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Throughout the country, affordable housing and cost of living for Americans in all income categories have gained the attention of legislators and community leaders. States have made efforts to address cost-of-living concerns for their residents in a number of ways, including the introduction of rent-control policies.
While well-intentioned, these policies can backfire in communities and ultimately decrease quality of life for families in lower-income brackets.
Rent Control History
Rent control laws place a cap on rent growth within cities or specific neighborhoods. In New York City, for example, rent-controlled units have a designated “maximum collectable rent,” and landlords may increase rent by 7.5% every year up to that maximum amount. Legislators passed rent-control legislation in areas like New York, Los Angeles, San Francisco and Washington, D.C., after World War II when these large cities experienced extreme housing shortages. At the time, these laws sought to protect residents from predatory landlords leaving lower-income renters without any alternatives short of leaving the city.
In spite of the noble intent of these laws, 37 states prohibit or preempt rent-control policies. Why? Simply stated, it’s because they don’t work as designed.
Rent Control in 2020
Similar to the post-WWII era, many metropolitan areas currently face significant housing shortages, especially in the affordable and workforce housing categories. As a result, leaders have resurrected the idea of rent control as a potential solution.
Most recently, California made a news splash by passing rent-control legislation that caps rent increases at 5%, plus inflation. New York’s legislature passed an updated set of regulations related to rent control during its 2019 session, tightening its already strict rules. Oregon also passed rent-control legislation in 2019.
As the need for affordable housing increases, other states could raise the discussion of rent control. However, leaders need to understand its implications, as well as alternatives for increasing housing supplies while assuring affordable options.
Creating Affordability With An Eye On Quality
Rent control legislation provides a temporary solution to the affordability question for some states, but the bigger issue remains: Americans need more options for housing across the board. In some rent-controlled areas, landlords have pulled back on maintenance and developers have avoided creating new properties to meet growing demand. That leaves families with a so-called affordable rent, but for a deteriorating building and neighborhood. Other property owners choose to convert apartments into condos, pushing out people who need or want rental options.
In the multifamily industry, we know that apartment communities fill the gap for many individuals and families in search of safe, comfortable housing in the cities where they work and want to live.
Headlines about the need for more housing, and affordable housing in particular, often use the word “crisis” to describe the issue. For those of us in the real estate space, we know that crisis translates into:
• Low supply of both single-family homes and multifamily options.
• An increased demand for rental properties for people who cannot afford, or do not want, a mortgage.
• Opportunities to create housing options across the full spectrum of renters’ needs, including affordable housing.
To that last point, while a housing shortage presents an opportunity for developers to meet demand with both new and renovated properties, a study by Harvard’s Joint Center for Housing Studies showed that a combination of factors actually inhibits development of moderately priced housing, including high land prices and prohibitive land-use policies. The JCHS report called for greater public effort to close that gap to make way for quality, affordable housing options.
In short, a low housing supply drives up the cost of housing across sectors while a number of factors limit real estate development that could ease both supply and cost concerns for Americans.
Alternatives To Rent Caps
Vocal proponents of rent control assert that these laws provide the only solution for protecting renters’ rights and encouraging affordability amid a housing shortage, but that’s untrue.
It benefits everyone in a community to create an ecosystem in which all parts work together. Current conditions call for a multifaceted approach to housing demand, including strategies that directly support affordable and workforce housing.
Effective strategies include:
• Addressing restrictive zoning and building laws that limit rehabilitation of existing properties or prevent new multi-unit housing.
• Building housing in opportunity zones, which encourage development in disadvantaged or distressed areas in need of an economic boost.
• Offering incentives to property owners who designate a percentage of units to affordable housing.
• Building with an emphasis on density; zoning for multifamily over single-family dwellings.
• Offering rent subsidies to lower-income individuals and families, which creates a community-supported approach to ensuring the quality of life of lower-income residents.
• Addressing income disparities within communities with other community-building approaches, such as living wages, workforce retention programs and more.
• Developing public-private partnerships that include governments, nonprofit organizations and private companies that work together toward a goal of creating more affordable housing options.
Multifamily industry leaders do not shy away from the discussion about affordable housing. We know, better than many others, that communities need a wide range of housing options to meet the needs of all renters and buyers. Using that knowledge and insight, the commercial real estate industry can become a key player in creating solutions to the problem by working with community stakeholders.
Yes, we’re in business to create a return on our investment and a profit, but renters’ needs take center stage for most of us in the commercial real estate business. Apartment communities thrive when residents enjoy a high quality of life, and we must work hard to ensure that our properties are safe, well-maintained and comfortable for renters. We must be in the business of making a multifamily property feel like home for each person who lives there.