President Joe Biden has announced a new proposal to lower housing costs for renters by calling on Congress to pass legislation pulling lucrative federal tax breaks from corporate landlords who raise rent by over 5% a year.
Under Biden’s plan, large landlords with more than 50 units in their portfolios — a range covering over 20 million units nationwide, according to the White House — would only be able to take advantage of tax credits based on property depreciation if they hold annual rent increases under that 5% threshold.
If passed, the plan would begin this year and last for the next two years. To incentivize the building of more apartment homes, new construction would be exempt from the rent caps, as would buildings undergoing significant renovation or rehabilitation.
A statement from Biden claimed that the proposal is “sending a clear message to corporate landlords.”
“Families deserve housing that’s affordable — it’s part of the American Dream,” Biden said. “Rent is too high and buying a home is out of reach for too many working families and young Americans, after decades of failure to build enough homes. I’m determined to turn that around.”
Stubbornly sticky shelter inflation, especially on the rental side, has not only been a big problem for renters who have been spending an outsized portion of their incomes on housing, but has also been holding back the taming of inflation. While the most recent Consumer Price Index (CPI) data was encouraging, even on the shelter front, housing inflation continues to exceed total inflation on a year-over-year basis.
With the election mere months away, it’s unlikely that a partisan Congress will pass Biden’s proposal. Bob Broeksmit, president and CEO of the Mortgage Bankers Association, voiced his staunch opposition to the proposal and suggested that pushing it so close to the election was a political move.
“Increasing the supply of affordable rental housing nationwide — not politically-motivated and self-defeating rent control proposals floated during election campaigns — is the best way to alleviate affordability constraints for renters,” Broeksmit said.
“There are endless examples in localities in America and around the world that prove that rent control is a counter-productive policy idea that ultimately harms renters by distorting market pricing, discouraging new construction, and degrading the quality of rental housing. While the odds are stacked against this proposal ever passing Congress, a federal rent control law would be catastrophic to renters and our nation’s rental housing market.”
LendingTree senior economist Jacob Channel was somewhat more positive on any potential impacts, although he noted that the proposal’s reach may be limiting.
“This plan could help reign in rising rent costs, though it certainly won’t be a cure-all. It would only impact about half of the rental market, and even landlords who could lose access to tax breaks because it will still technically be free to raise rents by however much they want, assuming they don’t care about tax breaks and aren’t violating any laws (including local rent regulations).”
Ultimately, Channel said, a meaningful increase in inventory would be the biggest salve for the market’s current affordability ills.
“In truth, without building more housing units (especially in major urban areas), prices and rents are likely to remain high regardless of whether or not this proposed legislation comes to fruition,” he said. “Building more homes is arguably the single best way to combat high housing costs.”
