Rent control is hampering apartment investment and development, according to a new survey from the National Multifamily Housing Council (NMHC).
In its quarterly survey of apartment conditions in January, with insights from nearly 100 CEOs and other senior executives, 35% of respondents said they have cut back on investment or development in rent-regulated markets, up from 26% when asked four years ago. In addition, 41% said they would not operate in any rent-regulated markets and would not consider doing so because of the rent control threat. This is also up from January 2022, which had a 32% share.
In total, the share of respondents who have altered their investment or development decisions, or are considering them, has increased to 91% of respondents in January compared with 73% four years ago.
Only 7% of respondents said they do not plan any change in investment or development in markets impacted by rent regulation, down from 23% in January 2022.
The NMHC noted that these findings underscore concerns that regulations such as rent control discourage new housing supply at a time when strengthening conditions are helping to ease affordability concerns.
Conducted between Jan. 6 and 20, the survey also saw improved market conditions for debt and equity financing. However, the market tightness and sales volume indices came in below the breakeven level of 50.
“A softening labor market combined with high levels of new apartment supply is resulting in slowing rent growth in many parts of the country,” said NMHC chief economist Chris Bruen. “This continues to be most pronounced in Sun Belt markets, many of which are seeing falling rents.”
He added that the modest decline in long-term interest rates seen in the past three months has resulted in improved conditions for debt financing and an uptick in apartment deal flow.
- The Market Tightness Index at 32 indicates looser market conditions. Under half of the respondents, 43%, reported looser market conditions compared with three months ago, while 7% said they thought conditions were tighter. Half of respondents cited unchanged conditions compared with October.
- The Sales Volume Index at 47, down from 59 in October, signals a slowdown in deal flow. Only 14% of respondents reported an increase in sales volume, while 20% reported a decrease. Almost two-thirds of respondents, 63%, reported unchanged conditions.
- The Equity Financing Index came in at 53, reflecting the second quarter of more available equity financing. A majority of the respondents, 57%, found equity conditions unchanged from October, while 21% reported equity being more available and 15% less available.
- The Debt Financing Index had a reading of 75, indicating more favorable conditions. Over half of the respondents, 53%, reported it being a better time to borrow than three months ago. Only 3% said they think now is a worse time to borrow, while 41% reported unchanged conditions.