Oregon is on track to pass SB 608. This is a bill that will prohibit landlords from raising rents in the first year of the resident’s tenancy and also caps rent hikes at 7% annually plus inflation. This targets rental properties that are 15 years or older only, unless they are part of the governments housing project (of course).
Oregon currently has Democrat majorities, so it’s nearly guaranteed to pass at this point.
Consequences of Rent Control
Have we forgotten nearly all the economic ramifications of rent control?
New properties are not erected.
Small time owners no longer stay/get in the rental market.
Existing small time owners leave the market.
Landlords change their rentals into other types of properties (suites, offices, condos, etc).
Distortion of pricing signals.
Increased rent upon eviction/tenancy vacancy.
Pushing low-income further out of the market (See San Fran & New York).
Destroyed buildings due to landlords unable to financially support fixing/repairing them.
Increased slum lords.
All of these issues happen because of rent control. Oregon is playing with fire with this bill.
Additional Oregon-Related Grievances
Not only is Oregon set to pass this rent control bill, but the actual rent control aspect of it is completely moronic.
It is a 7% cap currently. Very few landlords raise rent above this level, anyway. Especially if you include inflation.
On top of that, it does not impact buildings newer than 15 years. So this just incentivizes big players (REITs, property management companies) to take over everything.
Small time landlords and smaller companies will be pushed out of the market. The only ones that will be able to generally survive and continue making an affordable profit will be those mega-corporations. These activists that are against the free market are unwittingly doing the bidding of the oligarchs they hate so much.
Let’s face it: older properties need the most work and hence would need the higher rents to justify that cost. Yet, they are capping rental increases on those buildings and letting the easier to maintain buildings go by un-rent capped. Where is the logic in this?
These new developers are free to take a brand new building and increase the rent however they deem fit. This just makes it so that these property corporations will rule over all property and are going to crowd out any smaller time landlords.
The only other ones who will thrive in this climate are slumlords. The same individuals who will do the minimum required by law and increase rents by the max allowed by law.
These are the types that will be forced to hedge their bets as well. If it is at 7% now, it’s likely gov will interfere as this plan will fail spectacularly. So then maybe 5% cap, and then a 3% cap, etc.
So anyone with a brain that has housing will immediately start raising them by the max allowable by law every year to hedge their rent to the max. They must do so prior to even more stringent government interference and lower caps. This only hurts tenants more, and will drive housing prices a lot higher until Oregon has no choice but to lower their stupid 7% cap to something lower. The same that has happened in other cities where they tried this garbage.
Not to mention the dangerous fact that property taxes and housing bonds are raised yearly, which is a fixed cost the owners must cover regardless of how much the government interferes with the free market. And these historically have been around 6%. This means that property owners have a tiny margin to work with (7%+inflation—6%) for however long until the government decides 7% is too high.
At the end of the day, what this is, is a bill that negatively impacts the housing market across the entire state for an issue that is only present in maybe one or two cities.
Bomb Damage or Rent Control
Which is worse: bomb damage, or rent control?
The Mises Institute has a great article by Pace University economist Joseph Salerno that showcases a video lecture on prices. In the video, he offers visuals and asks the audience if destroyed urban areas are the results of bombs or rent control. It isn’t easy to tell.
Here is an example:
Answer? That one is rent control.
They even say in the article:
It isn’t easy to tell, but the lack of difference suggests a tragic but predictable irony. When a city is bombed, it is destroyed by people with evil intentions. When a city is subjected to rent control, it is destroyed by people with good intentions.
This will only end badly over the long-term for Oregon residents. Especially those with low-income and the small time landlords.