Surge in Rent Control Activity Expected in 2023

Rent growth has been slowing down in step with the economy, but it’s still running hotter than it was before the pandemic. And that’s expected to encourage more jurisdictions to consider and or pass rent control legislation. Even Florida is turning towards rent control as an answer for high rents.   Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.   As Bisnow reports, rents remain “painfully high” for many Americans, despite slower rent growth for both single-family and multi-family rentals. (1) Year-over-year single-family rent growth hit a high of 13.9% in April of last year, but has been slowing down for the last five months. It’s still in the double digits, but is now 10.2%. Florida metros have seen the highest SFR rent growth with Miami and Orlando at the top of that list. (2)   It’s a similar situation for apartments but rent growth has come down further. Annual rent growth hit a record high of 17.6% in 2021. It’s now down to 4.6% year-over-year, although that’s still a healthy gain for landlords. (3)   Rent Growth vs. Wage Growth   Because rent growth has outpaced income, many households are finding it more difficult to pay their rent. According to the U.S. Census Bureau, more than 19 million renter households paid more than 30% of their income on housing from 2017 to 2021. That’s defined as “cost-burdened” by the Department of Housing and Urban Development.    Housing costs vary from market to market, but the National Multifamily Housing Council, which advocates “against” rent control, has identified a number of markets that could become rent control battlegrounds in the coming year. These markets are identified in the NMHC’s 2023 Rent Control Outlook report. (4)   Four Rent Control Risk Levels   The report separates the potential for rent control activity into four categories. Tier one includes states where “active state or local legislation action is expected.” Those states include: Colorado, Illinois, Florida (which has been notoriously opposed to rent control), Maryland Massachusetts, Nevada, and Washington State.   Tier two includes states where the potential for state or local legislative activity is “elevated.” Those states include Connecticut, Hawaii, Michigan, New Mexico, and Rhode Island. Tier three includes states where rent control activity is expected, but will probably not get approved. Those states include Arizona, Kentucky, North Carolina, Pennsylvania, and South Carolina. The last category is where rent control expansion is an ongoing threat. California and New York are among those states, of course, along with Maine, Minnesota, New Jersey, and Oregon.   Rent Control Minefield for Investors   Rent control can be a minefield for investors, especially if they purchased a property under one set of rules, and then the rules change. It costs money to run a rental business, and when rents are controlled, rent revenues suffer. Investors may be less likely to put money into rentals, which could impact repairs on existing rentals and/or reduce the overall supply and make it harder for renters to find housing.   A cap on rents could also reduce the value of the property. Bisnow cites a study published in October by Duke Financial Economics Center. It found that property values declined 6% in St. Paul, Minnesota during the first three months after rent control was implemented last year. That’s for all rental and non-rental properties. For rental properties alone, values were down an additional 6% to a total of 12% due to lower future rents. The report says that lost property value essentially transferred that value from the owners to the renters.   White House Silent on Presidential Executive Order   While the NMHC anticipates activity at the local and state levels, some rent control advocates are floating the idea of an executive order by President Joe Biden that would impose some sort of rent control. So far, the White House has been silent on that matter. It did enact a housing plan in May that would “ease the burden of housing costs” but that plan did not include rent control. It just offered general policy proposals that include zoning reforms, new kinds of financing, and federal dollars for affordable housing.   As what might be seen as a follow-up to this, a coalition of more than 2,500 nonprofits and public agencies wrote a letter to Congress asking for affordable housing legislation. The letter is addressed as a “Call to Invest in Our Neighborhoods” or ACTION. Specific requests in the letter call for a 50% expansion of the Low-Income Housing Tax Credit  and a lower Private Activity Bond financing threshold of 25%. It is currently at 50%.   According to a Realtor.com survey, 70% of landlords said in October that they plan to raise their rents over the next year. That is down from about 72% last spring.   You’ll find links to the reports I mentioned in the show notes at newsforinvestors.com. You can also join RealWealth for free while you are there for access to all our real estate news, educational material, and data on individual markets. Please remember to subscribe to our podcast and leave a review!   Thanks for listening!   LInks:   1 - https://www.bisnow.com/national/news/multifamily/as-rents-spiked-this-year-so-did-the-push-for-rent-control-116806   2 - https://www.corelogic.com/intelligence/corelogicannual-single-family-rent-growth-decelerates-for-fifth-consecutive-month-and-seasonal-patterns-return/   3 - https://www.apartmentlist.com/research/national-rent-data   4 - https://www.nmhc.org/news/nmhc-news/2022/2023-rent-control-outlook/