In this market update, we will cover the recent politicization of federal housing policy and its implications, offer an overview of current supply and demand trends in the national apartment market, and highlight research demonstrating that moderate-income multifamily property investments have historically delivered strong returns with relatively low volatility.

Federal Housing Policy Gets Politicized in the 2024 Presidential Election Campaign

Housing affordability became an issue in the 2024 U.S. Presidential election, with proposals like federal rent controls — discussed on the campaign trail this summer — gaining attention. However, such measures would likely face significant obstacles in Congress and encounter legal challenges.

Rent control legislation is politically risky, as an overwhelming body of studies shows it leads to unintended consequences, such as reducing developers’ incentives to build new housing and discouraging landlords from maintaining existing properties. As a result, rather than making housing more affordable, rent control can exacerbate housing shortages and drive up prices for those not under its protection. As economist Assar Lindbeck, a former Chairman of the Nobel Prize in Economics Committee, famously said, “In many cases, rent control appears to be the most efficient method known to destroy a city — short of bombing.”

Passing federal rent control for apartments would be an extraordinarily difficult task for any U.S. president, given several key challenges. The political landscape in Congress presents a major barrier. Rent control is divisive, with Democrats and Republicans often holding opposing views. Many Republicans and centrist Democrats view rent control as government overreach, arguing that it disrupts market dynamics, discourages investment, and reduces housing supply.

Even within the Democratic Party, support for rent control is divided. In July 2024, Jason Furman, a Democratic-aligned economist who teaches at Harvard and was a former top advisor to the Obama administration, remarked, “Rent control has been about as disgraced as any economic policy. Reviving and expanding it will ultimately worsen our housing supply problems, not solve them.” This lack of consensus makes it unlikely that a rent control bill would garner enough support to pass through both the narrowly split House and Senate, especially in the Senate, where the 60-vote threshold required to overcome a filibuster adds an additional hurdle.

In addition to legislative hurdles, any federal rent control policy would likely face substantial legal challenges. Housing policy has traditionally been the domain of state and local governments, not the federal government. The Constitution grants states significant powers to regulate property laws, and federal rent control could be seen as infringing on states’ rights. Legal challenges might argue that such a policy violates the Commerce Clause or the Tenth Amendment, which limits federal power over state matters. Even if passed, a federal rent control law would likely be tied up in courts for years, facing opposition from landlords, real estate developers, and business groups, making its survival uncertain. Furthermore, today’s conservative-leaning Supreme Court would likely favor challenges to federal rent control, given its tendency to limit federal authority, with justices like Clarence Thomas and Neil Gorsuch consistently advocating for states’ rights and a narrower interpretation of federal power in areas traditionally regulated by state and local governments, such as housing.

Thus, the combination of congressional gridlock and the likelihood of successful legal challenges makes federal rent control nearly impossible to implement.

Trade Association Efforts to Improve National Housing Policies

In response to the increased politicization of housing policies, five influential national trade associations — the Mortgage Bankers Association (MBA), the National Apartment Association (NAA), the National Association of Home Builders (NAHB), the National Association of REALTORS® (NAR), and the National Multifamily Housing Council (NMHC) — have formed the Housing Solutions Coalition to address housing issues across the U.S. This Coalition will provide tools, infrastructure, and coordinated campaigns to oppose rent control initiatives and promote proven alternatives.

The Market is Moderating Rental Growth Rates through New Apartment Development

Despite political debates, the recent surge in apartment supply is largely addressing the rent increases driven by the Pandemic-era demand boom. Adam Smith’s concept of the “invisible hand” is at play here, as the market, through the self-interested actions of developers responding to high demand and rising rents, has led to an increase in apartment construction. This surge in supply, driven by market forces rather than direct government intervention, is helping to naturally stabilize and lower rental growth rates. New apartment supply has increased from an annualized rate of less than 200,000 new apartment units delivered per year in the beginning of the 2010s to almost 800,000 new apartments delivered per year in most recent years, as shown in the graph below:

New Supply of Multifamily Apartments (2008 to 2009)

The surge in new apartment supply has driven down rent growth, particularly in high-growth markets where demand is greatest. As a result, rental growth rates are now moderating, bringing long-term market-effective rent growth back in line with the historical 3% trend. This market correction indicates that the increased housing availability is naturally easing upward pressure on rents and restoring growth rates to their historical norms, as shown in the graph below:

Market Effective Rent (12 months), Index (2013=100)

The U.S. median household income increased by 4.0%, rising from $77,540 in 2022 to $80,610 in 2023, according to the latest data from the U.S. Census Bureau. This growth was driven by a strong labor market that boosted wages across the income spectrum. Combined with slower rental growth rates over the past year, the effective rent as a percentage of median household income has dropped to approximately 26%, below the 10-year average of 27% (see graph below). This indicates that U.S. renters are currently in a favorable financial position relative to apartment rents, potentially enabling them to absorb higher rent charges as the multifamily supply wave diminishes in 2025, when stronger rental growth rates are expected to return.

Effective Rent as Percentage of Median Household Income

Research Spotlight – Moderate-Income Rental Housing Investments Outperformed

We would like to summarize a research paper, Performance of Moderate-Income Rental Housing, published in October 2022 by Mark Roberts, Director of Research at the Folsom Institute for Real Estate at Southern Methodist University, and Jake Wegmann, Associate Professor at the University of Texas at Austin. Their research highlights the financial viability of investing in Moderate-Income Rental Housing (MIRH), offering critical insights for institutional investors seeking consistent returns with minimal risk.

The paper concluded that MIRH presents attractive opportunities for real estate investors due to its consistent financial performance. A study using data from the National Council of Real Estate Investment Fiduciaries (NCREIF) revealed that MIRH assets delivered an average unleveraged return of 9.4% with a low risk of 2.6%. This makes MIRH appealing to institutional investors seeking reliable returns with less volatility than traditional assets like stocks or bonds.

Total Return vs Risk vs Major Asset Classes (2011 – 2021)

Since 2011, MIRH has consistently outperformed similar rental assets, including “above-MIRH” properties, which had lower returns of 7.86%. MIRH investments also exhibit low correlation with other asset classes, enhancing diversification. Although MIRH properties require higher capital expenditures, they deliver higher total returns, making them a solid investment. These performance trends hold across major metropolitan areas like Atlanta, Austin, and Washington, D.C.

About Providence Real Estate

Since 1985, Providence and its affiliates have actively operated as owner-operators of multifamily residential communities. Its principals have acquired over 65,000 apartment units, worth over $7.5 billion. Providence comprises an experienced team of professionals dedicated to searching for, identifying, acquiring, renovating, and operating multifamily properties in select U.S. markets. As a fully integrated real estate organization, Providence includes divisions for Property, Asset, and Construction Management; Acquisitions; Accounting; Information Technology; Human Resources; and Business Development. To learn more please visit https://www.provre.com.

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