Rent control coming soon to Austin?

Question

Oregon is poised to enact statewide rent control.

https://www.npr.org/2019/02/27/698509957/oregon-set-to-pass-the-first-statewide-rent-control-bill

As anyone with access to modern communication devices is most certainly aware, our Austin city council is very bullish on affordable housing. They have also shown a propensity to jump on the bandwagon of issues perpetuating from the west coast. What do you think citywide rent control would look like here in Austin? What would the ramifications be on our community?

Aaron Gordy · Answer

I looked up the bill. It seems that its just bluster to look good for political purposes. The bill has set a cap at 7% plus inflation which was 1.9% last year. So that is actually a cap of 8.9%. Heck I wish that I could raise the rents up to that cap. It would be a party at my place in such a situation. Haha. Last year according to zillow, if that is an credible source, then Portland, Oregon had one of the highest rent increases nationwide and that was at 4.6%. If one factors inflation into that then the actual net increase of rent was 2.7% which is way below 7%. And if one remodels the property during vacancy one can raise the rent to whatever the market can bear. That is the way I understand it. I think its much ado about nothing...i hope anyway.

Aaron Gordy · Answer

@Chuck Holland Sometimes folks in politics do things that are irrational and illogical to get political points. That is my thought to that entire thing. If they really would like to do a rent control to screw the landlords then they would keep the rent caps right at the wage inflation rate so as to keep rents in line with the wages. And that would suck for me and many of my colleagues. Personally, I like the wild west and no control. Imo, the property tax issue in Austin is the biggest problem and more specifically the robin hood school tax system.

Alex G. · Answer

Overheard the tail end of this very conversation on the radio today. Most apartment syndicators in their Excel projections always show at least 3% annual rent increases built-in. That's their way to push up the NOI and the value of the property over the course of the ownership period. They need these rent increases to justify limited partners' capitial investment in the project. Investments in new construction of multi-family units are likely sold in a similar fashion.A lot depends on the implementation of the policy. If rent contol policy is put in place that doesn't allow them this kind of rent increases - the projects won't be viable to outside investors. The equity capital won't flow into a multi-family property class. Sales, rehabilitation of old buildings and new construction will slow down dramatically.And let's not forget property tax increases after a sale of a multi-family project (County will know about the sale). Tax hikes will zero out most of the current cashflow for a buyer. The only way for a buyer to justify ownership and have some cash flow is to improve the property and raise the rents.

Nina Hayden · Answer

Terrible idea! Well Rick Perry definitely knew business and made Texas a business friendly state. Look at all the businesses relocating to Texas. But Austin is very much liberal so I am sure this will be something that comes up eventually.

Joe Splitrock · Answer

My advice to investors in Austin is take action now. Contact board members, discuss the issue and make a counterpoint as to why rent controls would be bad. Propose other better alternatives. The problem is some politicians just don't understand business or investing. They are just reacting - rents are increasing fast, so cap rents. They don't understand that you need to address the underlying problem, which is costs and supply.

Stephen Stokes · Answer

This topic has come up previously in the Austin forum. Evidence shows that rent controls actually increase the cost of living; I would not put it past our city council to go for something like this but will only hurt new developments (supply). Ask yourself this; does the news of state wide rent increase cap of 7% + CPI make you more or less attracted to invest in rental property in Oregon? However, suspect much more likely that Austin large scale multi-family developers are at some point successful in overhauling the restrictive building code, permitting process, zoning rules, etc as have been the more focused effort (think codenext debate).https://www.businessinsider.com/does-rent-control-...

Beau Fannon · Answer

It took the state a year to overturn the ride-share fingerprint ordinance Austin enacted. If the city made such a push, its likely to take as long or longer to overturn. A year is a sizable chunk of the development cycle so such a hypothetical city ordinance could put the kibosh on many new projects.

Scott Mac · Answer

Hi Beau,An increasing number of Slums.

Jim D. · Answer

Exactly, seems to me that if Austin tried this, the state would just step in and legislate that localities cannot enact rent control policies, just like they did with Uber.The better approach as Stephen said is to overhaul the restrictive code. I find it funny when the rich people of Barton Hills, Hyde Park, etc whine about affordability while at the same time fighting tooth-and-nail against multi-family in their neighborhood, as they tear down their own house to put up some huge ugly mcmansion (and pay the fines to cut down a few "heritage" trees along the way).

Beau Fannon · Answer

Considering that CodeNext went down in very expensive flames, I doubt anyone on the council is willing to invest their political capital into restarting the process. It's easier for them to just ram through a new city ordinance and paint the state legislature as the bad guys when it gets overturned.