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Up for Growth examines the Biden Administration’s recommendation to cap rent increases at 5%

This week the Biden administration announced a suite of actions designed to reduce rent costs for Americans. Garnering most of the attention was a move driven more by electoral politics than by housing economics. President Biden’s call on Congress to rescind tax benefits for corporate landlords who increase rents by more than 5% landed poorly among housing providers who framed the announcement as “national rent control.” So why would the administration make such an announcement, especially given overwhelming evidence showing the negative effects of control on overall prices and housing supply? And why would the administration want to stifle supply when the nation is already faced with a staggering 3.8 million home shortage?

*The announcement from the Administration defines a corporate landlord as one whose portfolio includes 50 or more units.

Is the administration’s proposal actually “rent control”?

Conversations around rent control often lack nuance, particularly when it comes to the definition and design of such policies. First-generation forms of rent control were strict, usually capping any rent increase whatsoever and requiring vacancy control (keeping rents controlled even after a new tenant moves in). But newer forms of these policies, commonly referred to as “rent stabilization” or “anti-gouging,” limit rent increases, allow them to reset at vacancy, and generally omit newly constructed housing.

In California and Oregon, for example, recent laws limit rent increases to 5% and 7%, respectively, plus inflation (but capped at 10%). To be sure, some localities have imposed more strict forms of rent control. For example, San Francisco’s rent control ordinance allows increases of 60% of inflation (this percentage allows for a 1.7% increase today) but is only imposed on units built before 1979. While each of these policies limits rent increases in one way or another, the way they do so varies widely.

But the Biden proposal would not cap rents directly per se, and their announcement was careful not to invoke the term “rent control” at all. Instead, it would remove a tax incentive—accelerated depreciation write-offs for corporate landlords when their rents exceed 5%. So, while losing such a tax benefit would be an expense to an owner, they are not specifically banned from exceeding a 5% cap when it is more financially advantageous to do so.

One lesson from the administration’s proposal, and the ensuing backlash, is that referring to anti-gouging and rent stabilization policies solely as “rent control” is an unnuanced way to talk about the full suite of tactics designed to relieve pressure on markets. There is no debate that poorly designed rent control is universally bad at solving housing affordability problems. But, housing providers and advocates should keep an eye on what happens in Oregon and California to determine if, and under what conditions, these policies could yield helpful short-term outcomes without having that dreaded long-term chilling effect on overall production.

So, could it happen?

While the Administration’s proposal has rightly caused consternation (a sitting POTUS’ tacit endorsement of “rent control” is, at minimum, unhelpful), it is light enough on specifics that housing providers shouldn’t panic. Most of the critical details that would determine the implementation and effects of the policy would be left up to Congress to figure out.

For example, how would federal regulators monitor rent increases? Would single-family rentals be included? Would the rule apply when the building’s average rent increase exceeded 5%, or might it be triggered when a certain percentage of total units exceeded 5%, or perhaps if only one unit exceeded 5%? And while new construction is specifically exempted, how long would such an exemption last? Just to name a few.

Likewise, the political odds are not in its favor. The chances that Congress could unite around a policy like this one, even if Democrats had control of both houses, are very low.

The Takeaway

Rent control, by any name, has historically been Very Bad for housing supply. And it is no secret that what plays well politically is not always good policy. But it’s understandable that an administration in a considerably tense election year would want to tout plans for addressing the issues that matter most to voters—and there is no more important issue than rising housing costs. Despite missing the mark on effectiveness, one message came through loud and clear in the adminstration’s proposal—rents are too damn high, and Joe Biden wants to do something about it.