A coalition of high-profile housing providers, resident and lenders’ associations say rent control could increase rent, reduce the capital to boost housing supply and hurt renters.
The letter was in response to a request for input issued by the Federal Housing Finance Agency (FHFA) in May regarding protections for tenants in Fannie Mae and Freddie Mac-backed multifamily properties. It followed a Biden administration initiative launched in January urging housing providers and local governments to combat soaring rents.
On Thursday, 18 associations for housing providers, lenders and residents sent a letter to the FHFA Director Sandra Thompson in which they oppose the inclusion of mandatory rent control and rent stabilization policies as a condition of the government-sponsored enterprises (GSEs) financing for multifamily properties.
The group included the Mortgage Bankers Association, National Association of Home Builders, National Association of Realtors, National Multifamily Housing Council and the National Housing Conference.
A February 2022 study found that 27% of firms surveyed would be willing to keep their current investments or add new ones in rent-controlled markets, the groups said in a statement, without offering further details.
The FHFA said in a statement that the agency “has taken robust actions to support and promote multifamily tenant protections” and “routinely engages stakeholders, Congress, and the public regarding concerns on this critical topic.”
The agency is reviewing more than 3,600 comments, the FHFA stated.
The comment letter argued that rent control programs usually incentivize current renters to stay for longer periods, limiting opportunities for other prospective renters. It would be contrary to Fannie and Freddie’s mission to create more affordable housing for low and moderate-income residents, they argued.
The MBA, representing lenders and servicers, said in a recent letter to the FHFA that adding tenant protections to a GSE-guaranteed mortgage is not a “workable or lasting solution.”
Enterprise multifamily loans can have terms as low as five years with a balloon payment at maturity, and often borrowers pay off the loan before the end of the term.
“Enacting new or expanded obligations, like rent control, would disincentivize participation in the Enterprise multifamily programs or in the overall production of affordable housing,” the MBA said in a statement. “The most effective way to help renters in need is to increase the supply of affordable housing by fully funding successful, proven programs like Section 8, Low-Income Housing Tax Credits, and more.”
Manufactured housing is a concern
The discussion on rent control policies, however, has its nuances.
Jim Gray, a senior fellow at the Lincoln Institute of Land Policy, said rent control, in most cases, is not a solution for affordable housing problems. Among them is the recent phenomenon of “predatory investors” buying up large numbers of single-family properties and quickly imposing significant rent increases, which affected manufactured housing communities with concrete pads.
“When land rents are raised unreasonably — often because the investor knows the homeowner can’t afford to move her unit — this is a very different situation than what’s addressed in most of the studies we’re aware of on rent control,” Gray said. “We think the market has changed in a way that there are circumstances where limitations on rent increases may be good public policy.”
Currently, Fannie Mae and Freddie Mac finance Manufactured Housing Communities (MHCs) – where residents own their homes and lease the pad on which the house is situated – only when the owner offers protections to tenants, the FHFA said in the RFI.
These protections include renewable lease terms, advance notice of rental payment increases or sale of a manufactured housing community, and rights regarding the sale of their manufactured homes.
The Lincoln Institute of Land Policy also sent a letter to the FHFA, with other four organizations, including the American Council for an Energy-Efficient Economy, Housing Assistance Council, Local Initiatives Support Corporation and Prosperity Now.
The group recommended that Fannie Mae and Freddie Mac explore additional options to strengthen their protections by retaining the 60-day advanced notice period for a planned sale while establishing a 180-day notice for planned closures. “We also recommend that tenants, nonprofits and public entities have the right to match any MHC purchase offer within 180 days of when an MHC with an Enterprise-backed loan is sold.”
The organizations suggest that FHFA should set forth measures to prevent landlords from refusing to rent to someone because of their source of income; require notice at least 30 days before rent increases; eliminate unnecessary fees that prevent tenants from applying; and establish just-cause requirements to prohibit landlords from evicting renters for specific discriminatory reasons.
A federal government push
In January, the White House launched the ‘resident-centered housing challenge,’ which urged housing providers and local governments to step up their policies to protect tenants as rent prices soared.
To illustrate the challenge, a recent Redfin report showed that the U.S. rental market has been slowing for over a year, but the median asking rent in June of $2,029 was not far off the record $2,053 in August 2022.
According to the White House, roughly 35% of the U.S. population — or over 44 million households – live in rental housing. Nearly one-third of all rental units nationwide are financed with federally backed-mortgages.
The FHFA said in its request for input that the GSEs’ responsibility is to “not only ensure liquidity is available for affordable rental housing but also to address challenges faced by tenants and property owners in the multifamily housing market.”
The RFI states that the GSEs have voluntary rent restriction programs in place that preserve affordable housing.
Freddie Mac offers flexible credit terms to borrowers who agree to preserve affordable rent levels on a portion of units at a multifamily property for a specified period. Meanwhile, Fannie Mae has a program that requires multifamily borrowers to restrict rents in 20% of units for tenants with incomes at or below 80% of an area median income (AMI).