Multifamily Cap Rates Rise as Rent Control Gains Momentum

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NEW YORK—Rent control has become a highly-charged issue in many cities and states. Oregon and New York have passed measures placing caps on rent increases; California is considering a similar measure to name a few examples.

Indeed, housing affordability is a serious issue but rent control may not be the best way to address this concern, concludes an analysis by Real Capital Analytics. Already, writes Jim Costello, new demands for rent control are repricing assets in a way that may lead to loan defaults and lower housing availability over the long run. Namely, he writes, “Investors and lenders are repricing assets in markets where rent control exists or is being introduced.”

Costello examined 58 US markets and found that in the 10 out of the 12 cities where some form of rent control has been introduced, apartment cap rates have increased over the last year: an 83% share. In the remaining markets, only 19 out of 46 markets have seen cap rate increases: a 41% share.