The Biden administration has taken heed of our national housing cost crisis via the rollout of policies that will, among other things, repurpose unused federal land for housing construction, an excellent idea. It will also push Congress to pass a law requiring landlords with 50 or more units to cap rent increases at 5% annually in order to receive federal tax benefits.
This might have a bit of the feel of national rent control, but it is not. Here in NYC, where we have a rent control and stabilization system, we’ve seen how those well-intended policies have more than a few detrimental knock-on effects. These involve some complex macro-level economic dynamics, but rigidly capping rent increases for just some subset of the housing stock means that people are very unlikely to leave these units, making the rest of the unregulated units effectively compete against a smaller pool of housing.
Property owners accordingly subsidize their regulated units by raising rents on the unregulated ones. Investing the huge capital costs associated with producing new housing gets riskier and less attractive when a developer knows that units will be capped, especially if they won’t be able to recoup maintenance costs through rent raises. A lot of these effects tend to only get worse with time, as the regulation keeps holding down in comparison to now-inflated market rents.
During World War II, the federal Office of Price Administration kept rents down nationally. When the war ended, New York continued the caps, which has distorted the local housing market ever since, even though there have been some modifications over the decades. Biden is not calling for anything like that, which would have zero chance of passing Congress. The president just wants to add a condition in exchange for receiving depreciation benefits from the IRS.
If a landlord wants to have a rent increase of more than 5%, that is fine, but he would have to relinquish the tax break. The choice is his. This approach thus doesn’t manipulate the market into artificially low and high sectors.
The proposal threads this needle by building in the annual hike of 5%; going beyond that wouldn’t be prohibited, but would simply jeopardize tax breaks. Corporate landlords who have been all too happy to take the government cash and not apply the savings to keeping rents increases reasonable don’t need the public money.
Ultimately, the best remedy for high rents is additional housing stock, and if there are some troves of unused federal land, there’s no real reason not to use it to address this nationwide crisis.
An early marker of feasibility and success will be the Bureau of Land Management’s effort to sell hundreds of acres of land below market value in Nevada for the purpose of developing affordable housing. Additional potential sites for housing and shelters will include those currently held by the U.S. Forest Service, the Departments of Transportation and Health and Human Services and the Postal Service.
The feds should work with local governments to ensure the use of this land for housing at different income bands is ironclad and it doesn’t just get siphoned off for other uses, and is dedicated to building homes for Americans.
