions and small landlords notwithstanding, the political realities faced by elected representatives in the face of rising rents cannot be discounted.
A 31 August 2022 article from the National Multifamily Housing Council (NMHC) highlight some recent updates on proposed and recently enacted rent control measures in a number of localities.
- While the state of Florida maintains preemption, several localities have been working to place a rent control referendum on their November ballot. After significant debate, the Tampa and Saint Petersburg city councils both rejected the idea. In Orange County, however, county commissioners approved a resolution sending rent control to the ballot. If approved by voters, the resolution would cap rent increases in Orange County at 9.8% for one year. And Lake Worth recently declared a housing state of emergency, which was seen as a first step towards seeking to implement rent control.
- In Nevada the North Las Vegas city clerk blocked efforts by the Culinary Workers Union Local 226 to place a rent control referendum on the ballot. Since that time, the city council also rebuffed the union’s efforts. While conceding that rent control won’t be on the ballot this year, the union vowed to continue pushing for enactment and the NMHC expects a fight at the state level in 2023.
- In New York, the city of Kingston enacted rent control. Kingston is the first upstate city to enact rent control. The policy extends to buildings with six or more units built prior to 1974, which covers about 1,200 units.
- In Richmond, California the city council voted in favor of placing a rent control referendum on the November ballot. If passed, rent increases would be capped at 3% of a tenant’s existing rent or at 60% of the Consumer Price Index, whichever is lower. Pasadena also will have a rent control referendum in November.
- In Minnesota, St. Paul leaders continue to seek changes to its rent control law established last year. A proposal introduced by a member of the city council would provide a 20-year exemption for new
construction. Some federally subsidized housing also would be exempt from the law. A panel established by the mayor previously recommended a 15-year exemption for new construction.
Source: NMHC 31 August 2022
We continue to believe the outlook for the residential rental sector is bright in light of strong demographics, an increasingly unaffordable for-purchase housing market and a dearth of new construction in the years following the global financial crisis. Irrespective of the counterintuitive aspects of rent control, we would advise investors pay careful attention to the regulatory framework in the residential rental sector.
Main contributor: Jonathan Woloshin, CFA, CIO Equity Strategist, US Real Estate & Lodging
Original blog, The rent control drumbeats are getting louder and more widespread, 6 September, 2022.