The Biden-Harris administration is responding to a rent-burdened nation with new actions designed to promote a fair rental market, alongside the release of a “Blueprint for a Renters Bill of Rights.” The demand for housing skyrocketed in 2021, causing rents to increase 17.1% year-over-year at their peak in February 2022.
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are being charged with identifying unfair practices that prevent tenants from accessing or maintaining housing. The Federal Housing Finance Agency (FHFA) announced that it would consider limits on rent increases and other renter protections through a transparent and public process. And the U.S. Department of Housing and Urban Development will publish proposed rules that would require certain owners of rental assistance properties and public housing authorities to give 30 days’ notice to terminate a lease for nonpayment.
The administration is also calling on state and local governments, as well as the private sector, to participate in improving conditions for renters by making their own commitments — as an example, the Wisconsin Housing and Economic Development Authority (WHEDA) and the Pennsylvania Housing Finance Agency (PHFA) have limited rent increases on subsidized affordable housing to 5%.
A Renters Bill of Rights
The Biden-Harris Administration has also laid out a “Blueprint for a Renters Bill of Rights,” which will be used to guide policy decisions. It states that tenants should have the following protections:
- “Safe, Quality, and Accessible Affordable Housing”
- “Clear and Fair Leases”
- “Education, Enforcement, and Enhancement of Renter Rights”
- “The Right to Organize”
- “Eviction Prevention, Diversion, and Relief”
Is Rent Control Next?
Before the rollout of these new actions, voters in several states had already approved limits on rent increases and rent control as solutions to the housing affordability crisis. The actions of the Biden-Harris administration do not yet establish federal residential rent control, causing some progressive lawmakers to say the solutions are insufficient.
In a letter to President Biden written earlier this month, 50 progressive lawmakers suggested Biden direct the FTC to “issue new regulation defining excessive rent increases as a practice that unfairly affects commerce and enforce action against unfair rent gouging practices.”
In a rental affordability emergency, public opinion often supports rent control. But numerous studies have found that the long-term effects of rent control hurt the people these policies intend to help. For example, a study from The Brookings Institution found that rent control has a long-term negative impact on housing affordability, even if it helps with displacement in the short term. Similarly, a Stanford study showed that rent caps in San Francisco led landlords to reduce the rental housing supply by 15%, eventually causing undue increases in market rents.
The National Apartment Association notes that rent control disincentivizes the construction of new affordable rental housing and discourages rehabilitation and maintenance of current properties. And a report from the National Bureau of Economic Research indicates that rent control causes the misallocation of housing to current renters. For example, with rent controls in place, families are discouraged from downsizing even when they need less space, which constrains the supply of available units and further harms the homeless. The National Multifamily Housing Council even notes that rent control widens the wealth gap while promoting housing discrimination.
While economists are notoriously split on many issues, a survey of economists from top institutions found that 81% disagree that rent control has had a positive impact on the amount and quality of affordable housing in cities like New York and San Francisco.
The Crux of the Issue
The consumer price index shows accelerating rent inflation, but it is a delayed indicator of actual rent prices. The Zillow Observed Rent Index shows that rents are already falling. In fact, the decline from October to November was the steepest Zillow has seen in seven years. Meanwhile, 565,200 new rental units are forecasted to come online in 2023. That’s the greatest number of new apartment deliveries in decades, a boom created by stalled construction during the pandemic.
But rents are still up 8.4% from last year, and the average renter is cost-burdened. Even with a greater supply of apartments, rents are expected to stay elevated year-over-year. And even if the economy rights itself eventually, the impact of scarce affordable housing on the well-being of low-income Americans in the meantime could be devastating if the federal government doesn’t intervene.
It is often the case that government intervention in the economy helps certain groups in the short term while harming economic conditions in the long run for people overall. But failing to intervene can be inhumane. There are moral problems with allowing individuals to suffer for the good of the broader economy. It’s why the federal government approved an enormous stimulus package that would later become a primary driver of inflation.
The problem with rent control as a stopgap solution, however, is that it can be difficult to remove, especially if it has been aggressive for a prolonged period. Removing rent control in the future may necessitate another solution to prevent tenants in rent-controlled buildings from paying a sudden and drastic increase in rent. The National Multifamily Housing Council contends that direct subsidies to renters and builders/remodelers of affordable housing complexes is more likely to have the desired effect of providing safe, affordable housing to low-income people.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.