Would AOC's National Rent Control Solve the Housing Crisis, or Make It Even Worse?

A comprehensive anti-poverty bill proposed by New York Representative Alexandria Ocasio-Cortez would authorize new protections for tenants, children, immigrants, and other categories of Americans who are increasingly vulnerable to the high costs of inequality. This legislation—really a suite of bills—would expand federal benefits to undocumented immigrants and people with past criminal convictions, introduce a workspace score for certifying federal contractors, and add nuance to federal poverty guidelines.

With her new legislative package, Ocasio-Cortez aims to elevate poverty as an agenda item for liberals, the way she has moved the needle on the issues of healthcare and climate change by promoting Medicare for All and the Green New Deal. Her bill, ”A Just Society,” would position anti-poverty policy as an agenda item for the new left, and possibly another litmus test, too.

One of the features of AOC’s package is a tenant-rights bill that, by itself, would represent a significant expansion of federal housing policy. The “Place to Prosper Act” would impose new disclosure requirements on corporate landlords, for example, and prohibit discrimination against tenants based on source of income (including housing vouchers). It would introduce a national right to counsel for renters facing eviction (much like the law passed by New York in 2107) and a corresponding fund to give them access to legal services.

Among the proposed new protections is a national cap on annual rent increases, maybe the most explosive suggestion across all six bills. By establishing a national rent control doctrine, Ocasio-Cortez is putting down a federal marker in a national conversation about the affordable housing crisis.

Rent control is maybe the most divisive tool available to lawmakers when it comes to housing policy, one that usually unites economists in opposition and lines up activists in support. Ocasio-Cortez’s rent-control proposal goes further than almost anything on the books, including new laws in Oregon and California. Indeed, it’s not hard to find housing professionals who feel that AOC’s proposal goes too far—that it will slam the brakes on the construction of new apartment buildings, which experts and activists alike see as critical to easing the affordability crisis.

“It’s absurd,” says Doug Bibby, president and CEO of the National Multifamily Housing Council (NMHC), referring to Ocasio-Cortez’s proposal for a 3 percent cap on rent increases. “Investors would move their money to other sectors of real estate. Developers would decide there are better things to build than apartments.”

The proposal arrives as lawmakers across the aisle weigh a greater role for government regulation in housing markets as a response to soaring rents nationwide. Several presidential candidates, most recently Senator Bernie Sanders, have released detailed housing plans, with a range of ideas for easing restrictive zoning and boosting the reach of housing vouchers. Further to the left, a separate debate about how to wholly decommodify housing is taking shape, with sweeping suggestions for divorcing the roles of shelter and equity in homes.

Taken in context, the freshman representative’s bill is a push to move housing policy toward the left. But critics fear that a national rent control policy as strict as Ocasio-Cortez’s proposal would deliver a NIMBYist blow to markets that need new housing badly.

The Place to Prosper Act calls for a cap of 3 percent or the Consumer Price Index for All Urban Consumers (CPI), whichever is greater, for housing markets nationwide. (The rule would apply specifically to landlords with five or more residential properties or two or more manufactured housing parks). That’s a tighter standard than a new law awaiting the governor’s signature in California.

“What we tried to do in California was balance the need of tenants to not have egregious rent increases with the desire of landlords to receive a fair rate of return for their rental housing properties,” says California Assemblymember David Chiu, the author of AB 1482, the Tenant Protection Act.

The California law will cap rent increases in the state at 5 percent plus CPI, a rate estimated at 8.3 percent for most of the state for 2020. Chiu estimates the new law will apply to some 8 million renters across California, with substantial impacts even for the more than a dozen cities with some kind of rent control policy on the books. When Governor Gavin Newsom signs the bill, it will make California second out of the gate behind Oregon, which capped rent increases at 7 percent plus CPI for Western states. For 2020, that figure will come to 9.9 percent.

Ocasio-Cortez’s proposal, by contrast, is closest to the rent-increase limit in San Francisco, which is based on a formula of 60 percent of CPI, which amounts to a lean 2.6 percent. San Francisco faces an extreme shortage of rental housing, which has fueled astronomical rents and an eviction crisis.

“Our bill is a rent-gouging bill, as opposed to rent control, which already exists in a number of cities in California,” says Chiu, who represents San Francisco. “There’s a huge difference between capping rent prices to inflation or less versus giving landlords a fair rate of return on their rental housing investment.”

As with AOC’s proposal, California’s forthcoming law provides just-cause protections against evictions. Chiu says that rental cap increases and eviction protections have to work hand in hand: Pass new regulations on evictions without rental caps, then you can expect to see landlords hiking up the rent, and vice versa.

“Let’s put this in place for the next decade both to protect millions of tenants who are one rent increase away from eviction or homelessness, but also to provide some predictability to the housing investor or housing creation world, so they know what rules are in place for the next decade in this area,” Chiu says.

The proposal from AOC leaves several questions to be answered. It doesn’t appear to address vacancy control, meaning the degree to which a landlord can raise rents when an apartment goes vacant. New rental protections passed by the state of New York earlier this year focused on this issue. The plain text of the Place to Prosper Act seems to suggest that landlords would not be able to raise the price of a rental unit when it goes vacant. The legislation doesn’t mention capital improvements or significant upgrades, either.

The bill also targets landlords who own multiple properties, which would punish institutional owners of apartment buildings—the corporate landlords who often serve as boogeymen in debates over rents. Institutional owners represent just 17 percent of the multifamily housing market, according to CBRE, a commercial real-estate firm. Private entities of all sizes make up the larger share (68 percent), but the vast majority of them are smaller or mid-size owners. A law such as AOC’s proposal could drive owners across the spectrum to break up in order to operate more like unregulated mom-and-pop landlords.

California’s AB 1482 also lends a hand to smaller landlords: Owners of condos, single-family homes, and duplexes (in which the owner lives in one of the units) will be exempt from the new rental caps.

“This goes back to the lessons learned in the battle over Prop 10,” says the NMHC’s Bibby, referring to a 2018 referendum that would have repealed a state ban on local rent control provisions. The proposition failed in part due to opposition from landlords. “[Lawmakers] decided they would not run that risk again, and they would just target the larger owners and institutional owners and exempt the smaller owners, so they would not be a political force in opposition to the bill.”

The apartment industry says that government regulations are too burdensome already. The NMHC and the National Association of Home Builders put out a report in 2018 that says that regulations add up to one-third of multifamily development costs. In some cases, the number runs as high as 43 percent. Applying San Francisco–style rent controls to the apartment industry nationwide will tip the scales in a way that will make building new apartments impossible, Bibby says.

And not just market-rate buildings—i.e., luxury apartments, the bête noire of housing activists—but affordable complexes, too. Building new market-rate housing eases pressure on housing elsewhere, including homes in low-income or gentrifying neighborhoods. Most new affordable housing units are built through a vehicle called Low Income Housing Tax Credits, which largely facilitate new low-rise, mid-rise, and mixed-use apartment buildings—all of which are subject to rising costs over time.

“It’s not unheard of that insurance costs go up 10 to 15 percent a year,” Bibby say. “If you build something, and you own it, and it’s 10 years old or 15 years old or 20 years old, it requires maintenance. It requires upkeep just to stay current with market conditions. If you can’t recoup those costs, you’re going to figure out what you want to do. It may be sell it. It may be convert it to another use.”

At the same time, rent stabilization may not be the market-rate killer that economists sometimes make it out to be. Researchers from the University of Southern California find that rent control slows evictions and that moderate rent control does not inhibit new construction. Severe rent control, however, results in more condo conversions, maybe the last thing that socialists want to see.

The Place to Prosper Act sets a bold new bar for housing policy: It would also authorize billions of dollars for lead abatement in homes and forbid repeat-offender landlords from buying federally backed mortgages. And it’s only one plank of a much broader suite of bills meant to elevate poverty as a progressive priority. But one of the core tenant protections in “A Just Society” will miss the mark if it puts a freeze on construction. (For some coastal liberals, that outcome may be more a feature than a bug.)

The prospect of a national rent control policy raises the question of whether one size could fit all of America’s housing markets—not just Seattle and New York but also Des Moines and Oklahoma City. It imagines a perpetual crisis of escalating rents for tenants and awesome returns for landlords, when just a decade ago, the opposite was true across the entire country. Indeed, home values still haven’t recovered from the recession everywhere.

A national rent control policy also raises questions about which problems Congress wants to solve. Is it that housing is unaffordable, so we need to build more of it, while protecting vulnerable renters in those neighborhoods where construction is happening? Or is it something larger about the nature of capitalism and the role of shelter as a human right?

So long as Republicans control the Senate, the question is mostly academic. For years, rent control has served as a favorite gripe for urban theorists and economists, who complain about how the policy encourages wealthy empty nesters to hold onto Manhattan townhomes forever, for example. But now, state lawmakers and progressives in Congress are turning to rent control as fix for the affordable housing crisis, without apology.

“On the one hand, we want to make sure that eviction levels are going down,” says Chiu, referring to his bill. “On the other side, we want to make sure that we are moving forward housing construction, which we all understand is the long-term solution for the crisis we’re in.”