Oregon recently became the first state in the nation to enact statewide rent control and restrictions on tenant evictions. Senate Bill 608 was signed into law by Gov. Kate Brown on February 28, 2019, taking effect immediately.

Senate Bill 608 sets the maximum that a landlord may increase a tenant’s rent at 7% plus consumer price index (CPI) during a 12-month period. This unprecedented statewide cap applies to month-to-month and fixed-term tenancies, with exceptions for new construction and regulated affordable housing. At the beginning of a new tenancy a landlord may re-set to market rent.

In addition to restrictions on a landlord’s ability to increase rent, Senate Bill 608 restricts a Landlord’s ability to terminate both month-to-month and fixed-term tenancies. After the first 12 months of occupancy a landlord may only terminate a month-to-month tenancy for cause, either tenant-based or landlord-based. If terminating a tenancy for a landlord-based cause, the landlord must give a tenant 90 days’ notice and provide relocation assistance in the amount equal to one month’s rent. Landlords with four or fewer units are exempt from paying relocation expenses. SB 608 further provides that a fixed term tenancy automatically converts to a month-to-month tenancy if not renewed or terminated.

Supporters of the bill argue the new restrictions will provide relief to tenants facing rising rents and limit displacement from landlord evictions in what has been declared a statewide “housing crisis.” However, research on rent control has shown that where legislation works against market forces by setting a cap on what a landlord may charge the impacted communities tend to see stagnation in the market. Where rent control has been enacted, tenants are encouraged to stay in their unit even if their housing needs have changed in an effort to secure their below market rates and markets have seen a reduction in the availability of rental units.

The government’s efforts to preserve housing affordability distort the economic incentives that are otherwise present in the rental market. Landlords are disincentivized from maintenance and repairs that may otherwise be a priority. Individual ownership of rental properties may decrease due to added costs associated with the restrictive parameters of the new law. In the aftermath of SB 608 Oregon could see property owners moving their investments to alternative markets as the benefits of owning property in state are now outweighed by the drawbacks.

Investors: What is your new game plan?