Montgomery County and Prince George's County in Maryland have long been a favorite of institutional investor landlords, The Wall Street Journal reported. Federal employees made a steady clientele with secure jobs and a need to be close to the capital.
That ended with rent control in the two counties. In July, each county passed legislation limiting rent increases to the lower of either 3% plus inflation or 6%. What made the new approach even more stringent is that the laws apply to both occupied and unoccupied units. That meant landlords couldn’t increase the price on unoccupied units to help manage the limitations on occupied units.
In the first three quarters of 2024, multifamily transactions were down 13% in the two counties, according to data from MSCI Real Assets that the Journal obtained. The drop in transactions suggests a chilling effect, potentially impacting valuations.
Reportedly, multifamily owners think the new legislation will make it challenging to finance upgrades and new buildings because they don’t know if exceptions will be available. If there’s a question of future revenues, it would make sense that lenders would be concerned.
This may seem like a local story, but it is national. The Trump administration is highly unlikely to even propose a 5% cap on rent increases the way President Biden did in July. Not that it went anywhere – but the issue is high on the list of voter concerns. In October, Redfin ran a survey to find that 82% of Americans want limits on how much landlords can raise rates. Democrats (86%) were slightly more likely to hold this view than Republicans (79%). So were renters (86%) compared to homeowners (78%). Only 7% of the 1,802 people surveyed opposed rent caps. Some states have already taken action to limit rent increases.
At the same time, the issue of rent control is becoming more common on city, county, and state agendas – and will likely continue to do so. The two counties in Maryland are just a couple of examples. California’s Proposition 33 was another.
It was a third attempt to repeal the Costa-Hawkins Rental Housing Act, which keeps cities in the state from establishing rent control over all single-family homes and housing units built after 1995. Again, it failed by about a two-to-one margin in November.
San Francisco’s Board of Supervisors in October voted to expand rent control to an additional 16,000 units, but only to go into effect if voters passed Proposition 33.
New York City’s 2019 rent control law capped annual rent increases on rent-stabilized apartments. Property owners have been bailing out because they haven’t been able to maintain them.