The multifamily industry most likely bristles at the idea of governmental rent control. Renters most likely applaud the idea. As with many things in our economy that relate to providers and consumers, we have an ever-widening divide. When situations create an adversarial mentality, both sides would be wise to try understanding each other’s point of view. Also, wisdom dictates that some of each adversary’s efforts should consider the long-term implications rather than focusing solely on the immediate issues.
Multifamily property owners usually define housing as affordable based on the dollar amount a specific market will allow, or the median income of an area. Those who pay rent define affordable based on their income added to their desired lifestyle. Many times those two definitions are separated by a large gap.
One example of this affordability issue is occurring right now in the city of San Francisco as wealthy Silicon Valley tech companies relocate to the City. Property owners have been quick to take advantage of potential profit. Who would not do the same thing given the opportunity? The downside is that many people who have lived in their rented homes for decades have been displaced. Not only have they lost their homes, but also they can no longer even afford to live in the city.
In San Francisco the short-term prospects seem full of promise for everyone concerned, except the displaced renters; however, the long-term implications are far from certain. What happens to the city if another tech bubble blows the whole thing out of the water? What happens to all the property that is suddenly unaffordable to anyone? Rent control perhaps? Will the city become responsible for the upkeep on all that property or face lost revenue as it slowly declines? Similar scenarios are playing out in cities all across our country.
Property owners have in some cases advocated for voluntary rent control. They argue that keeping rent amounts affordable by capping rent renewals is in the long-term best interests of property owners, renters, and the industry as a whole.
Avoiding the roller coaster ride of extreme increases that push the affordability envelope and possible decreases driven by unforeseen circumstances adds stability to the multifamily housing market. A stable multifamily housing market helps to bolster the entire housing market and provides one pillar of a stable economy. Arguably the best part of the capped increase strategy is the bonus of doing the right thing and making it possible for people to stay in their homes.
The forces that drive this industry almost never present an opportunity that offers a best-case result by doing the right thing and the smart thing all at the same time. Perhaps it is time to seize that opportunity, take a common sense approach, and leave the government out of the equation.
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