President Biden formally announced his national rent control plan at a campaign event in Nevada July 16.
The president intends to limit rent increases to 5 percent per year, as he announced during his press conference at the NATO summit. He intends the limitation to apply to apartment operators who own 50 or more units, and then only applying to existing housing stock.
The rent cap would be enforced by eliminating the ability to claim accelerated depreciation of the property as a deduction for Federal taxes for those who increase rents more than the limit.
New supply would be exempt from the cap on rent increases in order to not discourage production of new housing.
While the national average year-over-year rent growth reached nearly 18 percent in 2021 in the wake of the pandemic, rent growth has been much more subdued lately.
For the last year, rents fell at about 1 percent year-over-year according to data from Apartment List. This is well below the general rate of inflation. However, rates of rent growth vary widely. Among the 50 most populous metro areas, year-over-year rent growth recently varied from +5.5 percent to -7.5 percent.
The limitation on rent increases would remain in place for two years. There is a strong apartment construction pipeline with nearly 900,000 units currently under construction. The high level of new supply expected over the next two years should put downward pressure on rents.
The two-year limitation on the program is intended to give renters relief until the new supply arrives. However, New York City’s rent control program was introduced as a temporary measure in 1943 and is still going strong so it’s possible that politicians will be reluctant to take away a benefit to voters once issued. After all, renters greatly outnumber landlords.
Major industry organizations including the National Multifamily Housing Council, the National Apartment Association, the National Association of Home Builders and the Mortgage Bankers’ Association have come out strongly against the plan, stating that research shows that rent control reduces the availability of housing.
The program will require Congressional action to authorize. The outcome of the upcoming election is likely to determine whether President Biden’s national rent control plan is implemented.
