Federal Rent Control: A Campaign Promise with Economic Consequences

On July 16, 2024, the Biden Administration announced a proposal to cap annual rent increases at 5% for housing providers with 50 or more units. This initiative builds on the White House Blueprint for a Renters Bill of Rights and is expected to be a central issue in the upcoming election cycle. However, just five days later on July 21, President Biden announced that he will not be seeking election for a second term. Vice President Kamala Harris, anticipated to be the Democratic nominee following the Democratic National Convention on August 19-22, is expected to continue promoting the Biden Administration's agenda.

Understanding the Proposal
The Federal Rent Control Proposal targets landlords with portfolios exceeding 50 units, excluding newly constructed or substantially renovated properties. A key aspect of the plan involves tying landlords' eligibility for accelerated depreciation—a crucial tax deduction—to their compliance with the 5% rent cap. However, the proposal lacks clarity on whether other costs, potentially grouped as “junk fees,” would be included in the 5% cap.

Set to take effect in 2024 and extend through 2026, the measure aims to provide immediate relief to renters but will have unintended economic repercussions.

Political and Industry Reactions
Following the White House press release, VAMA staff promptly began contacting Virginia Congressional offices to gauge the Representatives' positions on the policy proposal. In response to our query, Rep. Morgan Griffith (R-VA 9) ’s office has issued the following statement:

“Those of us who want to help lower-income tenants are working hard to reverse inflationary policies, therefore I would oppose this misguided proposal which will only lead to a greater housing shortage for the working poor.”

The National Apartment Association (NAA) also criticized the proposal, labeling it as “another attempt at failed rent control policy.” NAA President and CEO Bob Pinnegar highlighted the potential negative impacts during a discussion on CNBC, arguing that federal rent control could ultimately harm communities and renters nationwide.

Economic Implications for Property Owners
Under current tax laws, property owners benefit from depreciation, allowing them to reduce taxable income and offset maintenance and operational expenses. The new proposal threatens to disrupt this financial strategy. If property owners raise rents by more than 5% annually, they would lose the ability to depreciate the property on their taxes during the specified period.

This change could lead property owners to defer maintenance and improvements to avoid immediate financial losses, resulting in deteriorating property conditions and potentially increasing future repair costs. Alternatively, owners might wait until the end of the penalty period to impose substantial rent increases to recoup their losses, which would undermine the proposal’s goal of maintaining affordability.

Some property owners might choose to sell their properties to avoid restrictions, potentially flooding the market with sales. New owners could be inclined to raise rents to meet return-on-investment goals, counteracting the proposal's intended effect.

Taking Action
To voice your opposition to the Biden Administration's rent control plan, reach out to your Representatives and Senators. For help identifying your representatives, visit https://whosmy.virginiageneralassembly.gov/. Effective methods include writing letters, sending emails, scheduling visits, or engaging in the NAA Call to Action Phone Campaign. This campaign allows you to directly call your District or State offices, using a provided script to guide a brief, 30-second conversation.

Keep these points in mind:

• If you haven't participated in an NAA campaign before, you’ll need to provide your home address and cell phone number to match you with your Representative and for the advocacy platform to place the call.
• You might not reach the Member directly. Be patient and polite with local office staff; their role is to help constituents and relay concerns to the Member.
• The staff will pass your message on to the Member, but they won’t be able to give a definitive answer.

While rent control policies may offer short-term relief to some, they disrupt long-term market stability and investment, harming the housing industry for all. Capping rent increases can stifle the supply of rental housing and deter new investment, exacerbating existing housing shortages. Furthermore, these policies can impair housing providers’ ability to maintain their properties, leading to a decline in housing and neighborhood quality. In contrast, initiatives like the Biden Administration's Housing Supply Action Plan, which promote sustainable development, streamline regulatory processes, and incentivize the construction of affordable housing, offer a more effective approach to addressing the housing crisis without disrupting market dynamics or undermining investor confidence.

As the debate over federal rent control continues, VAMA and the NAA remain engaged with Congress and the Biden Administration. Our goal is to ensure that the rental housing industry’s perspective is considered in policy discussions, promoting solutions that balance renter protection with economic viability.