Washinton, DC—President Biden's latest proposal to cap rent increases at 5% has sparked confusion and controversy. Unveiled during a press conference following the NATO summit, the President's comments have led to speculation about a potential national rent control policy.

Imagine being a NATO leader, ready to discuss global defense, and then Biden says, 'Hey, let's talk about rent prices.' It’s like showing up in a war room with a Monopoly board.

While Biden's intentions might curb corporate greed, critics argue that such measures could do more harm than good, particularly to small-scale landlords who form the backbone of the rental market.

A Slip of the Tongue or a New Policy?

During the press conference, Biden stated, "If I’m reelected, we’re going to make sure that rents are kept at 5% increase, cor- — corporate rents for cor- — apartments and the like and homes are limited to 5%."

Uh OK? Mr. President, the international community doesn’t care about Karen’s rent hike in Des Moines.

This statement appears to build on the administration's previous policy of a 10% cap on rent increases for affordable units financed through the Low Income Housing Tax Credit (LIHTC) program. However, the ambiguity of the term "corporate rents" has led to widespread speculation.

The White House has yet to provide specifics, with spokesperson Jeremy M. Edwards reiterating the administration's commitment to protecting renters and cracking down on price gouging by corporate landlords. "The President has taken a number of actions to cap rents and crack down on price gouging by corporate landlords, and will continue to take action to build on these efforts," Edwards told Realtor.com.

I Beg to Differ: The National Apartment Association

The National Apartment Association (NAA) responded swiftly and sharply to Biden's remarks. "Implying that rent control will solve the nation’s housing crisis is the easy way out," the NAA stated. "Rent caps, more commonly known as rent control, are failed policies that don’t work—research has shown it, the lack of affordability in rent-controlled jurisdictions reinforces it and statements from countless economists across generations and the political spectrum are crystal clear."

The NAA's statement underscores a crucial point: rent control measures have historically led to unintended consequences. While they may provide short-term relief to tenants, they can also discourage investment in new housing developments, ultimately exacerbating the affordability issues they aim to solve.

The Real Estate Reality: Mom-and-Pop Investors

One of the most significant criticisms of rent control policies is their impact on small landlords. Unlike large corporate entities, mom-and-pop investors often operate on thin margins. Rent caps can turn these modest profits into losses, pushing small landlords out of the market and reducing the housing supply.

"Rent caps can help tenants mitigate affordability concerns by limiting rent increases and reducing the stress of potential evictions," says Jiayi Xu, an economist at Realtor.com. "However, rent caps could also negatively impact the supply side by limiting developers’ potential returns on investment. To address today’s rental affordability challenges, more new construction is needed to drive prices down. Therefore, finding a balance between rent caps and housing supply is crucial in today’s market."

A Historical Perspective

Rent control is not a new concept in the United States. Local policies have existed for decades, often with mixed results. In cities like New York and San Francisco, strict rent control measures have reduced the number of available rental units and increased competition for those that remain. While these policies have helped some tenants, they have also created a two-tiered market where long-term renters benefit at the expense of new entrants.

"Rent control policies need to be carefully crafted to avoid distorting the market," notes Sarah Saadian, senior vice president of public policy and field organizing at the National Low Income Housing Coalition. "We’ve been pushing for strong renter protections, and one of those is anti-rent-gouging. But broad, poorly designed rent caps can have serious negative effects."

The Path Forward

If the Biden administration is serious about addressing the housing crisis, it must look beyond rent control. Critical steps include increasing the supply of affordable housing through incentives for new construction, easing zoning restrictions, and providing support for small landlords. The Federal Housing Finance Agency (FHFA) has already introduced tenant protections for properties financed by Fannie Mae and Freddie Mac, including grace periods for late rent payments and advance notice of rent increases. Expanding these protections could offer a more balanced approach.

Biden's rent cap proposal might sound appealing, but the devil is in the details. Without careful consideration of the broader market impacts, such policies risk alienating the very landlords who play a vital role in providing housing to millions of Americans. As the debate continues, it’s crucial to remember that solving the housing crisis requires a comprehensive strategy that addresses supply and demand.

In the words of the National Apartment Association, "We need leaders to stop playing politics with our housing supply." Indeed, real solutions demand real leadership, not just catchy campaign promises.