Executives at two major apartment owners expressed optimism about potential rent-control legislation making its way through state governments in New York and California.
In separate conference presentations, Essex Property Trust Inc. CEO Mike Schall called the discussion of rent control "more balanced" than it was a year earlier, and Equity Residential President and CEO Mark Parrell said the company is "cautiously optimistic" about new rent regulations in New York, roughly two weeks before the current rules are set to expire.
In November 2018, California voters rejected Proposition 10, a statewide ballot measure that would have removed limits on cities' ability to enact rent control. The real estate industry, including Essex and Equity Residential and several of their fellow public real estate investment trusts, lobbied against the measure and spent millions of dollars advertising against it.
Equity Residential's then-CEO, David Neithercut, said shortly after the Proposition 10 vote that apartment owners would be unlikely to support new rent controls in any form, and cast doubt on the idea that the concept is popular in California. Neithercut remains a member of Equity Residential's board.
In new remarks at Nareit's REITWeek 2019 event, Parrell said real estate trade organizations are in a "very good dialogue" with legislators, adding, "The policymakers do feel an imperative to do something on this issue of affordability across these markets, but they also want more housing built."
If lawmakers in California wanted to do something dramatic, he added, "there is a 70% Democratic majority in both houses and a Democratic governor. They would've done it already, and they haven't."
In both New York and California, "we certainly expect action to be taken, but our hope and our view is that at this point, that action will be reasonable," Parrell said. "It won't cause there to be a great reduction in the production of housing, which would be very counterproductive with the public policy goals."
Schall said the rent control debate in California now focuses on capping rent hikes, but also on creating new supply, in "a more balanced discussion where the need for more housing is recognized."
California's Assembly Bill 1482, which passed the state's assembly in May, would cap rent increases at inflation plus 7%. The measure advanced only after proponents agreed to limit its duration to three years.
In New York, the terms of debate over new rent regulations continue to shift and could continue until July 4 if state legislators extend their own deadline, Parrell said. Still, he added that the company believes trade organizations are involved in "some good conversations" with legislators.
Legislators know there are trade-offs involved with new rent controls, he said. If regulations are too strict, he said, "we're going to be in position of having lower-quality housing in the future, and less housing produced, and that is the exact opposite of what they want."