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Year in Review: 2019

Rent Control Across the Country

In February, Oregon lawmakers approved some of the most stringent rent control laws in the United States. SB 608 capped annual rent increases at 7 percent plus the percentage increase of the Consumer Price Index each year. Unlike similar bills in other states and municipalities, SB 608 became law immediately, meaning Oregon has experienced some ten months of rent control for apartment buildings and complexes fifteen years or older.

So what, if anything, has changed?

Despite worries from multifamily professionals about decreased rents and an environment unfriendly to business, changes have been few. Investor interest has not waned in the Portland area. Property values have not dropped meaningfully and cap rates have stayed appealing. For investors in Oregon, the situation on the ground has effectively remained the same. Given that the average year-over-year rent increase in Oregon before bill was 1.9%, most owners have not and likely will not see an impact on their bottom line from the bill. Instead, the bill acts to prevent large rent hikes that sometimes occur after buildings change hands, a strategy

Time will reveal the bill’s full impact in Oregon, but for now, its biggest impact might be that it has set precedent for other states to institute similar legislation. Though New York and other municipalities have passed or discussed passing reforms in 2019, SB 608’s biggest impact lies just south of Oregon, in California. The Golden State passed its own rent control bill earlier this year. The California laws closely resemble those passed in Oregon, albeit with an even more conservative cap on year-over-year rent hikes: owners can increase rents by only 5 percent plus the Consumer Price Index.

FOR 2020: Institutional owners such as Essex Property Trust have accepted the new law as a relatively constrained alternative to stricter constraints. Expect more legislation next year as states and municipalities including Washington, New Jersey, and Chicago, decide what to do.

Opportunity Zones Deliver Mixed Results

The Trump administration launched the Opportunity Zones program to encourage investment in depressed rural, suburban, and urban areas throughout the country. Since its announcement as part of the Tax Cuts and Jobs Act of 2017, the administration has tinkered with the program, attempting to fine-tune it in an effort to attract capital and investment. Multifamily investors, attracted by the tax cuts involved, have committed to the program.

However, despite the program’s broad bi-partisan support and good faith use by many, the program has received criticism for allowing investors to abuse the program. Many Opportunity Zones lie in areas that have begun to gentrify. Some developers have used this fact to their advantage, producing luxury apartments for gentrifiers, rather than existing residents, while still capitalizing on the tax breaks. Going beyond that criticism, some have argued adding the “Opportunity Zone” designation to urban areas can in fact accelerate gentrification, annulling the benefits the investment should bring to existing residents. Due to these problems, some Democrats have suggested repealing the program, while some Republican senators have introduced legislation that would improve oversight.

FOR 2020: As further changes to the program pend, developers and investors would do well to avoid the program, especially as any investments made after December 2019 will see fewer tax breaks.

Tech Companies Tackle Housing Affordability

Indecision and inaction by local, state, and federal lawmakers continues to compound the ongoing national housing affordability crisis. Though meaningful legislation may someday create a nation-wide solution to the problem, private companies have begun to offer solutions of their own, with varying levels of success.

Some, including co-living executives, credit the rise of “co-living” directly to affordability problems. Co-living has come into its own over the last year, with companies such as Common attracting headlines and financing. The exact shape of co-living varies city to city and depending on the company involved, but generally caters to young professionals, offering rents lower than competing conventional buildings. These discounts are possible as bathrooms and kitchens generally serve multiple tenants, reducing overhead. This approach to providing (relatively) affordable housing has successfully created a crop of companies, and a public/private partnership in New York City, but time will tell if co-living has lasting appeal, given the trade-offs involved for tenants.

More familiar household names such as Apple, Google, and Microsoft have also entered the affordability space in California and elsewhere on the west coast. Each has made a variety of pledges, which range from donating land to creating funds to distribute low interest loans for builders and developers. Like co-living, time will tell if this intervention has any meaningful impact. Zoning restrictions, opposition from existing communities, and the sheer cost of construction in California and in other areas impacted by tech-driven rises in housing costs will prove to be difficult hurdles.

FOR 2020: Big Tech’s spend won’t displace normal investors or the need for legislative intervention. In the short term, expect more pledges from other tech giants, and more legislation aiming to lower housing costs across the country.


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