David Brogan is the executive director of the New Jersey Apartment Association
By David Brogan
Among the many issues facing our nation, the availability of affordable housing, or lack thereof, is a problem that lawmakers have been trying to address for decades. Federal programs that either support the development of affordable housing or provide assistance to renters through vouchers have been woefully underfunded, and state and local elected officials are looking for solutions. Unfortunately, some have turned to rent control as an answer. But the reality is that rent control will not only fail to solve our affordable housing crisis, it will actually make it worse.
Rent control is a policy that sets a maximum allowable rent or creates a “price ceiling” on rental housing. New Jersey is among only four other states (New York, Maryland, Oregon and California) plus Washington, D.C., that impose rent control. While some states enforce rent control statewide, New Jersey’s rent control ordinances are enacted by municipalities.
There is strong academic consensus that rent control actually reduces the quality of life for residents, leads to housing shortages and erodes the local property tax base. Some policymakers have asked, “If you are mandating low rents, how can that hurt residents?” If you look just below the surface of rent control as public policy, you will see its many significant flaws. At its most basic level, operating an apartment community requires an owner to attract customers (residents), maintain and improve the property and pay for all of the obligations or expenses associated with that property. Couple this with some of the nation’s highest property taxes, high labor costs and increasing utility and compliance costs, and it is clear that operating apartments in New Jersey is a challenging task.
With that in mind, if municipalities virtually stagnate rental income through rent control, but expenses and taxes continue to rise, landlords have no choice but to reallocate resources from maintenance and improvements to paying those expenses and taxes. The result is that buildings begin to deteriorate and the quality of life for residents declines. Clearly, this is not the outcome policymakers are seeking.
Local officials must also contemplate the impact rent control has on homeowners. If rents stay virtually stagnant, property tax revenue from those properties remain stagnant as well. As the expense of running a local government continues to rise, the tax revenues needed to fund those operations must also rise. So, what happens? The rising property tax burden gets shifted more heavily to homeowners. This again does nothing to tackle the affordable housing dilemma, but it does create a new problem for mayors and local officials as they try to explain why property taxes are disproportionately shifting to those homeowners.
There is a better way to address the affordable housing dilemma. First, phase out rent control. Second, adequately fund government programs that assist in the development of affordable housing or provide vouchers to tenants. And third, prioritize the preservation and production of affordable housing equally.
Phase out rent control
Allow for the gradual phase out of rent control by protecting existing residents through current rent control regulations, but when those units become vacant, let them go to market rent. This is called permanent vacancy decontrol. The result would be a gradual increase in the overall rent over time, without hurting existing residents. As units return to market rent after vacancy, the increased revenue can be used to further maintain and improve those properties. This benefits existing and new residents alike. Furthermore, from a mayor or councilmember’s perspective, tax revenue from those buildings also rises, which mitigates or eliminates the shift of the property tax burden onto homeowners.
Adequately fund government programs
Federal and state programs must be funded or created to assist in the development of affordable housing. The federal Low Income Housing Tax Credit (LIHTC) program is the largest source of funding for new affordable housing. State tax credit programs for development of housing are available, but limited. Even so, anything that can be done to increase the supply of housing will take away some of the upward pressure on rents.
An increase in federal funding for Section 8 vouchers (commonly referred to as Housing Choice vouchers) will also help address the affordable housing crisis. Vouchers assist low-income tenants by subsidizing some or all of the rent paid for housing. This allows low-income families more choices, and they can seek communities where the schools are better and crime is low. Additionally, New Jersey should contemplate allocating more money toward its rental assistance programs. By focusing on vouchers and increasing the current supply of affordable housing, the state can help people now and plan for the future.
Prioritize preservation and production equally
New Jersey also needs to prioritize both the preservation and production of affordable housing equally. Regardless of how many new units are built, the existing housing stock must be maintained and improved. As part of any new incentive program for the development of affordable housing, assistance and monetary support for the preservation of existing affordable housing must be included.
When it comes to tackling New Jersey’s Affordable Housing crisis, lawmakers and local officials must consider all viable options. However, rent control cannot be part of that equation because it simply accelerates the deterioration of our existing housing stock, shifts a larger portion of the property tax burden onto homeowners and does nothing for the thousands of families still struggling to find affordable housing. Increased funding for vouchers and programs that spur the development of affordable housing, the phase out of rent control and ensuring that preservation of our housing stock is just as important as development of new housing, collectively, can make significant strides toward tackling one of the most pressing problems facing our state and our nation.
David Brogan is the executive director of the New Jersey Apartment Association (NJAA). The NJAA represents all facets of the multifamily housing industry, including market-rate and affordable housing owners, managers and developers and suppliers. NJAA’s membership owns and manages over 210,000 apartments, providing quality housing to over 1 million New Jerseyans.