The state of Oregon recently passed legislation approving Rent Control and banning no cause evictions statewide. This legislation was adopted as an attempt to address Oregon’s ever-increasing rents and cost of living. Tenant advocates across the nation are cheering as this looks to bring some relief to budgets of many who are financially strapped, and stretched to the tipping point. Oregon will be a good case study on what rent control can genuinely do to address housing affordability. Landlords are shaking in their pants as this is an exact unknown and the financial impacts to their real estate investments will be unclear for some time.
The Perceived Solution Behind Rent Control
On face value, this looks like a quick and straightforward solution to solving the problem of escalating rents – something we know very well in San Diego and California at large. There have been some feeble attempts here in San Diego to pass some form of rent control, to no avail. The hope and theory behind rent control are that by controlling rents, communities would become more stable as tenants would remain in place longer, and participate in their neighborhoods. Thus, contributing to their communities as a whole. In addition, lower rents would then allow tenants to invest, save and spend.
While many proponents of rent control focus on short-term relief, renters will be gaining the long-term effects that can be damaging to communities.
California landlords should feel nervous that Oregon is setting a precedent for a statewide policy. While many proponents of rent control focus on short-term relief renters will be gaining, the long-term effects can, in fact, be damaging to communities.
Negative Effects of Rent Control
This leads to properties with deferred maintenance that sometimes end up neglected, which become less desirable and can potentially motivate good tenants to leave neighborhoods
Landlords tend to sell their properties when they can’t make them profitable. Also, landlords tend to decrease their maintenance/repair budgets as the amount of cash flow diminishes. This leads to properties with deferred maintenance that sometimes end up neglected, which become less desirable and can potentially motivate good tenants to leave neighborhoods – the complete opposite effect that Pro Rent control proponents desire. Another side-effect of rent control is that when units do become available, they are typically placed on the market for higher than market rents. Meanwhile, landlords take corrective action in efforts to make the property’s balance sheet work, increasing market rent trends. We can look at cities like San Francisco and Manhattan as case studies: both cities have rent control ordinances, and rents are exceptionally out of control! For example, in the mission district of San Francisco landlords are finding creative and legal ways to evict tenants. When those recently vacated units come back on market they are typically rented for above market rates due to high demand (in an effort to make up the difference of lost revenue on rent-controlled units). This is a rampant problem in many other cities and leads to mass gentrification. Therefore, this does not fix the ultimate problem of affordability, but on the contrary, leads to less affordable housing!
How Can We Obtain Affordable Housing?
Affordability is too complicated a problem to be remedied by a knee-jerk policy like rent control. However, the solution should start with cities and municipalities incentivizing developers to build affordable housing, by reducing costs it takes to entitle property. If it costs as much and it takes as long to build affordable housing as it does luxury property, other than having a good heart, what would motivate developers to build affordable housing? City planning departments must make a consorted effort to change this. Unfortunately, rent control is not the answer to affordable housing as the long-term effects are too severe compared to the perceived short-term gains.
*** Miguel Contreras is NOT an analyst, and this is solely an opinion piece ****