Rent Control Bad for Oregon

Rent Control and Restrictions State Wide – Senate Bill 608

Recently I posted about how the new restrictions on landlords in Portland, including longer notice times and relocation payments was hurting the small investor with a few rentals. Now the state legislature is pursuing very rapidly, a bill to ratchet this up and make it statewide. Not a landlord? – you will still be affected by this. Investment in rental property, construction of new apartment buildings, and the purchase of homes by investors seeking to rent them; have all contributed to the rebound of Portland’s Real Estate market after the great recession.  Any act that slows down investment in our Oregon economy is bad for all property owners.  In other parts of the country hard rent control, like is being passed in Oregon right now, has done more harm than good. Our leaders have not fully considered the consequences over several decades, and are looking only at the short term win of easing rent increases on current tenants and stopping no-cause evictions.  First I wish they would take 30 minutes and read the paper published in 2016 by the Portland State University Real Estate Studies department under the leadership of Gerald Mildner. 

Author: Mackenzie Kisiel

“Can Rent Control and Rent Stabilization Help Portland’s Housing  Affordability Problem?”

Ms. Kisiel outlines in this report examples of other states and municipalities that have tried this approach and some of the outcomes that occurred. Generally, the outcomes over the long term are more negative than positive, driving development dollars away from those areas with rent control in place, reducing the overall condition of many of the rental units in the controlled area, and third driving owners to convert existing rental units to owner-occupied properties (condo conversions for example)

Basic economics indicates that if some force restricts the income potential of an asset, then investors will take their capital and invest it in other assets. An overly simplified analogy is If the price of oil drops, oil company stocks drop too because they will get less income from the sale of their assets.  It’s a simple principle of a market-driven economy. Imagine if there was a law limiting the amount of profit a company that is publicly traded was allowed to make. We would immediately revolt as a country. And who would want to invest in the stock market, if you knew there was never going to be a year when you made more than 7%. That’s what will happen to rental properties across Oregon if this is allowed to become law.  It will reduce the overall investment by individuals and by developers in residential rental units in Portland, and across Oregon. 

So if you take away these investments being made now by both large and small entities, you remove one of the significant forces in our Real Estate market of the past 5 years or so of the recovery. Doing that will result in decreased overall demand and a much lower appreciation rate for all residential Real Estate in Oregon.  Portland finished 2018 with a healthy 5.3% annual increase in the average price of residential real estate sold through the RMLS.  A 3-5% rate of appreciation keeps the market healthy.  The vacancy rate in Portland has gone up significantly in the last year as more new housing units are completed in the core areas. Many more units and buildings are under construction. A drive through the inner eastside neighborhoods is an easy way to confirm this. The problem of rapidly escalating rents is already on the mend and we are seeing it taper off in all parts of the metro area. This bill is fixing a problem from 3 years ago and goes too far.  I’ll be surprised if there are not many lawsuits or a referendum to refer it to the people.  And it’s being rushed through with an “emergency” declaration attached to the title to make it go into effect immediately upon passage and signing by the Governor. 

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