Could Rent-Control Initiatives Be Another Factor Causing Multifamily Investors To Stop Building?

The perfect storm continues to crash into multifamily property owners, investors and landlords. 

While high-interest rates have slowed new builds and the ability to make property improvements, a wave of rent control debates and laws are poised to possibly shrink their profit margins. 

Rent control, also referred to as rent stabilization, seeks to limit a landlord's ability to raise rents and has been a huge source of debate this summer in cities and counties including, Seattle, New York City, Santa Ana and Santa Monica, California, Montgomery County, Maryland, Boston and the Twin Cities in Minnesota. 

National landlord advocate and multifamily investor attorney Matthew Paletz said rents have gone up in the past few years but blames factors beyond what his clients can economically control. 

"Clearly, there still is a shortage of affordable housing in the country, but what we need is to do more to promote the construction of more inventory. In doing that, we need not demonize the ability of these investors and landlords to make a profit," he told Benzinga. "We need measured regulation and an understanding of the increased cost of building, including labor and materials. The biggest poster child of all of this has been the Twin Cities." 

In the fall of 2022, 53% of St. Paul voters approved a ballot measure capping rent increases to 3% in a 12-month period. In May, the Minneapolis City Council narrowly voted down a plan to put rent control on the November ballot. That vote is being questioned because it was taken without the participation of three Muslim council members who were off observing a religious holiday. But rent control and tenant activists in Minneapolis are threatening to keep the issue alive. 

Paletz, who owns and manages Paletz Law in the Detroit area, says any city that enacts rent control over private property only hurts itself by limiting its tax revenue and by giving multifamily investors more reasons not to build in their community. "It's economic myopia on the path to municipal self-destruction," he said. "These are well-intentioned but disastrous policies that have never had any historical proof of success. Builders, housing operators, landlords and property owners should not have to feel demonized because they want to make a modest profit from their investment."  

But plenty of tenant advocates feel rent control is essential to show those who can't afford to own their own housing that their situation matters. 

"There is a pretty foundational bias against renters in American sociological and political life," Jamila Michener, a professor of government and public policy at Cornell University, told The New York Times. "So when policymakers say, ‘Hey, this is an identity that's relevant and one we are willing to own and lean into,' that's significant."

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