[REN #697] NEW Oregon Rent Control Leads Nation

Picture of road between trees for Real Estate News for Investors Podcast Episode #697

Oregon has become the first state in the nation to adopt statewide rent control rules. Governor Kate Brown approved the law to help tenants struggling with affordability issues, but real estate investors say her plan will backfire because it will ultimately reduce the amount of affordable housing. Rent control is an ongoing battle in many states that are now watching to see how this one plays out in Oregon.

This new law caps rent increases at 7% plus inflation, and bans no-cause evictions. It applies to both apartments and single-family homes, and imposes penalties for landlords that break the rules. Rentals that were built within the past 15 years are exempt from the rent cap along with landlords that provide reduced rates because of government subsidies.

Law Curbs Exorbitant Rents

The annual limit on rent increases is more generous than some rent control ordinances. If you add the 7% cap to a 2% inflation rate, you’d be able to raise the rent as much as 9% per year. The Los Angeles Times says, the law was designed to curb really exorbitant rent increases, and describes it as more of an anti-gouging law than your typical rent control ordinance. As the Times points out, L.A.’s rent control ordinance caps rent increases at 3% per year. (1)

The Oregon rules do not impose vacancy controls so landlords can raise the rent when a tenant moves out, but they cannot evict tenants to raise rents. The new rules require “just cause” for evictions. That would include things like failure to pay rent and lease violations.

Rent Control Could Backfire

The Times reports, some Oregon landlord groups didn’t wage a big fight against the law. That was likely due to the high cap on annual rent increases since most landlords impose annual rent hikes that are less than the cap. But a few national organizations blasted the new rules. The National Multifamily Housing Council and the National Apartment Association say that the Oregon law will not increase the supply of affordable housing, and could actually reduce it.

Doug Bibby of the NMHC said in a statement, “While the intent of rent control laws is to assist lower-income populations, history has shown that rent control exacerbates shortages, makes it harder for apartment owners to make upgrades and disproportionately benefits higher-income households.” He says, “Oregon lawmakers should focus on holistic solutions that encourage more housing supply, facilitate public-private partnerships to tackle many of the existing barriers and increase direct assistance to renters.”

Robert Pinnegar of the NAA commented, “Rather than focusing on the onerous regulatory environment that constricts the diversity of housing needed to meet the surging demand for rental housing, Oregon’s public officials chose to slide backward by enacting a failed policy that has historically proven to hurt residents and housing supply alike.” (2)

California Rejected Statewide Rent Control

California voters were recently asked to do away with the Costa-Hawkins act which is a statewide law that protects single-family rentals and townhomes from any kind of rent control. But the rent control issue is a hot potato in California. Governor Gavin Newsom has put out the word that he wants to enact some kind of tenant protections in the near future. He has said, “Here is my promise to you: Get me a good package on rent stability this year and I will sign it.”

Oregon’s law could set the stage for statewide rent control in California and in other states. Oregon Live reports that campaigns for statewide rules are underway in at least five other states including California, Colorado, Illinois, New York, and Washington. One rent control advocate in Washington says the Oregon law is encouraging. Katrina Holland of Oregon’s Community Alliance of Tenants says, “We’re hoping that will enable us to have the conversation we need to have around rent control and what we need it to look like in Washington state.”

Heart of the Problem: Housing Supply

Bibby says, rent control does not get to the heart of the problem. He says, there’s an income gap as wages lag behind rising prices for housing. But even more important, he says we need to build more homes. He says that lawmakers should focus on expanding the housing supply by loosening up on land-use policies, speeding up the permitting process, and providing subsidies for low-income families. He told Oregon Live that rent control is like “taking a blunt instrument when you need a scalpel to deal with a very nuanced, market-driven problem.” (3)

In all fairness to Governor Brown, she is also encouraging state lawmakers to approve $400 million in funding for affordable housing development. Some of that money would also be used for rental assistance and programs to prevent homelessness.

Oregon lawmakers also feel that this law raises the bar on rent control in general. Representative Mark Meed said, “This is not the rent control of yesteryear.” He said, “It’s a smart, innovative hybrid.”

But tenant advocates are not content. With rents rising as much as 28% on average in Portland over the last five years, tenant organizers feel the new cap is too high. Katrina Holland of Oregon’s Community Alliance of Tenants says the fight is not over. She says, “We wish it would’ve gone much further than it did” and indicated that her organization plans to continue fighting for stricter rules.

The new law took effect right away, but Governor Brown acknowledged that more work is needed. She says, “It will take much more to ensure that every Oregonian, in communities large and small, has access to housing choices that allow them and their families to thrive.”

(1) LA Times Article

(2) NMHC and NAA Statements

(3) Oregon Live Article

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