What We Know So Far: The National 5% Rent Cap Proposal

A new proposal is set to be introduced, aiming to cap rental increases nationwide. This could significantly impact multifamily developers should it make it through Congress. The proposal seeks to address the rising rental prices and high mortgage interest rates that have been barriers to homeownership affordability in recent years.

If passed, this plan would directly impact property owners and managers of buildings with 50 or more units, which account for over 20 million rental units nationwide.

This proposal, which would need Congressional approval, excludes new construction and buildings undergoing substantial renovations. The goal is to balance affordability concerns with the economic realities of housing development.

What We Know About The Proposed Plan:

The plan would limit rent increases to no more than 5 percent per year for landlords with more than 50 units. This restriction applies only to existing units, sparing new constructions so as not to discourage development. This exclusion is important, given the high construction and labor costs currently challenging the industry.

Simultaneously, the Federal Housing Finance Agency is making changes to its policies regarding housing financed by future loans provided through Freddie Mac and Fannie Mae, two of the world's largest financial institutions and government-sponsored enterprises (GSEs) that guarantee most mortgages in the United States. Borrowers will need to provide a 30-day notice before rent increases or lease expiration and a five-day grace period before imposing late fees on rent payments.

This plan also proposes repurposing public land sustainably to enable as many as 15,000 additional affordable housing units to be built in the state of Nevada; rehabilitating distressed housing, building more affordable housing, and revitalizing neighborhoods, including in Las Vegas, Nevada.

What Does The Impact Of A Plan Like This Look Like?

We won’t know for certain unless this plan moves forward through Congressional checks and balances. In the short term, a rent cap could provide relief to renters, potentially stabilizing occupancy rates as affordability issues are temporarily alleviated. However, reactions from major key players across the multifamily state otherwise. 

Economic and Industry Reactions

Economists have historically always been divided on the efficacy of rent control. Some argue that it discourages new development, exacerbating housing shortages in the long run. For example, Jason Furman, a former White House economist, highlights that while the proposal might offer short-term relief, it could ultimately hinder the housing supply.

The National Apartment Association and others have echoed similar concerns, suggesting that rent control could decrease housing options and increase costs. Carl Harris, chairman of the National Association of Home Builders (NAHB), agrees and emphasizes the need to focus on increasing the rental housing supply to lower costs for renters. Harris suggests strengthening the Low-Income Housing Tax Credit (LIHTC) and adopting other strategies to tackle the affordability crisis.

On the other hand, the National Housing Law Project, and the National Low Income Housing Coalition have stated their support for the proposed plan, emphasizing the importance of federal involvement in stabilizing rent for tenants.

Considerations Multifamily Developers:

To navigate these proposed changes, multifamily developers should adopt a proactive approach, engaging in policy discussions in and beyond their communities. Many thought leaders throughout the industry have taken to their public channels to express their opinions on the matter and the impact it would have on their perspective. Informed, respectful discourse is the key to understanding and taking action in times such as this.

Looking Ahead:

The proposal includes incentives to boost housing construction, such as changes to zoning codes and federal financial incentives for builders. For multifamily developers, these initiatives could present new opportunities provided they align with evolving regulatory frameworks. The proposed rent cap signifies a significant shift in the political impact on housing policy. 

By understanding the nuances of the plan and adopting strategic measures, developers can navigate this proposed plan, balancing regulatory compliance with innovative approaches to development and property management.