Housing Groups Caution Against Federal Rent Cap

Calling it “typical election year rhetoric,” a broad coalition of housing and real estate industry groups has pushed back on President Joe Biden’s proposal for a national rent control plan that would cap rent increases at 5 percent at properties owned by corporate landlords.

The Housing Solutions Coalition, a collaborative effort of real estate industry professionals and experts, argued that rent caps have never been viable solutions to affordable housing shortages, often exacerbating the problem by leading to higher rents and lower quality housing. The group noted that common sense solutions that prioritize building more housing are needed, not erecting additional barriers to development like rent control.

The Biden plan, which calls on Congress to pass legislation, would apply to landlords with more than 50 units in their portfolio, covering more than 20 million units across the United States. Biden’s proposal gives what the president calls corporate landlords a choice: either cap rent increases on existing units to no more than 5 percent or lose federal tax breaks for faster depreciation write-offs. The provision would last for two years and only impact existing properties, not new development, according to the White House. It also would exempt properties undergoing substantial renovation or rehabilitation.

“While the prior administration gave special tax breaks to corporate landlords, I’m working to lower housing costs for families,” the president said in a statement. “Republicans in Congress should join Democrats to pass my plan to lower housing costs for Americans who need relief now.”

The statement was issued along with a six-page fact sheet on the rent control proposal and other plans to repurpose public land for affordable housing and issue $325 million in Choice Neighborhoods grants to build new deeply-affordable homes, spur economic development and revitalize communities across the country. Biden spotlighted the rent control plan and affordable housing measures during a campaign stop in Las Vegas earlier this week, where he addressed the NAACP’s national convention.

Contentious topic

It is unlikely that such a proposal would pass either the Republican-controlled U.S. House of Representatives or the Democratic-majority U.S. Senate, especially with four months to go until the 2020 presidential election between Biden and former President Donald Trump.

Still, it’s a topic that always gets people talking. HSC and other housing industry groups reacted quickly to the president’s proposal, most pointing to decades of research showing rent caps reduce the supply of available housing and fail to benefit the renters who need help the most.

“This legislative proposal will not create a single new unit, while raising costs on the very residents it purports to help,” Sharon Wilson Géno, president of the National Multifamily Housing Council, said in a prepared statement. “Rent control has been tried for decades and been a resounding failure. Now is the time for actual solutions, not electioneering.”

A statement from the National Apartment Association noted the proposal is “another attempt at failed rent control policy that will harm communities and renters across the U.S. Federal rent control will only drive rental homes out of the market, decreasing housing options while increasing costs and placing upward pressure on inflation.”

Last month, the NAA released a study led by Dr. Andrew Hanson from the University of Illinois at Chicago that found rent control leads to a reduction in housing quality. One of the study’s main conclusions found that the number of rent-controlled units in an area is strongly related to a reduction in housing and neighborhood quality.

Carl Harris, chairman of the National Association of Home Builders, said in prepared remarks that the plan to cap rents at 5 percent on existing multifamily structures “will worsen the housing affordability crisis by discouraging developers from building new rental housing units at a time when the nation is experiencing a shortfall of 1.5 million units. Harris argued that these rent caps would also hurt existing tenants, those that the president is trying to help, because owners and developers would be unable to cover rising costs if rents are fixed.

Affordable housing proponents appeared to be split on the proposal. Noting the recent, unprecedented increases in homelessness that have plagued communities across the country, Diane Yentel, president and CEO of the National Low Income Housing Coalition, blamed “equally unprecedented and unjustified” rent hikes in the aftermath of the COVID-19 pandemic with causing a housing crisis. Yentel lauded the president’s proposal as historic, saying that protections against rent gouging could have helped many families avoid homelessness.

Calling the housing market brutal and largely unregulated, Yentel noted that landlords are able to raise rents as high as the market will allow without regard to the impact on low-income residents. The lack of national renter protections, like limits on rent gouging, leaves tenants vulnerable to housing instability and evictions, said Yentel.

However, David Dworkin, president and CEO of the National Housing Conference, a coalition of affordable housing stakeholders, criticized rent caps as ineffective. Rent caps would have a chilling effect on housing supply, said Dworkin, who criticized the concept that long-term investments in housing could be made uneconomic retroactively.

One thing all the housing experts agreed on is that the country needs to increase housing production, particularly the number of affordable units. Since Biden took office in January 2021, the administration has released its own Housing Supply Action Plan. Initially released in May 2022, the plan’s main goal was to create and preserve hundreds of thousands of affordable housing units and help close the country’s critical housing supply shortfall. Earlier this week, Biden called on Congress to pass the Biden-Harris Housing Plan, which the administration says would build 2 million homes and provide $10,000 in mortgage relief to unlock homeownership for millions of Americans. The administration noted that it is using numerous tools to lower housing costs, including limiting rent increases on multifamily properties built with federal tax credits.

Both the NAHB and NHC have called on Congress to pass the Affordable Housing Credit Improvement Act, which includes key provisions aimed at expanding and strengthen the Low-Income Housing Tax Credit program. The legislation has passed the House of Representatives, but the Senate has not acted.