Oregon likely to become first in the nation to adopt statewide rent control

And that will probably make housing less affordable, not more.

C41N62 literature, fairy tale, Gulliver's Travels, by Jonathan Swift, fixing the hand of Gulliver, drawing by Ernst Rutzer, Additional-Rights-Clearences-NA. Image shot 1900. Exact date unknown.

As home and rental prices rise across the country, more and more locales are giving serious consideration to a policy long denounced by economists: rent control. That includes Oregon, which increasingly looks likely to become the first state in the country to adopt rent control statewide.

“We are long past the point when we should have passed meaningful tenant protections,” state House Speaker Tina Kotek (D–Portland) says to Willamette Week. “Clearly more needs to be done statewide to give renters more security and stability.”

Kotek, along with her counterpart in the state Senate, Ginny Burdock (D–Portland), have introduced SB 608, which would forbid landlords from increasing rents during the first year of a person’s tenancy and would cap future rent increases at seven percent per year plus inflation thereafter.

These caps would apply to all rental properties save for those built within the last 15 years, and for landlords who are providing reduced rents as part of some sort of government housing program.

There are no vacancy controls in SB 608, meaning that landlords would be able to raise rents an unlimited amount once a tenant moves out. For this reason, the bill also bans no-cause evictions: A landlord will have to show a government-approved reason for kicking a tenant out.

These are all controversial policies in Oregon, where there is a state-level preemption on cities passing their own rent control measures, and where a no-eviction bill died in the legislature just two years ago.

There are also risky policies, says Mike Wilkerson of ECONorthwest, an economics consulting firm.

“You’d be hard-pressed to find any economist who comes out in favor of rent control as a means to help improve whatever failure you are experiencing,” whether that’s a lack of supply or rapid rent hikes, says Wilkerson.

Economists’ chief complaint about rent control is that it reduces the return a landlord or developer can earn from throwing up new units, meaning you’ll wind up with fewer overall units, worsening housing affordability in the long run.

This holds true for what is being proposed in Oregon, says Wilkerson, though the specifics of SB 608—particularly its 15-year exemption of new buildings and its 7 percent cap—complicate the picture.

“Being able to increase rent at whatever you want for the first 15 years, that doesn’t really impact the financial feasibility of getting that building built,” says Wilkerson. That means the minority of developers who plan on constructing rental units and then operating them in perpetuity would be less likely to be deterred from going through with a project.

The policy would have a greater impact on the majority of developers who construct buildings with the intention of selling them off to investors. The longer-term caps on rent increases reduce how much those investors are willing to pay for a project. That lowers returns for developers looking to sell, thus dissuading many of them from going through with the projects in the first place.

There’s also the risk that rent control would give the owners of existing rental properties an incentive to take the properties off the market entirely.

While SB 608 bans no-cause evictions, it does allow a landlord to evict tenants if they plan on renovating a unit or moving into it themselves. That leaves open the door for landlords to kicks tenants out, renovate units, and then put them back on the market as condominiums that they can sell for whatever price they want.

A 2018 Stanford study of rent control in San Francisco found that the city’s supply of rental housing fell by 15 percent as owners converted their rent-controlled properties into pricier condos. Citywide rents went up, not down.

If you want housing to be more affordable, the thing you really want is more supply.

Indeed, in Portland—the largest city in Oregon—record apartment construction in the last two years has resulted in a fall in rents. According to the website Apartment List, year-over-year rents in Portland declined by 1.2 percent and are likely to keep falling.

ECONorthwest estimates that only 5 percent of buildings in Portland increased rents above what would be allowed by SB 608 in 2018. That compares to 25 percent of buildings in 2015 and 2016.

If Oregon policymakers wanted to keep the ball rolling, they should look at policies that would make housing construction even easier.

Some of that is already on the table. At the end of last year, Kotek floated the idea of upzoning urban areas where currently only single-family homes are permitted. If passed, that would allow a greater number of multi-family buildings to be built.

As a new report from the Cascade Policy Institute shows, Oregon also maintains aggressive urban growth boundaries, which prevent rural and agricultural land near cities from being redeveloped into housing. Ditching these would allow for a lot more suburban development across the state, bringing prices down.

All of those policies would be far preferable to rent control. Unfortunately, it looks like rent control is what Oregon is likely to get.

In addition to having the support of the Democratic leadership in the legislature, SB 608 was endorsed by Gov. Kate Brown this week. Willamette Week reports that the legislature as a whole has become more amenable to rent control, and that some landlord associations—historically the biggest critics of rent control—are staying neutral on this bill.

That bodes well for the bill. It does not bode well for affordable housing in Oregon.

Author Christian Britschgi, Reas