Breaking Down the Biden Administration’s National Rent Stabilization Proposal

The title of this post was updated to reflect that the rent stabilization proposal is the Biden administration's, not an official Harris campaign proposal (corrected 9/12/2024).

In August, Vice President Kamala Harris, the Democratic presidential candidate, announced her support for the Biden administration’s proposal aimed at stabilizing rental housing costs. The proposal would limit annual rent increases to 5 percent for the next two years for existing units owned by large landlords if they want to continue receiving tax breaks available to rental property owners.

Proponents of the proposal say the law would help stabilize housing and protect tenants from displacement. But critics say the proposed law would make housing less affordable by reducing the incentive for landlords to provide housing, thus reducing the overall supply.

The success of this policy hinges on its design and implementation. Our new research shows that while rent stabilization increases the number of units affordable to residents with extremely low incomes, on average, it also reduces the overall supply of rental units. Landlords may choose to convert their properties into other more profitable uses or not enter the market at all (if the law imposes rent control on new construction, which this new proposal does not). This reduction in supply could then exert pressure on rental prices, and cause price increases for people not in controlled units. This points to a trade-off (PDF) between benefits for current residents of controlled units versus costs for all others. And, because access to rent-stabilized units isn’t based on income, there’s no guarantee that the newly affordable units would be occupied by tenants with low incomes.

Here we break down the specific elements of the administration’s rent stabilization plan and outline considerations to help federal policymakers design a policy that would maximize benefits for renters with low incomes.

How the rent caps are set

Oftentimes, rent stabilization price limits include a baseline factor tied to an inflation index, like the Consumer Price Index, plus an escalator such as 3 percent, which is meant to reflect that property management operating expenses can increase at a rate greater than inflation. A cap is usually set on this limit, such as 10 percent, to ensure that, in high inflation years, rents don’t increase at a rate that harms tenants. Sometimes, localities allow landlords to bank and later use unused increases, such as if a landlord is allowed to increase the rent 5 percent but only increases it by 3 percent, and then uses that unused 2 percent increase in the next year. This can help disincentivize landlords from increasing rents to the highest allowable amount for fear of lower rates of return in future years. 

The 2019 California Tenant Protection Act (A.B. 1482) , for example, limits annual increases to no more than the Consumer Price Index plus 5 percent, with a cap of 10 percent. Other places have rent stabilization boards that set the rent limit each year, but these limits can be influenced by who is in power within a jurisdiction, which can lead to uncertainty in the housing market and harm housing supply and rents.  

Setting the allowable rent increase to a set percentage can make it easy for tenants to know their rights under the law because it’s simple to calculate, but it may make it difficult for landlords to make reasonable rates of return in years when inflation is high.

Which buildings are subject to rent stabilization?

The administration’s proposal applies rent caps to units owned by corporate landlords, defined as landlords with more than 50 units in their portfolio, and includes an exception for new construction and substantial renovation or rehabilitation. Many places (PDF) set exemptions based on building size rather than an owner’s portfolio, but defining rent stabilization rules based on the size of an owner’s portfolio, rather than just the size of a building, helps capture (PDF) larger investors who own a significant number of single-family homes (PDF).

Exempting smaller landlords from rent stabilization is often meant to account for how smaller landlords (PDF) don’t operate with the same economies of scale as larger property managers, and that they often have smaller reserves and less administrative bandwidth than larger landlords. In addition, large landlords have shown (PDF) a greater propensity to file for eviction compared with smaller ones, so targeting rent stabilization policies to these large landlords may help reduce eviction rates. However, these studies usually set the threshold for defining large landlords as those with more than 15 units, much lower than the 50 units set in the Biden proposal.

Yet, large rent increases from small landlords can harm tenants in the same way larger landlords can, so exempting small landlords may not be the best for renters. As Shane Phillips notes in The Affordable City, by exempting small landlords from certain standards, policymakers are suggesting the financial return on a rental housing investment is more important than tenants’ well-being. In the same way environmental agencies wouldn’t exempt small-time battery manufacturers from safe toxic-waste disposal just because those requirements place a greater burden on them than on their larger peers, perhaps housing leaders shouldn’t exempt small landlords from rules that protect tenants’ stability.

How the depreciation tax breaks work

The proposal offers one major incentive for landlords that comply with the stated rent caps: it permits them to continue taking advantage of faster tax depreciation write-offs on their rental properties. Because the value of a rental unit building declines over time, depreciation allows the owner of a rental property to deduct a calculated annual share of that lost value from their income tax. The Tax Cuts and Jobs Act (TCJA) reduced the depreciation period for residential rental properties from 40 to 30 years, which provides rental property owners a larger annual deduction, and thus a tax cut.

The Biden proposal uses that TCJA rule as an incentive for owners to adopt the rent caps. Owners who comply get to keep the shorter depreciation period as an offset to the anticipated losses from the rent caps, while those who don’t must return to the pre-TCJA rules and pay relatively more in tax. The administration may be predicting this will motivate corporate landowners to abide by rent capping in exchange for continued tax breaks that can ease their anticipated losses from the policy.

Considerations to ensure a rent stabilization policy would benefit those who need it most

Before putting the proposal into action, federal policymakers will need to determine a number of other important components of a rent stabilization (PDF) bill, such as the following:

• Whether to allow for vacancy decontrol or enact vacancy control. Vacancy decontrol allows the landlord or property owner to increase the rent back to market rate between tenants, while vacancy control requires the rent limits to remain in effect in between tenants. Vacancy decontrol can incentivize landlords to displace current tenants or select more-mobile tenants in the first place to increase rents between tenants.  
  
  Many localities also enact just cause eviction protections (PDF) in tandem with rent control to reduce the likelihood that landlords will evict tenants to increase the rent, but landlords often find loopholes or ways around these protections (PDF). More recently, some localities have created partial vacancy control rules (PDF) that allow landlords to increase the rent up to a set rate higher than the rent stabilization increase limits. This can help to account for the costs of turning over an apartment while minimizing the incentive for landlords to displace current tenants to increase the rent. 
   
• Enforcement. Ensuring landlords are compliant is another key challenge (PDF) to implementing rent stabilization even at the local level, so the federal government would need to determine a tracking and monitoring system before enacting a rent stabilization regulation. Enforcement can range from reactive enforcement where tenants must know their rights and report violations (and risk retaliation from landlords), to proactive enforcement where the government collects data on all properties’ rents and monitors whether they are compliant with the law.  
  
  Proactive enforcement can reduce the burden on tenants to know their rights and report violations. But although proactive enforcement is better for vulnerable tenants, it can be very expensive, so considering the alternative uses of those funds and their benefits for tenants should be considered before enacting rent stabilization.  
  
  Along with rent increases, federal stakeholders will need to track how many units landowners hold to determine whether their units will fall under rent stabilization. It has become more challenging to accurately track a landlord’s portfolio, as large institutional landowners may own properties via smaller subsidiaries or limited liability companies, contributing to ownership obscurity. 
   
• How to avoid rent increases before the law goes into effect. The two-year limit on the rent stabilization proposal means these rules won’t have much time to affect rents. And, landlords may increase their rents right before the law is implemented, as some evidence suggests happened before Oregon’s rent stabilization law went into effect (PDF), and then raise them again after the two years. To avoid such increases, the federal government could extend the period for required rent stabilization and set the base rent at the rent from the previous year, like California lawmakers did when they enacted their statewide rent stabilization law.

To help increase the likelihood that a national rent stabilization policy helps increase housing stability for people with low incomes, the government will need to carefully design and implement the law while investing heavily in comprehensive monitoring protocols. Research partners, both at the national and local levels, can be instrumental resources in ensuring this is done effectively.