After several years of discussion among policymakers, landlord, and tenant advocacy groups, Oregon became the first in the U.S. to enact rent control as a state-wide measure[1]. This new legislation has sparked a national conversation on affordable housing policy. Whether you live in or outside the state of Oregon, it’s worth considering these new policies and their possible effect.

RENT CONTROL

Rent increases will be limited to approximately 7% plus inflation during any given 12-month period. There are exceptions for new construction, (< 15 years old) and low-income properties (these rates get set by HUD and local authorities).

NO-CAUSE EVICTIONS

After 12 months of occupancy, a landlord may only terminate a month-to-month tenancy for-cause. For-cause terminations can be either landlord or tenant based:

Tenant based causes – Evictions are still available for violations of a rental agreement including nonpayment of rent or utility-pass-through charge, or any material violation tenant duties[i], such as keeping the unit clean, not disturbing others, not causing damage, etc.

Landlord based causes – Intent to convert a unit to non-residential, intent to complete substantial repairs or renovations that will render the unit unsafe, or plans for the landlord or a family member to occupy the unit. Landlord-caused evictions require a 90-day notice, and a relocation assistance payment equal to one month’s rent. 

OWNER EFFECT

As an owner, you and your property management team need to be on top of all paperwork, since this legislation means more rules to navigate. You need to know the lead-times and delivery requirements for notice to tenants. If you’re buying a property for rehab and rent increases, this affects your forward projections on returns.

MARKET EFFECT

Value-add buyers must now factor in relocation costs for substantial rehab projects. This has caused some stagnation in the Portland market. However, desirability of new construction (< 15 years old) has increased given its exempt from the new rent increase restrictions.

WHAT THIS MEANS FOR…

Vancouver, WA – This Portland suburb is now the shining city on the hill (at least to landlords) without rent control. However, Seattle has a comparable housing affordability issue, so Washington state could eventually follow Oregon’s lead.

New Construction – Owners have 15 years from initial occupancy as an exemption from rent increase restrictions.

Owners who were thinking of selling last year – The market has chilled for apartments and the inventory is building. This may put downward pressure on sales prices.

Active Landlords – Tenants that leave of their free-will can be replaced by new tenants at whatever rate a landlord can achieve. Keeping up with market rents will make compliance with new rules will be less oppressive.

Passive Landlords – Landlords that have not keep up with market rate and has long-term tenants will  likely take the hardest hit. If your tenants are not turning over or bothering you, you’re probably below market on rents.

Disorganized Owners – There are new paperwork and timeline requirements for notices.

Long-term Tenants – Those in larger units for > 1 year. They will be covered by “No-cause” and rent increase rules (in buildings >15 years).

Short-term Tenants – Student housing or smaller units (studios/1-beds) typically experience higher turnover with shorter lease terms, allowing a landlord to bump rents to market.

LOOKING FORWARD

In my opinion, it’s a wait-and-see game, but not the end of the world. Based on today’s rules, apartment owners will able to bump rents roughly 10% per year. For no-cause evictions, landlords need to make some decisions about tenants during the 1st year of tenancy; after that, it becomes harder.

Multifamily property owners and managers need to make sure rents are kept up to market. If your rents are currently 20% below market, it will take you two years minimum to catch up to today’s market rental rates.

by: Steve Morris, Vice President, IMG Northwest

 


[1] Oregon Senate Bill 608 (Enrolled, 2019).


[i] ORS 90.325