In an effort to slow down rising housing costs, President Joe Biden wants to limit rent increases across the country to 5%. However, housing experts say this would not work.
The White House said on Tuesday that Biden’s proposed policy would limit how much landlords can raise rents. It is against the rules for landlords to take advantage of faster depreciation write-offs if they raise rents by more than 5%.
The rule will only apply to landlords who own more than 50 units, which the government says is about half of all rental properties. It will be in place for two years. That’s around 20 million units in the US. The rent cap would not affect rental homes that were just built.
In a statement, President Joe Biden said, “Affordable housing for families is part of the American Dream.” “After decades of not building enough homes, rent is too high and buying a home is out of reach for too many working families and young Americans.” That is something I am determined to change.
The plan to limit rent increases across the country would need to be approved by Congress.
The Biden administration also announced other plans to lower housing costs, such as a plan to build homes on federal land and $325 million in grants to help people build affordable homes in certain areas across the country.
As Biden’s plans come out, home prices and mortgage rates have reached all-time highs, driving up the cost of housing. When people, especially Gen Zers, talk about the November election, they say that housing affordability is very important to them.
The idea of rent caps is “catastrophic.”
Even though the policy on rent control comes at a time when housing costs are at an all-time high, experts were not sure if it would work.
Chen Zhao, lead economist at Redfin, told MarketWatch that rent caps can help with affordability in the short term but hurt in the long term.
Developers would worry about how profitable their projects would be if landlords were limited in how much they could raise rents, Zhao said. This would have an effect on the supply of housing in the long run. It gets more expensive to rent a home because there are fewer homes to choose from when they don’t build as many.
Other housing experts said that rent caps don’t work as a way to keep housing prices from going up too much.
There are many places in the US and around the world where rent control doesn’t work. It hurts renters in the long run by changing market prices, stopping new construction, and lowering the quality of rental housing, according to a statement from Bob Brokesmit, president and CEO of the Mortgage Bankers Association, an industry trade group.
He also said, “Since the odds are against this proposal ever passing Congress, a federal rent control law would be terrible for renters and the rental housing market in our country.”
Some Democrats also didn’t agree with the idea of putting rent controls on homes to lower prices. “Rent control has been about as shameful as any economic policy we have” Former Obama administration official Jason Furman told the Washington Post, “The idea we’d be bringing it back to life and making it bigger will make our housing supply problems worse, not better.” Furman is a teacher at Harvard College.
One group that speaks for landlords said that one reason they’re raising rents is because property insurance costs are going up. A spokeswoman for the National Association of Apartment Owners told MarketWatch, “For example, multifamily insurance premiums have doubled in some markets.” A lot of the time, landlords have to raise rent to cover rising costs and keep giving people good housing.
As rents and evictions rise in some parts of the U.S.
The proposed rent control policy seems to be an attempt to ease the stress that people all over the country are feeling because housing costs are going up so fast.
In the past few years, rents have gone up quickly. This was especially true during the pandemic, when Redfin data shows that asking rents for multi-family units rose by 17.5% in January 2022 compared to the previous year. A Harvard study found that more renters than ever before were cost-burdened in 2023. This means they spent too much of their income on rent. When someone rents, the rent shouldn’t take up more than 30% of their gross income.
Without a doubt, rent increases have slowed down since flat builders built a lot more units. Because there are too many homes for rent in some parts of the country, like Florida, rents have gone down. Redfin data showed that asking rents only went up 0.7% across the country in June compared to the same month last year.
And rents have started to go down, which can be seen in the way the government measures inflation. The consumer price index released earlier this month showed that rent prices rose less quickly in June than in any other month in almost three years.
But in some parts of the U.S., more people are filing to be evicted. The Eviction Lab at Princeton University says that the number of eviction filings in Gainesville, Florida, has gone up 46% since March 1, compared to the average before Covid. Files were 44% higher in Minneapolis-Saint Paul than they were on average before Covid, and they were 43% higher in Las Vegas.
“Rent control is good economics, and it’s the only way to deal with the urgency and scale of the crisis that millions of tenants face every month,” said Tara Raghuveer, director of the advocacy group Tenant Union Federation.
“The president’s historic order recognises that the federal government needs to regulate the rental market and that tenants have power as a political class,” she said.
