Rent Control Control Comes in Many Forms
Earlier this year, Oregon’s governor signed a bill into law imposing rent control across the entire state. The law, which went into effect the day it was signed (Feb. 28), is the first statewide rent control measure in the country. But it might not be the last.
Lawmakers in several states are aggressively trying to push rent control bills through their legislatures. If they succeed, it could have serious consequences for the manufactured housing communities in their states.
Though Oregon is the only U.S. state capping rents with a single, statewide standard, it’s not the only state that imposes rent control. According to the National Multifamily Housing Council, 17 states do not preempt their municipalities from enacting local rent control policies. However, in only four of those states are municipal governments actively capping rents. Those states are California, Maryland, New Jersey, and New York. In fact, during June, the New York state government passed a rent control bill that included rent caps and eviction protections for residents of manufactured homes. The remaining states prohibit or preempt rent control.
Why Rent Control?
The push for rent control is a reaction to the nation’s affordable housing crisis, which has two core causes. First, there’s the decline in production that started during the Great Recession. Second, the prevalence of student-loan debt burdens most first-time homebuyers today, according to Frank Bowman, executive director of the Illinois Manufactured Housing Association.
Municipal governments compound the problem with exclusionary housing policies, Bowman said. In order to prop up existing property values, they often restrict new housing — including manufactured housing. Also, local governments tend to develop office parks and retail spaces without housing needed by the workers those new businesses attract.
According to Bowman, the appeal of rent control is that it sounds like a simple solution. “If you think your rent is too high, just pass a law capping it.”
But the consequences of rent control are complicated. An abundance of national studies — from both sides of the political spectrum — make clear that rent control does more harm than good.
For starters, it limits the supply of affordable housing. Residents of rent-controlled housing tend to stay where they are, keeping that housing off the market. To make up for lost profits, owners of rent-controlled housing tend to raise rents on their non-rent-controlled housing. Or they turn rent-controlled housing into condos. Would-be renters end up competing for a shrinking market. And a shrinking market tends to raise prices.
“Economically, rent control makes no sense,” Sheila Dey, executive director of Western Manufactured Housing Communities Association, said. “But the problem is political. Economic arguments don’t work with a city council that has angry residents in front of them.”
Oregon May Be A Test Case
Oregon’s new law applies to apartments, manufactured housing communities, and other income-producing properties statewide. It caps rent increases at an annual rate of 7%, plus the Consumer Price Index (CPI). Since Oregon’s CPI is 3.3% in 2019, that makes for a rent ceiling of 10.3% for the year — a “very generous” limit, considering the average annual rent increase for the state’s manufactured housing lots is around 3.5, said Chuck Carpenter, executive director of Manufactured Housing Communities of Oregon.
But Carpenter believes the generosity is deceptive. It will be easy for future state governments to lower the rent limit — and he sees no reason why they wouldn’t.
The Oregon Legislature battled over rent control for two decades. But a recently elected Democratic supermajority pushed the new bill through both chambers “like a freight train”. And that was the hard part. Now that the bill is law, lowering the cap should be easy, Carpenter said.
“We will all regret the day they passed this bill,” Carpenter said. “It’s clearly a signal that this state is very hostile to property rights and landlords.”
Apartments Lead the State Conversation
There are roughly 1,200 manufactured housing communities in Oregon, containing about 60,000 lots. However, the push for rent control was driven by drastic rent increases in urban apartments. Droves of people are moving to Oregon’s larger cities, particularly Portland, contributing to the affordable housing crisis, Carpenter said.
Rent control proponents seem to think the new law will lead to the growth of more housing in the state, but Carpenter disagrees.
“In the long run, this will have a chilling effect on investors wanting to provide rental housing,” he said.
Carpenter thinks Oregon will become a test case. He knows other states are contemplating rent control measures of their own, and are watching his state closely. Manufactured housing groups in those states have no choice but to fight back, he said.
“My advice for other states is to keep fighting, keep educating legislators,” he said. “I hope other states do not adopt these policies. It’s a huge mistake.”
Illinois Rent Control, Chicago and Elsewhere
Like the rest of the country, Illinois is in the grips of the affordable housing crisis. The most consequential effects are being felt in Chicago, where rents are skyrocketing and neighborhoods are gentrifying, forcing many long-term residents to move, Bowman said.
In response, Chicago residents have pushed legislators to rescind a statewide ban on rent control and establish regional boards to cap rents. That effort was defeated in the Illinois Legislature in March. Bowman said a coalition of realtor, apartment owner and property owner associations, including IMHA, made “great headway”. The coalition was able to educate state legislators about the ill effects of rent control. But Chicago’s presence looms large in the state legislature. And rent control proponents will likely try again, Bowman said.
To Bowman, the obvious solution to the state’s affordable housing crisis is a greater supply of affordable housing. The greater the supply, the greater the chance that rents come down. Manufactured homes can be a crucial part of that solution, but they struggle with an image problem. Bowman attended a city council meeting earlier this year where business leaders said their workers need houses in the $100,000 to $150,000 range.
“We’re all over that. That’s our niche,” he said. “But that city excludes factory-built housing.”
Washington State to Heat Up in 2020
Statewide rent control in Oregon is a “disaster” for the housing business, said Craig Hillis, executive director of Manufactured Housing Communities of Washington. And because Oregon is right next door, there’s a good chance rent control will rear its head in neighboring Washington state.
The state of Washington currently preempts rent control, but Hillis expects a vigorous statewide debate on the topic in 2020. In the past year alone, the Washington Legislature has considered 106 housing-related bills. The impetus of all the activity is the affordable housing crisis, Hillis said.
The top impediment to affordable housing in Washington is the Growth Management Act, a statewide zoning regulation that strictly limits development. Competition for usable land is fierce, and manufactured housing, which doesn’t generate as much income as apartments or condominiums, is at a disadvantage, Hillis said.
“The Growth Management Act is a 20-year-old provision,” Hillis said. “It needs to be updated.”
What’s Happening in New Jersey
Rent control used to be a hot topic in New Jersey, but the controversy has waned over the years. Fewer municipalities cap rents compared to a decade ago, said Jane Chady, executive director of the New Jersey Manufactured Housing Association.
Chady couldn’t explain the decline but expressed her own opinion about rent control.
“If you study rent control long enough, you learn it doesn’t work,” she said.
Chady doesn’t think what happened in Oregon could happen in New Jersey — at least not to the state’s manufactured housing industry, which is dominated by communities.
“We’re an extremely tenant-friendly state,” she said. “Our rents are low compared to apartment houses. Nobody’s looking at manufactured housing here and targeting it for rent control.”
New Jersey isn’t immune to the affordable housing crisis, of course. It’s an extremely expensive state to live in, but its municipalities are obligated by law to emphasize affordable housing in their zoning regulations. The state also is considering a workforce housing bill to address the affordable housing crisis, Chady said.
“If we can get a little bit of zoning relief through this workforce housing bill, it’ll be a better solution than rent control,” she said.
Colorado Rent Control
An attempt to repeal the statewide rent-control prohibition and allow local jurisdictions to adopt their own ordinances died in the Colorado Legislature April 30.
Tawny Peyton is the executive director of the Rocky Mountain Home Association (Colorado’s state association) and the Utah Housing Alliance.
She said the latest push for rent control started before the 2018 midterm elections. Candidates for public office heard about the need for affordable housing on the campaign trail, and decided rent control was the best solution.
Peyton said the attempt was defeated with help from the state’s realtor, apartment, lender and manufactured housing industries.
But she expects another push for rent control next year.
To combat that and other attempts, she said the industry needs to be more proactive. It needs to focus more on communication and education rather than reacting to every bill. The public and lawmakers need to know that, in the long run, rent control does more harm than good, she said. They need to learn alternative ways to solve the affordable housing crisis, like relaxing zoning rules and boosting lending in the industry.
And there’s the perennial need to improve the manufactured housing industry’s image. The effort goes on to rid people of the stereotypes they hold about mobile homes.
In the other state she serves, Utah, Peyton said a push for rent control was possible, but so far state officials are looking at other ways to solve the affordable housing crisis.
California and Its Patchwork of Mandates
Statewide rent control like Oregon’s is bad for the industry. But at least it hits everywhere and everyone the same way, said Thomas Casparian, an attorney and partner with the Cozen O’Connor law firm.
Without the imposition of uniform rent control, you get a patchwork of different policies (or none at all) in every city and county. That’s the situation in California, Casparian said.
Patchwork rent control can distort the manufactured housing market in various ways. Local caps can limit annual lot rent increases to a paltry amount, which can drive the value of the homes sitting on the lots to “ludicrous” heights. Communities in rent-controlled municipalities are selling new manufactured homes for $400,000 and more, said R.C. “Dick” Bessire, president of Bessire & Casenhiser, a property management company. Bessire said he knows of an old beachfront mobile home in Oxnard that’s selling for $700,000 — because its lot rent is so low.
The State’s Focus on Manufactured Housing Controls
According to Dey, WMHCA’s director, 110 of California’s cities and counties apply rent control to manufactured housing communities within their borders. This is compared to only seven municipalities that apply rent control to apartments. Rent control in those 110 municipalities runs the gamut from full vacancy control (capping rents even after a tenant moves out of a home) to full vacancy de-control (allowing the landlord to set rents for new tenants at market value).
California’s Costa-Hawkins Rental Housing Act limits local governments’ ability to enact rent control. But the act doesn’t apply to manufactured housing communities. This makes the state’s manufactured housing industry particularly vulnerable because it can’t make a common cause with other rental industries, Casparian said.
Last November, California voters rejected a ballot initiative seeking to repeal Costa-Hawkins and expand rent control across the state. There might be more rent control legislation introduced in the near future, Dey said.
“There’s going to be a real fight,” Bessire said. “The governor is promising statewide rent control.”
California’s manufactured housing community owners might prefer statewide rent control to the current patchwork approach, however — if the statewide law ties rent increases to CPI and includes vacancy decontrol, Bessire said.