Later today we’ll find out whether proposed rent control legislation will live or die. In this guest post by Spencer R. Clark, Vice President of Investments at Marcus & Millichap runs down what happened early this week in the Senate committee that considered the repeal of the preemption of rent control. If the legislation does not move out of a committee today, then the repeal effort will have failed. 

“What’s going on here today?” a passing bystander asked, surveying the crowd gathered outside of Public Hearing Room 3 in the Washington State Capitol. “Must be a hot one.”

On January 30th, a sizeable crowd gathered to testify at the public hearing of Senate Bill 6400, a proposed repeal of the 1981 rent regulation ban. Landlords, developers, renters, real estate brokers, LGBTQ advocates, Seattle councilmen and women, government employees, in short, anyone and everyone who could have an opinion on the subject came to weigh in.

Here’s a summary of what’s behind SB 6400:

Supporters argue that affordable housing is a human right and necessity. The current rental market, especially in the Puget Sound Region, but also elsewhere in the state, has become inhospitable to the most vulnerable members of our society, including, but not limited to the elderly, disabled, people of color, women, immigrants, and members of the LGBTQ community. This inaccessibility hurts small businesses, causing employees to find housing far from their workplace and spend less money on local business. Furthermore, the rising living costs contributes to the growing homeless population in Washington State. Senate Bill 6400 moves to repeal standing statewide law that bans rent regulations and instead delegate the decision to cities, towns, and counties.

The legislation that SB 6400 would overturn RCW 35.21.830, which was introduced on the same ballot as Ronald Reagan’s presidential candidacy, passed in April 1981, prohibiting the rent controls for single family or multiple unit residential rental structures, besides those properties publicly owned or managed.

If the arguments in favor can be boiled down to a collection of first hand stories about underprivileged people being pushed out of Seattle by rent hikes, then those is support of standing law are based on the unintended consequences of repealing the law, consequences that would make housing prices worse and the argument that there are better solutions.

Opponents of SB 6400 made these points at the hearing:

• Inevitability: If we pass this ordinance, Seattle City Council will inevitably institute rent controls. Passing SB 6400 is not just “starting a conversation” as opponents suggest. Make no mistake; its implementation in Seattle is guaranteed.
• Unintended Consequences, Part A: Rent control harms the same people it intends to help. Units will fall into disrepair, because owners will be unmotivated to spend the money to improve the property. Developers will not build new units, because they won’t be able to make a profit.
• Unintended Consequences, Part B: Rent control harms small landlords who aren’t charging unfair prices. As operating costs and property taxes continue to rise, more small landlords are choosing to exit the rental market. If you add rent control to the mix, the costs outweigh the returns for landlords who will convert the units to condos and sell to protect their financial investments. SB 6400 aims to punish big developers, but it will create unintended consequences that neither side wants.
• Bad precedent: San Francisco and New York City, both of which control rents, serve as ample warning against allowing rent control in Seattle.
• Alternative Solutions: a) Better tax incentives for developers to build affordable units and B) repealing the Growth Management Act to allow for more density would encourage development and keep rents down.

Roger Valdez, Director of Seattle for Growth, pointed out that the tax incentives are working — 2,000 new affordable units came online in the past year because of the incentives. After the hearing, Valdez provided some historical context. “This issue usually presents itself when the market is heating up. The last time we saw a push for repeal of the 1981 ban suggested was in 1999 during the dot-com boom. Representative Judy Nicastro began pushing for rent controls, but the efforts faded away as the economy cooled off in the wake of 9/11.”

If we are anywhere near the height of this economic cycle, it can be expected that the demand for rent control will subside in time as we saw in the last cycle.