SB 608 - Oregon Rent Control
- Nation’s first ever state-wide rent control
- SB 608 Impact on multifamily investment
- Caps on rent increases
- Eviction – for cause only
SB 608 - Oregon Rent Control - Explained
- Limit rent increases on tenants
- Tenants after 1 year can only be evicted for cause
The rules suggested by the Oregon legislature are a direct response to the rapidly rising living cost in the state, and after the 2018 mid term elections – democrats now have veto-proof majority in both houses. The goal of SB 608 is to protect existing tenants from further rent escalations and displacement by landlords. SB 608 closely resembles rent control ordinances that was implemented in California and New York cities since the 1970s.
Oregon’s effort is different than rent control in we see in cities like Beverly Hills, Berkeley, and Los Angeles – this is the first time in US history a state-wide rent control ordinance will take place. It will serve as a long term experiment to see if rent control is actually a viable strategy to combat rent costs that other states can implement nationwide.
Whether or not rent control helps with housing costs, the studies are mixed – a study of San Francisco determine that it helps residents who were around the time rent control was implemented. Other studies show that rent control restrict housing supply and impact current properties negatively.
Predicting the future is a fool’s errand, especially when the solution to the housing crisis could come out of left field. Nothing in SB 608 produces more homes for Oregonians, just as any other rent control ordinance in the US. The only way to solve the housing crisis and reduce the price of rent is to increase the supply of affordable units. State and city officials have to do
SB 608 - Impact on Multifamily Financing and Hard Money
We don’t anticipate a direct impact from Oregon’s new rent control law on how we view multifamily deals in Oregon. SB 608 is much more flexible in nature than its counterparts in CA/NYC – it allows for higher yearly increases (7% plus CPI), and relocation costs for tenants is lower. In some ways, however, Oregon’s rent control is much more restrictive – unlike rent control in other places, SB 608 applies to new buildings as well (after a 15 year cooling period) – meaning developers will have to factor rent control in the long term when underwriting deals.
In fact, SB 608 may inflate current multifamily properties in the long term – just like we observed in high-demand markets in California. Since rent control could negatively impact the supply of new construction, existing properties can gain from limited supply. Further, rent-control properties have a hidden opportunity – long term tenants who are paying extremely low rent could be a boon to a new buyer who can buy them out for a cash incentive, raise the rents, and instantly create equity in the new property.
Update - SB 608 - 4/17/2019
The Oregon legislature successfully passed the statewide rent control measure last month. It was drafted as an ’emergency measure’ so the law went into effect right away. The final version of the text was a bit different than the earlier version of the law, but all the material components of the the intent to place rent control remained:
- Removing no-cause eviction after first year of tenancy
- Limiting rent increases to a 7% cap
- Automatic month-to-month renewal after the initial 1-year term
Implementation and enforcement of SB 608 will now be closely followed by other states considering similar laws, like Washington State. It is still unclear if other states/cities will follow Oregon’s lead for several reasons:
- Shifting political climate in cities in states’ legislatures
- Changing housing market – construction costs, interest rates
- Demographic and socio-economic differences between states
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