Rent control is one mechanism proposed to address affordable housing issues. Here are some pros, cons, and compromises
Long before COVID-19, countries around the world were facing a common crisis: affordable housing. Especially hard-hit were global cities in which developers were keenly interested, and rents were outpacing wages for low- and middle-income renters. The solution for many housing advocates and politicians was a new round of rent-control legislation.
For some, the idea of rent control is a dirty phrase, while for others, it’s a call to action. From London to Berlin, Barcelona to New York, politicians were lobbied, policies debated, and new laws and regulations enacted. By early 2019, the movement reached Florida, where several state legislators introduced rent control measures. Although HB 6053 died in May of that year, rent control is a topic that’s not expected to go away.
South Florida is a unique situation
Different regions around the world have their own set of circumstances for a housing crisis, and South Florida is somewhat unique. A joint effort by RCLCO Real Estate Advisors and the Urban Land Institute’s Terwilliger Center for Housing found that US construction favored larger, more expensive homes and multifamily projects over middle-class housing for more than a decade. The result was a lack of anything affordable for families earning between 80–120 percent of the region’s median income.
Exacerbating the problem in Florida—with its status as a sun-drenched vacation mecca—were projects that specifically catered to wealthy foreign and out-of-state buyers. Locals, in many instances, were left out in the cold. And the problem has only gotten worse as rents in the region have skyrocketed.
The double-edged sword of rent control
In any discussion of runaway rents and affordable housing, it’s understandable that some sort of rent control would be a proposed solution. After all, it’s not a new idea.
Some historians believe Julius Caesar enacted the first such law, while in the US, the idea was used to address the impact of a housing shortage between the two world wars. Recent efforts have included five-year rent freezes, enforced rent reduction, reducing the amount that landlords can raise rents within and between tenancies, and “just cause” eviction provisions.
Then, there is the flip side. Critics are adamant that rent control does not live up to its intentions. The major complaint is that it discourages developers from building while encouraging some landlords to neglect properties or flip them into condos. The inevitable result is a reduction in the supply of leasable properties and higher prices. In other words, the rent-control solution is viewed as a short-term fix for an immediate symptom, rather than a long-term plan to address the underlying issues.
Florida is landlord-friendly
Thanks to state statute 125.0103, which makes it impossible for any county, municipality, or government entity to impose price controls upon a lawful business that is not a government agency, rent control in Florida essentially doesn’t exist. When coupled with rent-control legislation in other states, the Sunshine State looks very attractive to developers.
This is good news for developers, owners, and landlords, but the fact remains that some tenants can’t afford to lease property. Consequently, some municipalities have adapted by offering incentives to developers—and all parties agree that more can be provided. For inspiration, they’ve looked to other locales:
- Orlando and Pinellas County, FL, offer an expedited permit process for projects that contain all or partial affordable units.
- Fort Myers, FL, offers a Tax Increment Financing program to provide tax deferrals as an incentive to develop blighted neighborhoods.
- King County, WA, stipulates that any extra county-owned lands suitable for residential development be earmarked for affordable housing. Landholdings are reviewed annually.
- Montgomery County, MD, requires that any capital improvement project that included public facilities (library, train station, etc.) also be revaluated for adding affordable housing units.
- In 2017, Vancouver, Canada, initiated an Empty Homes Tax, sometimes known as a vacancy tax. The tax was designed to address a rental shortage with a sizeable number of vacant homes by encouraging owners to rent out their vacant properties.
- In 2019, Oregon became the first state in the nation to enact a statewide rent-control initiative—and it was accomplished through compromise. While rent increases were capped, the limit was set at 7 percent—above the 2 or 3 percent that many proponents advocated.
Could a compromise be the answer?
While each side debates the pros and cons of rent control, it’s fair to say there is no one-size-fits-all solution. What works for one city may not for another. There should, though, be an exploration of ideas that could work for all parties here in South Florida—and ensure that affordable housing exists for our residents. To learn more about what Morris Southeast Group can do for you now and in the future, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.
Tags: COVID-19, Real Estate Advisors, Rent Control, Tax Increment
