Rent control is top of mind for multifamily leaders, with many saying it will only exacerbate the affordable housing crisis. Earlier this week, California Gov. Gavin Newsom signed Assembly Bill 1482, making the state the third to pass rent control this year, following Oregon and New York.
California’s statewide law, which goes into effect Jan. 1 and will expire in 2030, will limit rent increases to 5% per year, plus the local rate of inflation, and create new standards to protect residents from no-cause eviction.
The law won’t apply to housing built within the past 15 years nor does it affect single-family homes, unless owned by corporations or REITs. It also doesn’t apply to the 2 million renters in the state who already have rent control in their municipalities.
"The most effective way to fix California’s housing crisis is by building more housing across a range of price points, and AB 1482 makes that harder to do,” said Doug Bibby, president of the National Multifamily Housing Council. “After Californians overwhelmingly rejected the rent control ballot initiative less than a year ago, lawmakers went against their constituents by passing a measure that will discourage investment, shrink the availability of affordable housing that already exists, and squeeze even more people struggling in the housing market. This makes the problem worse. The housing affordability crisis is real, real Americans are being harmed by it every day, and we need real solutions— not restrictive policies that we know don’t work."
The potential effect of rent control was a key theme throughout the Multifamily Executive Conference in early October in Las Vegas.
“Rent control is a bad policy, but it’s certainly getting a lot of momentum,” Dave Borsos, vice president of capital markets at NMHC, told the audience.
States considering rent control include Colorado, Florida, Illinois, Nevada, Massachusetts, Minnesota, and Washington. Presidential candidates Kamala Harris, Bernie Sanders, and Elizabeth Warren also have proposed housing programs that would implement national rent control.
“Rent control is a political tool,” added John Sebree, first vice president and national director at Marcus & Millichap. “The reason that they’re talking about rent control is that demand is increasing faster than supply.”
He said if governments want to solve the issue, changes need to be made to dramatically reduce the cost of construction, including the reduction of regulatory fees, and increase efficiency and density.
“The correct response is be less restrictive about development and increase the supply,” added Ryan Severino, chief economist at JLL. “We are getting counterproductive policy on the microlevel.”
According to Bibby, construction costs have gone up about 100% since 2010, putting pressure on multifamily developers. In addition, the NMHC and National Association of Home Builders did a study that found that 32% of construction costs is spent on regulations, including zoning ordinances, impact fees, land use, and parking.
“We face those challenges, and that contributes to the higher cost to develop and the higher cost to rent,” Bibby said. “We’re going to have to figure out how to produce faster and cheaper, and that’s really where we’re going to make a difference.”
Bibby added that the country needs to build an average of 328,000 units annually from 2017 to 2030 just to meet the demand, and the industry has only done that twice since 1989. “We keep falling further and further behind. We are still playing catchup from the aftermath of the Great Recession.”
The NMHC has a series of tools to help the industry change the conversation around rent control. It offers a Housing Affordability Toolkit and has launched the Growing Homes Together website with the National Apartment Association.