Rent control laws on the national level? Biden administration offers a not-so-subtle push

As rents close in on a record high, more Americans, including the federal government, are wondering if it's time for national rent control that will regulate rent increases and place restrictions on evictions. 

In January, the Biden administration announced a blueprint for a renters bill of rights and encouraged federal governmental agencies and politicians to help tenants find, afford and stay in housing. The blueprint is only guidance, not law or policy, on types of protections renters need and how to achieve them. The blueprint explains how different agencies can play a role, but the one that has drawn attention is the Federal Housing Finance Agency's (FHFA) examining ways to limit "egregious rent increases."

FHFA's request for public input on renter protections in Fannie Mae- and Freddie Mac-financed properties received thousands of comments, including from 17 Democrats led by Sen. Sherrod Brown, D-Ohio. Their letter asked FHFA to “condition” Fannie Mae- and Freddie Mac-backed mortgages based on various tenant protections, including limits on “egregious rent hikes.” Rents have risen 25%, or more than $400, since 2019, according to the apartment search engine Rent.com. 

Frustrated, many Americans have coalesced around rent control as a solution, but critics say this will only push rents higher.  They say a national plan to increase housing stock is a better solution but takes much longer to implement.

"There are proven solutions to our housing challenges," said Sharon Wilson Geno, president of the nonprofit apartment advocate National Multifamily Housing Council (NMHC). "At the state and local level, communities have successfully used zoning changes to encourage the creation of new rental housing communities and financial incentives to reuse dead malls and empty office buildings for more housing, just to name a few."

Why do people like the idea of rent control? 

After two years of elevated inflation, Americans are tapped out. Many can’t afford soaring rents, exacerbated by a housing shortage, and need quick relief. 

From 2019 to 2021, the share of renters spending more than 30% of their income on housing rose 2.6 percentage points to 49%, according to the Joint Center for Housing Studies of Harvard University. 

“America is increasingly becoming a renter nation yet rent remains unaffordable for millions,” Tram Hoang, senior housing associate at research and action institute PolicyLink, wrote in an op-ed. “Spiking costs and stagnant wages mean that even households with two working adults struggle to afford an apartment.” 

Limiting the amount government agency-backed owners can raise rents each year has “the potential to benefit a third of renting households,” Hoang said.  

To view thousands of comments FHFA received on this topic, go to FHFA’s website and choose "Tenant Protections" in the drop-down menu.

Who owns apartment rentals can shape your view 

Rent control would prevent corporate landlords from profiting by using low-interest, government-backed financing while raising rents and evicting tenants, Hoang said. 

Though that may be true, critics say, rent control could hurt millions of people, including some who supplement their retirement with rental income.  

Among 49.5 million rental units, nearly 46% are small rental properties of one to four units, the National Association of Realtors said. More than 70% of those are owned by individuals, or mom-and-pop landlords. About 70% are also managed by them. 

“Cost of rental housing is expensive,” Geno said. “If they can’t pass on expenses they don’t control, many owners will be upside down.”  

Many mom-and-pop landlords were forced into forbearance during the 1½-year pandemic-related rent moratorium that allowed tenants to forgo rent payments without fear of eviction. Some even had to sell their properties and defer maintenance on their rentals.

Proponents note rent regulations generally allow landlords to file for exemptions to the rental cap to offset capital investments and sometimes pass on expenses like property tax or utility rate increases to tenants. But opponents say exemptions aren't easy to get.

"If it was easy, you wouldn't see the reduction in supply that you see from academic studies on the topic," said Jim Lapides, NMHC's lead on rent control. Additionally, given rent boards sometimes don't even approve rents to keep up with inflation, "it's not difficult to see how hard it would be for someone to earn an exemption."

What does rent control research say? 

“There’s decades of research that show ultimately, rent control increases prices because owners or developers can’t cover costs if they rise,” Geno said.  

An often-cited 2019 Stanford University study said rent control intensified San Francisco’s housing shortage. Faced with a strengthened ordinance, landlords either converted their units into condos or exited the rental business, resulting in 15% fewer apartments and higher rents, it said.  

The measure "appears to have increased income inequality in the city by both limiting displacement of minorities and attracting higher income residents” with new condos, the study said. 

Rent control also incentivizes people to occupy apartments longer − "even when their apartment no longer fits their needs" − which means more competition and higher prices for fewer vacant units, Geno said. (Think the hit show "Friends": Monica's New York City apartment was rent-controlled, and she inherited the lease after her grandmother died and paid just $200 a month. In the series finale episode, as Monica and her husband prepare to move out, he says, "Thanks to rent control, it was a friggin' steal.")

Some economists say, though, the ability to stay longer in an apartment creates stability and ensures diversity in a community. Without rent control, lower-income people would be forced to leave as their neighborhood gentrifies and "turnover among tenants will be higher, leading to less stable communities and discouraging investment by renters in their neighborhoods," said J. W. Mason, assistant professor of economics at John Jay College of the City University of New York.

A group of 32 economists in a letter to the FHFA also suggested opponents' arguments are alarmist, as when people argued minimum wage would lead to mass layoffs, which didn’t happen. Local rent control policies in San Francisco and New York City found that rent regulations lower housing costs for households living in regulated units, they said, even citing the same Stanford study of San Francisco rent control that critics did.

In addressing the study's conclusion that the number of rental units contracted under rent control, making prices higher for those not already locked into a regulated unit, the economists suggested closing loopholes that allow landlords, for example, convert their units into condos.

“Rent regulations can benefit the economy as a whole, helping people stay housed closer to their jobs and communities, and making it easier for employers to find qualified job seekers locally,” the economists said. 

Where there's rent control:How much can my landlord really increase my rent? Know your tenant rights in your state.

If not rent control, what can help?

Increasing supply and improving transit infrastructure can help, said Daryl Fairweather, chief economist at the real estate listings platform Redfin.

"We ultimately need more housing and better transit infrastructure to help support it," she said, noting the transit part is important so people can get to work.

Though those aren't covered in the White House's proposed bill of rights, the Biden administration last year released its Housing Supply Action Plan to close America’s housing supply shortfall in five years. That plan includes rezoning, transit infrastructure and more targeted rental assistance − everything opponents f rent control applaud.

The problem is all of that takes more time, and people want immediate relief.

"For years, we have invested well in defense, roads, but haven't recognized the housing problem," Geno said. "Now, it's a politically expedient solution. People are hurting − we get it. Politicians say they want to solve the problem and use rent control. Rent control allows politicians to shirk their responsibility by shifting the cost of providing needed housing opportunities to apartment owners for immediate political gain."

What else does the bill of rights suggest federal agencies do to help renters?

The bill of rights also seeks:

• Federal Trade Commission and Consumer Financial Protection Bureau examination of unfair practices in the rental market, including tenant background checks and screenings, credit reporting and how income factors into housing decisions.
• Department of Justice workshops about anti-competitive information sharing.
• Department of Housing and Urban Development rules requiring public housing authorities and owners of some rental assistance properties to provide at least 30 days’ advance notice before terminating a lease because of nonpayment.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at[email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday.