Biden Proposes Nationwide Rent Control

He wants to cap rent increases at 5% a year, if you can believe it.

July 16, 2024 at 5:35 pm

We hoped President Biden had merely misspoken during last week’s NATO press conference when he mentioned capping rents. Alas, no. On Tuesday he unveiled a nationwide rent-control plan, another classic White House policy contradiction: Subsidize housing, then discourage its development.

Higher mortgage rates and home prices are pushing Americans out of the home-buying market. This is contributing to higher demand for rental housing. Rents on average nationwide have risen 30% over the last four years and even more in Sun Belt states with fast-growing populations. Evictions are also increasing in many markets.

Enter Mr. Biden, who on Tuesday pitched conditioning “valuable federal tax breaks” on landlords capping rent increases at 5% annually. The White House says its plan would apply to “corporate” landlords with more than 50 units, covering more than 20 million units or roughly half the country’s rental stock.

What are such lucrative tax breaks? The press release refers to “faster depreciation write-offs.” Under the current tax code, residential rental property owners can depreciate a building’s value over 27.5 years, rather than 39 as for other types of commercial real estate. A shorter depreciation schedule increases the incentive to invest in rental housing.

Conditioning this tax benefit on landlords limiting rents to 5% would do the opposite. It would reduce and could even eliminate the return on rental housing investments, especially since inflation has driven up insurance, construction and maintenance costs. Investors will have to pay higher taxes or accept a lower return. The Administration wants to increase subsidies for affordable housing even as it promotes policies to make such projects less financially attractive.

The White House says its rent-control ultimatum won’t discourage new housing investment because it would apply only to existing units. But developers will rightly anticipate that the policy will eventually be extended to newer units, which will factor into their investment calculus. Reducing the return on completed projects also reduces the capital available to invest in new ones.

This is also what the Department of Housing and Urban Development (HUD) did in March when it capped annual rent increases at 10% for rental units that benefit from the low-income housing tax credit. The ceiling was previously set at twice the annual increase in the median household income, which would have been 14.8% this year.

Tax depreciation schedules are set by statute, so Congress would have to enact Mr. Biden’s new national rent-control plan. But the expiration of the Trump tax cuts at the end of 2025 will provide him with negotiating leverage if he is re-elected with Republican control of one or both chambers of Congress. There is also bipartisan support in Congress for increasing housing tax subsidies.

It’s hard to think of a worse idea than imposing rent control nationwide through the tax code. It would reduce investment in new supply and drive up rents in units not subject to government caps. Look at New York City where nearly half of units are “rent stabilized,” and the average one-bedroom apartment costs $4,300 a month.

As Mr. Biden’s re-election prospects grow more dire, his policy lurches to the left are becoming ever more radical.