Is Rent Control on the Horizon?

After the election in November it has become clear that the state-wide ban on rent control will likely be overturned in Oregon. For landlords, just the words “rent control” strikes fear through their hearts. In Portland, rents are finally leveling-off and the real estate market is generally cooling. Adding rent control measures will likely add volatility to an already un-certain market. However, it is important to keep in mind that there are often new opportunities when ill-advised sweeping changes occur.

The biggest question is what will rent control look like? Based on a recent article in the Willamette Week, one aspect of proposed restrictions on the rental market include rental caps of 7% plus inflation. Rent increase restrictions will not mean a collapse of the rental market. In fact, with the market currently cooling the effects of any new laws or ordinances in regards to rent increases might not be truly felt until the next market cycle. I don’t predict rents to increase much beyond inflation anywhere in the Portland-Metro area this year. Furthermore, if you are underwriting the purchase of a rental property and you are predicting 7% rent growth over the holding period, we need to have a serious talk about your blue-sky expectations.

For small-time landlords the most expensive cost of rental property beyond property taxes is turnover. In other words, vacancy is very expensive. And if a landlord owns say, 4-6 units, a unit being vacant for a month really cuts into their bottom line. If rent control creates a situation where many units in Portland are eventually rented at below market rents, the leasehold advantage of the tenant could become so much that there is an incentive to remain in a unit. Over time, these discrepancies between actual and market rents will grow ever wider and lead to less and less vacancy, thus eliminating some significant cost/downside risk to landlords.

Is rent control good for the tenants? Yes and no. It discourages home ownership and I would predict many renters will forgo purchasing a home since they have such a good deal on their rental. But the flip side is these tenants never get on the property ladder which is one of the few ways the middle class can build real wealth and stability. 

I promise to follow what is happening in Salem and congruently what is happening in Portland in regards to rent control.  I think Portland rental property will remain a great investment vehicle going forward. Some investors might get spooked and reposition themselves, so I’ll be watching multifamily inventory as things progress in Salem. I don’t blame investors moving to what many would consider safer markets, but Portland will likely remain a great rental property investment with or without rent control measures. 

Want to know more about the opportunities I see in the investment market this year? Give me a call or shoot me an email. I see a very clear and profitable path forward.

 

 

Posted on January 6, 2019 at 8:36 pm
Tyler King and Carmel Siler | Category: Information for Investors | Tagged , , , ,

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