The Promise and Limits of Biden’s Rent Cap Plan

On a trip to Las Vegas, where rents climbed twice as fast as wages last year, U.S. President Joe Biden is pitching a plan for national rent stabilization—sort of. The plan wouldn’t directly cap rents—despite a growing freakout from the lobbying groups that fight tooth and nail to oppose rent controls—and it would need the approval of Congress.

But while acknowledging its limitations, tenant organizers and advocates see Biden’s announcement as a rare acknowledgement that the federal government could wield its vast power to shape the housing market on behalf of tenants.

The announcement is one of several populist economic policies Biden has recently endorsed as progressives like Sen. Bernie Sanders (I-Vt.) circle the wagons around the embattled president while making the case that his path to victory lies through pro-working-class policy. Rising rents are a key driver of inflation and a top concern for voters in battleground states like Nevada.

Since the 2008 financial crash, growing consolidation in the rental market has helped facilitate the largest transfer of wealth from tenants to landlords in U.S. history, with federal financing greasing the wheels.

Tenant organizers see the proposal as both a partial measure that kicks the can down a road that could dead-end come November—and a political victory.

“As recently as a few years ago, we were being laughed out of rooms—rent regulation was a third-rail policy idea,” says Tara Raghuveer, director of the National Tenant Union Federation. As policy messaging, “it’s hard to overstate how significant the shift is.”

Rent control is still fairly rare in most of the United States, thanks to a nationwide industry campaign, beginning in the 1980s, to preempt its adoption at the local level. Mark Paul, an economist at Rutgers University who has urged a rethinking of the conventional economic wisdom against rent control, praised Biden’s announcement as a step in the right direction. “We have policies in place that have helped build the middle class through federal support for housing,” Paul says. “However, that federal support for housing is really only applied to the segment of Americans that can afford to own a house.”

Under Biden’s proposal, landlords who own more than 50 units would face a choice: Cap rents at 5% annually, or lose access to a coveted federal tax write-off, relied on heavily by former president Donald Trump in his real-estate dealings, that allows property owners and investors to deduct the depreciating value of their assets. (“I love depreciation,” Trump said during a 2016 presidential debate.)

Such tax breaks are the lifeblood of corporate real estate speculation. Longstanding policies like the depreciation writeoff and the mortgage interest rate deduction were sweetened even further by the Trump administration’s staggering tax cuts on “pass-through” entities that typically own rental properties. In the red-hot pandemic real-estate market, those tax benefits became a prime selling point for new real-estate firms attempting to lure investment in their acquisition deals. One Massachusetts-based firm that has snapped up large apartment buildings in cities like Atlanta and Phoenix boasts in its marketing that multifamily real-estate investors can end up paying little to nothing in taxes.

Given the slim chances of passing rent caps through Congress, no matter November’s outcome, Paul thinks the Biden administration could do more now to demonstrate his commitment to combating unchecked corporate power in the housing market.

But tax breaks aren’t the only way that federal housing policy props up speculators—or the only lever that the Biden administration, if it’s serious about addressing the cost-of-living crisis, has at its disposal. Since the 2008 financial crash, growing consolidation in the rental market has helped facilitate the largest transfer of wealth from tenants to landlords in U.S. history, with federal financing greasing the wheels.

In the aftermath of the 2008 financial crisis, mortgage giants Fannie Mae and Freddie Mac, along with the Department of Housing and Urban Development, aided and abetted the rise of a new breed of Wall Street landlords by selling them pools of delinquent loans on single-family homes—despite warnings from housing advocates that the buyers weren’t interested in helping homeowners stay in their homes. Reporting by ProPublica found that after 2015, Freddie Mac helped fuel a buying spree of multi-family apartment buildings by private equity firms eager to take advantage of rock-bottom interest rates. More recently, Freddie has worked with groups like Arbor Realty Trust, a key financier for small-time speculators that’s reportedly under probe by federal prosecutors over its lending practices. When corporate landlords move into communities, they often bring with them aggressive eviction policies, lax upkeep, and considerable market power to hike rents. Raghuveer’s group has a corrective in mind: Condition federal financing for landlords on rent caps and tenant protections.

The campaign had a major win this spring when the Biden administration announced a plan to cap rent increases at 10% in housing subsidized by federal low-income tax credits. Now the campaign has set its sights on Fannie- and Freddie-financed properties.

The push to attach strings to these federal dollars has provoked blowback from industry lobbying groups like the Mortgage Bankers Association, which urged the Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, not to violate the “sacrosanct” relationship between landlords and tenants by acting as an intermediary.

But more than 30 economists, including Paul, backed the idea in a 2023 letter to the FHFA, making the case that the debate surrounding rent regulation is undergoing a sea change similar to the minimum wage in the 1990s, when a series of empirical studies found—contrary to doomsday prophesying from big business—that wage hikes were not leading to job losses.

The economists’ letter points to evidence from New Jersey suggesting that rent controls did not drive down new construction, as opponents argue. Nor did Massachusetts’ repeal of rent control in the 1990s lead to a housing supply boom.

Given the slim chances of passing rent caps through Congress, no matter November’s outcome, Paul thinks the Biden administration could do more now to demonstrate his commitment to combating unchecked corporate power in the housing market. He points to an announcement just last week from FHFA requiring modest new tenant protections in federally financed properties. The move shows “the FHFA has the authority to regulate these types of properties,” he says. “I would like to see them go a step further and utilize that same rulemaking approach to deploy rent control.”