The Rent Cap Question – August 5, 2024

The Biden administration recently proposed that Congress enact a 5% cap on annual apartment rent increases over the next two years for what it referred to as “corporate landlords.” Such a term might suggest that the measure would be imposed only on the very largest owners and operators of multifamily properties, yet the proposal sets a pretty low threshold: 50 or more units.  

As a frame of reference, the smallest portfolio among the National Multifamily Housing Council’s annual NMHC 50 roster of the largest apartment owners still runs to more than 25,000 units. Collectively, NMHC 50 owners control just 10% of the nation’s total rental inventory. This suggests that a sizable number of mom-and-pop operators would be subjected to the same cap as the publicly traded REITs. 

Regardless of whether the proposal gains traction in the current session of Congress, Vice President Kamala Harris has made it clear that she will pursue its passage if she’s elected in November as the next President. In an analysis posted to the organization’s website, NMHC president Sharon Wilson Géno called the initiative “misguided.” 

Among other points, she noted that nationwide, rent growth in the apartment sector surged temporarily following the pandemic but has since moderated as new apartments (which would be exempted from the cap) have been delivered. What hasn’t moderated is growth in expenses such as state and local taxes, insurance and labor. 

Putting aside the impact on operating margins, there’s also the question of whether a national rent cap would benefit middle-income renters. NMHC cited a new survey of 45 university economists conducted by the University of Chicago’s Kent A. Clark Center for Global Markets, which found that a majority didn’t think such a cap would have the intended effect. 

The survey asked the economists to weigh in on three statements. Seventy-four percent disagreed or strongly disagreed with the statement, “Capping annual rent increases by corporate landlords at 5%, as proposed by President Biden, would make middle-income Americans substantially better off over the next ten years.” 

A smaller majority—62%—agreed or strongly agreed with the statement, “Capping annual rent increases at 5%, as proposed by President Biden, would substantially reduce the amount [sic] of available apartments for rent over the next ten years.” Two-thirds disagreed or strongly disagreed with the statement, “Capping annual rent increases at 5%, as proposed by President Biden, would substantially reduce U.S. income inequality over the next ten years.” None of the economists agreed with the latter statement. 

“The housing market is very heterogeneous across the U.S.; thus, a uniform rule is unlikely to respect the local conditions,” commented Dirk Bergemann at Yale. Stanford’s Kenneth Judd pointed out, “Expected inflation is only 2%. Excess inflation of rents above CPI [is] unlikely to continue at [the] recent rate. Rent controls are generally bad when binding.” 

The White House issued a “fact sheet” in support of the rent cap, but NMHC’s SVP of research, Caitlin Sugrue Walter, noted that the fact sheet’s claims were spurious. “The analysis falsely claims that recent earnings from six publicly traded apartment firms show significant increases in rental income,” she wrote. In fact, the average annual rent increases for these companies in the first quarter of 2024 came in well below inflation.  

The fact sheet also claimed that the rent cap would serve as a “bridge” to an influx of new supply. “Construction has already begun to decline substantially from average historical levels; data from the U.S. Census Bureau show multifamily starts decreasing 35.1% from 2Q 2023 to 2Q 2024,” wrote Walter. “This means that the recent declines in rent growth due to the new supply currently coming online are at risk of being lost without continued significant additional new supply.” 

Ironically, the rent cap proposal was issued as part of a package of measures rooted in “well-established principles that will improve housing affordability,” Walter wrote. These include donating public land for affordable housing development and repurposing existing buildings, such as U.S. Postal Service facilities. 

Wilson Géno expressed the hope that Harris would work with all stakeholders “to develop a housing policy that focuses on solutions that work.” Ultimately, she wrote, “The only proven way to ensure everyone has access to an affordable home is to build more housing of all types and at all price points.”