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Affordable Housing in the Wake of Oregon’s SB 608
Affordable Housing: State of the Nation
2018 saw increased fervor in the national conversation about rent control and the scarcity of affordable housing. On the East Coast, New York City has seen such quick population growth that builders and developers cannot build enough housing to keep pace. The story is similar in California, where an influx of tech workers and tech money has rendered cities like San Francisco unaffordable for many.
Going into November 2018, it looked like California might repeal the controversial Costa-Hawkins Rental Housing Act, a 1995 law that prevents municipalities from setting their own rent control laws. Opponents warned that the repeal bill, Proposition 10, might have unintended side effects, harming homeowners and multifamily owner operators alike. When the votes were all counted, while Californians approved another proposition aimed at providing housing for the homeless, they chose to keep Costa-Hawkins on the books.
Of course, the conversation about housing, in both the Golden State and elsewhere, continues. Recently, California’s new governor, Gavin Newsom, has made a point of calling out cities lacking affordable housing. Other lawmakers have proposed solutions of their own, including a bill known as SB-50, which would incentivize the replacement of single-family homes near public transportation with larger multifamily structures. It is unclear how California will finally address the problem, but Newsom and others have pledged to do so.
Affordable Housing in Oregon – SB 608
California is not the only state discussing or passing housing-related legislation. Last month, Oregon became the first state to pass a statewide law (Senate Bill 608) to govern and limit the ability of multifamily owners to raise rents and perform what are known as “no-cause” evictions. After Governor Kate Brown signed the bill into law on February 28, it immediately limited rent increases to 7% annually. The bill is somewhat limited: only units older than 15 years are applicable for regulation, and residents must live in a unit for more than a year to be eligible. Beyond SB 608, Brown intends to further alleviate the housing shortage by investing $400 million to build housing for Oregon’s veterans and homeless population, although the specifics of that plan are still unclear.
Rent control remains a controversial way of providing and protecting affordable housing. Proponents argue that test cases such as Santa Monica, which first passed rent control legislation in 1979, indicate policies that regulate rent are helpful to low-income families and households. Opponents argue that laws similar to Senate Bill 608 stymie development and decrease the overall pool of housing as new residences cease to come online, moving the burden of increased rents to middle-class renters whose apartments do not receive the benefit of regulation. There is no recent precedent in the United States for the stabilization of so many units all at once, so it is unclear how this new regulation in Oregon will play out in the long run.
So What’s Next?
Efforts to legislate affordable housing inevitably lead to heated and prolonged political battles. It took nearly two decades of activist fighting before Senate Bill 608 finally passed. Colorado, Illinois, and Washington are all currently contemplating similar statewide legislation, but don’t hold your breath for a quick passage. If history is any indicator, advocates have a long road ahead of them before any legislation passes.
One dynamic to watch out for is the impact of statewide legislation like this on multifamily investments. During the lead up to California’s Proposition 10 vote, some investors started to reevaluate their acquisitions strategies, looking to states with more relaxed rent controls. Thirty-seven states currently ban rent control outright, which could create a competitive atmosphere for investors with multi-state holdings. As for Oregon, investors looking to continue purchasing multifamily assets would do well to focus on Class A assets. Recent developments are not rent controlled under the current law and will remain market rate for their first 15 years as rentals.
One thing is certain: the fight over state-mandated rent controls is not going away. The real question is how will owners react? Will they fight back by pulling out of those states whom they deem as penalizing them, thereby pitting less restrictive states against those with tighter rent control laws? Or will they develop new strategies for profiting from investments in affordable housing? Time will tell.