HFO Op-Ed: Rent Control Likely to Push Investors Out, Tighten Supply of Rental Housing in Oregon
March 27, 2019
by Greg Frick, Partner
HFO Investment Real Estate
When we talk about the housing crisis in Oregon, we talk about a complex issue that is, at its core, easy to understand. Oregon has a housing shortage, and so available housing costs more. The supply of housing in Oregon has not kept up with the increase in demand for housing. Scarcity drives pricing; this is the basic building block of supply and demand economics.
It’s as easy to see why rent control feels like a solution to the problem: If people can’t afford rising rents, why not limit how much those rents can rise? But after nearly 100 years of rent control experiments throughout the nation, all the data show that no matter what you call it — rent control or rent stabilization — it offers only a small subset of renters short-term relief, while the long-term results are much worse.
Why? Because it leads to a reduction in the available supply of rental housing in a community. Far fewer investors have the ability or the will to buy or build rental homes in a place with rent control. I know this because our office serves as rental investment advisors for thousands of clients throughout Oregon and Washington.
When government enacts rent control, some investors will continue to invest, but it’s mostly large investors with the most money building high-end units. Other owners stop improving apartments because they lack the funds to perform adequate maintenance. Some will convert buildings to condos and sell them.
My goal here is not to elicit empathy for investors. Investors will reinvest in other markets. The question is, what about renters? Will Oregon's recently-passed rent control bill increase Oregon’s supply of affordable housing?
History shows us that no, it won’t.
I’ve had dozens of calls in the last month from investors telling me that they either (a) won’t be buying in Oregon anymore, or (b) they plan to disinvest. As more people move into the area, the increase in demand for housing will continue push up market rents to the maximum allowable. Renters will be stuck in deteriorating properties and landlords may feel obligated to raise rents by the maximum amount in order to ensure they can afford to perform even basic maintenance while paying ever higher utility and property taxes. While assessed tax value is capped at 3 percent, property tax increases can be 9 percent or more due to local levies.
Much publicity has been given to tenants removed from significantly run-down properties in metro Portland where new owners wanted to make housing units safe and clean. Did any reporters ask neighbors of those properties what it’s like living next to a deteriorating complex? What about the tenants living in unacceptable conditions? Will this bill improve housing quality?
Last November, Oregon voters passed measures aimed at alleviating the state’s housing crisis. These measures were projected to produce about 4,000 new affordable housing units within a few years. Voters likely feel they’ve done their part. Unfortunately, according to a recent study by ECONorthwest and Up for Growth, Oregon built 155,000 fewer housing units than it needed between 2000 and 2015. You don’t need to be an economist to understand that 4,000 still leaves 151,000.
Legislators passed rent control even with home prices in Oregon among the lowest on the West Coast. Rents and home prices in Portland metro are flattening and Portland is no longer among the top U.S. metros for increasing prices.
Our beautiful state is still a favorite destination for people looking for places to live. We must encourage and incentivize housing production, not penalize the providers. All too often our elected officials make it harder for developers and property owners, despite the need for new housing at all income levels.
Our lawmakers must work collaboratively with builders and investors to solve the problem. We’re not the enemy. We have with similar goals: safe, affordable, vibrant communities. Together, we can reach productive solutions.
This article first appeared in the Portland Business Journal on March 27, 2019.