High housing costs are one of the greatest burdens facing Americans today—and President Joe Biden and his administration have announced a new plan to deal with rising costs that are keeping prospective buyers from achieving the American Dream of homeownership. The proposal, first reported by the Washington Post, would institute a nationwide rule designed to cap annual rent increases at 5%.
Specifically, the plan would remove tax benefits from landlords should they institute a rent increase on their tenants higher than 5%. While the rule would apply only to landlords who own 50 properties or more, it wouldn’t have any bearing on properties built after the rule went into effect. The source quoted in the Washington Post says this new construction exemption is to ensure that the proposal doesn’t disincentivize the building of new rental units.
In a press release, LendingTree Senior Economist Jacob Channel noted that reporting the plan as an outright “rent cap” isn’t quite accurate, as Biden is not calling for all rent properties to be outright limited to 5% annual increases.
“(The administration plans) on making it more difficult for landlords who raise rent by more than 5% to write off expenses related to costs arising from things like wear and tear on their buildings,” he said.
At a news conference on Thursday, July 11 (before the plan had been confirmed), Biden alluded to the plan. He framed his intent to lower rents contingent on his reelection in the upcoming 2024 presidential election this November; “If I’m reelected, we’re going to make sure that rents are kept at 5% increase.”
Indeed, the plan’s passage would very likely require a Democratic trifecta in the White House, Senate and House of Representatives (Republicans currently maintain a slight majority in the House.)
The plan is also only intended to apply for the immediate future. The National Association of REALTORS® (NAR) put out a statement voicing their opposition to the “misguided proposal” and price caps on housing in general. In a press release, the association wrote:
“Price controls may seem appealing, but they have backfired on local governments and harmed the people we need to help the most. Developers are reluctant to build in areas where the government imposes rent controls on new buildings, and these policies actually decrease the supply of low- to mid-range housing units.”
NAR acknowledged the increasing unaffordability of housing in the statement, but proposed more “targeted” assistance to renters who need it (rather than a blanket rent control) and increasing inventory as remedies.
“We need more than 328,000 new apartment units each year just to keep up with demand—that’s 4.3 million units by 2035,” NAR said.
Median rent prices in certain large U.S. metro areas (such as Austin and San Francisco) have seen some declines in 2024. There has not been a consistent nationwide downward slope. According to Zillow, the nationwide median rent is $2,150 per month, while 2022 Census data found real U.S. household median income is $74,580. (This means that median households could spend almost a third of annual income on rent.)
As a result of high rent costs, proposals for rent control have gained momentum. Mayor Michelle Wu of Boston, elected in 2021, ran on a platform that included bringing rent control to the city. That was a turnaround from Massachusetts instituting a ban on rent control laws throughout its commonwealth, passed by referendum in 1994. (Wu’s efforts have not yet passed, in part due to lack of support in the Massachusetts legislature.)
The NAR press release continued to speak broadly against the idea of rent control, apart from the specifics of Biden’s proposal:
“Rent control is a rare instance where the research is fairly conclusive: It doesn’t work. These measures fail to improve most renters’ financial situation and shift the burden of economic difficulties, inflation and other costs onto the housing provider with no counterbalance. NAR has advocated for federal legislation and policies such as YIMBY and the Neighborhood Homes Investment Act to help eliminate discriminatory land use policies and remove barriers that weaken housing production in the United States. The only way to keep cities affordable for working-class families is to ensure that the supply of housing keeps pace with the growing demand.”
Carl Harris, chairman of the National Association of Home Builders (NAHB), also feels that Biden’s plan would negatively impact construction and new unit development despite its carveouts.
“Rent control in any form is bad for housing, and President Biden’s tax plan to cap rents at 5% on existing multifamily structures will worsen the housing affordability crisis by discouraging developers from building new rental housing units at a time when the nation is experiencing a shortfall of 1.5 million housing units.”
Harris suggested that increasing inventory, and incentivizing that increase by expanding the Low-Income Housing Tax Credit for builders, is the way to solve affordability. (Biden has also put forth plans to boost inventory and supports expanding said tax credit.)
A 2018 study on rent control laws in Cambridge, Massachusetts, and San Francisco by the Brookings Institution found that “existing tenants benefit from the insurance provided by rent control,” but that “the overall cost of providing that insurance is very large.” (Removing rent control in Massachusetts massively increased property values in Cambridge after 1994.)
Channel, offering his thoughts on the Biden proposal in the LendingTree release, was more positive, but not effusive.
“This plan could help reign in rising rent costs, though it certainly won’t be a cure-all,” explained Channel, saying its limitations mean it would only impact about 50% of the rental market. He added that “the Biden administration has put forward a fairly robust set of policies regarding housing,” such as boosting construction, offering tax benefits to homebuyers and renovating homes in a state of disrepair.
Channel characterized the housing policy landscape overall as both parties being largely aware of housing affordability as an issue affecting Americans (though he noted that the Republican platform has been vaguer on the issue compared to the Democratic proposals). Despite that, split control of Congress means that any substantial housing proposals are very unlikely to pass for now.
Follow RISMedia for updates on this developing story.
