Housing Policy fix? Rent Caps for Single Family Homes
TLDR - cap rents specifically for homes categorized as single family homes through either a legal limit or a tax for rents above the cap.
One of the struggles in housing is the supply of homes on the market. The other is houses as an investment strategy. By limiting just the rent side of the equation and not the purchase amount and also looking to only single family homes and not multi family homes (duplexes, townhomes, apartments), policy can reshape the incentives of the market.
I'd argue that the classification of a single family home is intended for owner occupancy, ie The American Dream. Currently about 31% of all single family homes are rented out. By capping how much rent can be obtained, I would expect this number will drop as more people decide to sell rather than be capped. For those that wish to continue to rent their property, they will be able to but without being able to raise the rent past the cap. Builders can continue to build single family homes, but these new properties will more likely go to owner occupants than to investors. Home prices can continue to increase unimpeded by this regulation, and developers can build multi family homes to avoid the rent cap entirely.
The cap I'm proposing will be tied to two factors:
The minimum wage in that market
The legal occupancy limit for that property
One way the math could work is:
R_{max} = (MW \times 160 \times 0.30) \times (OC/2)
Where MW is the minimum wage and OC is occupancy limit. So for a 3 bedroom house in my town (Tumwater):
$ 16.28 \times 160 \times 0.30 \times 6 / 2 = $2344.32
Which is pretty close to what the average 3 bedroom house rents for here.
However in Seattle the math looks like :
$ 20.76 \times 160 \times 0.30 \times 6 / 2 = $2989.44
Which is significantly lower than the current average for a 3 bedroom house in Seattle (currently anywhere from $3800-$5200)
One additional policy would also needed to be added to keep loopholes out of this policy. Short term rentals (think like Airbnb) would only be allowed if the property is owner occupied. Basically if you go on vacation and want to rent out your house while you're away, no problem. Want to run a hotel instead, then it's a hotel and as such regulated as such.
Also I do want to address a known counter argument:
"But Daniel, most single family homes that are rented out (85%) are small time landlords, Mom and Pops, shouldn't you make an exemption for them?"
I'm sorry, no. The small time landlords loophole is something investors can drive a truck through coming up with shell companies to get around the cap. To protect all current landlords, rents will frozen at whatever they currently are now with whatever tenant agreement that predate this policy, but all new rents, be it increases or new leases will be capped if and only if the property is a single family home.
Now the implementation can look like two different avenues depending on which is more politically feasible:
Option 1 - rents are capped and cannot go higher than the math says it can go.
Option 2 - a tax for the activity providing a rental property which is set at 0.00% for all rents below the cap, and at 80% above the cap, with the revenue going to the local government.
Honestly there's a lot that can go into fixing housing, but to me this seems like a good first step in a balanced approach.