In March, Oregon became the first state in the country to pass rent control legislation.  Let … me … repeat … that … Oregon became the first state in the nation’s history to pass a rent control bill.  Other states have previously allowed rent control legislation on a city-by-city basis, but no state had previously mandated rent control on a statewide basis.  This is just the beginning and the implications are startling.  Professionals in the industry believe that Oregon will be the test case for such policies and other states will wait to see the financial implication of such a decision.

The main part of the law provides that landlords can only raise rents once a year, and when they do, rent increases are capped at 7 percent plus the yearly change in the consumer price index.  Therefore, it doesn’t matter what is going on in the market, it doesn’t matter how much a landlord may have invested that year to repair or upgrade the property, the state is controlling the amount of money the landlord can charge.  Now this doesn’t apply if a landlord renovates a unit and then starts a new lease, but it definitely would deter landlords that want to improve a property while the tenant is in it.  There is no benefit to a landlord to spend money on a rental with a resident in it, in the hopes of keeping that resident and increasing the rent.

This bill not only limits what a landlord can increase the rent when a lease expires, it bans no-cause evictions after the first year.  No-cause evictions are simply evictions that are filed because the lease expired and the landlord didn’t want to continue leasing to that tenant.  A landlord must have a qualifying reason for wanting to terminate the lease, such as the desire to move into the unit or renovate it.  Further, when such action is taken by a landlord and they give a notice to the tenant that a tenant must vacate, they have to pay the tenant to move.

The fact that this is done on a statewide basis, is incredibly significant.  Now, landlords can’t buy rentals in surrounding suburbs and hope that their residents will travel into the city.  Everywhere in the state of Oregon is impacted by this law.  While the bill was in the Oregon legislature, there was talk of exempting cities under 150,000 and having the bill not take effect until 2020.  These suggestions were rejected and the bill has now become law, which will be effective later this year.

It is largely accepted among economists that controlling rent prices, decreases the supply of rental housing.  It goes back to basic economics.  While your author does believe that there is an affordable housing problem in the country, the solution is to create policies more favorable to development, high-occupancy residences and affordable housing.  If governments provide more funding for affordable housing projects, more affordable housing will be built.  I have spoken to large operators who believe that in the coming year, Oregon will see a significant decrease in the number of new units being built, further constricting supply.  We will all have to wait to see what the numbers actually show.

By Mark B. Zinman