World events and the government response to the pandemic have fanned the fires of rising prices not seen since the early 1980s. Inflation has ravaged our economy in the last 3 years from the start of the pandemic, in fact from January 2020 through January 2023 we have had a cumulative 16% increase in the CPI. It’s no wonder, then, that both tenants and housing providers have felt the pain of dealing with rising prices.
Raising rents on good tenants unnecessarily is not how most housing providers do business, but we have increasing expenses to deal with like every business. We need to be able to keep up with an endless list of expenses to maintain the quality living conditions expected. From tax increases, insurance, utilities, labor, contracts, mortgage payments, and reserve funds just to name a few. Considering the 3-year, 16% CPI increase coupled with rising demand as New Yorkers flee the city, seeking relatively cheaper rents, new immigrants enter our state and lastly with rising interest rates, the 20% rent increase for the same time period sounds close to the mark. Granted, it still hurts those struggling, living paycheck to paycheck or on a fixed income. But who is really to blame?
Most Connecticut housing providers are local, small business people who care about the community they serve. We’ve strived to always treat our tenants fairly because we need them as much as they need us. If you’re worried about a few bad actors from out of state who are trying to take advantage of the situation, Connecticut has a newly expanded Fair Rent Commission system rolling out in many towns. The Fair Rent Commission law passed last year had been a voluntary option for years with about 24 towns each maintaining a commission. But now it’s mandatory for all cities and towns with a population above 25,000.
Even smaller towns can band together to form a single commission if they choose. The commissions have the power to stop unreasonable or “unconscionable” rent increases and demand that necessary repairs or maintenance are made to a property. They even can prevent landlords from retaliating against tenants for filing a claim. This system is based on local control with the people from the towns who know the dynamics, making decisions based on individual cases. Most commissions have tenants, landlords, and homeowners on them allowing for a balance of all interests. I encourage any tenant who feels they are being abused to file for a hearing. I wonder why we would want to add rent caps/controls on top of this very fair system that is just expanding across the state and thus making the controls moot. I believed the legislature addressed the problem last year.
Then I attended the first rent cap bill hearing on Feb. 21 at the Capitol complex and found out the organizers pushing the bills are anti-capitalists from the Democratic Socialists of America. Mostly younger people, academics,, and union members who feel strongly that they have a right to take control of someone’s property because they need it. I listened as they testified one by one about the hardships some have endured and quite frankly, I had sympathy for many. But what I didn’t see from the proponents of rent caps was concern with caping anything except the rent.
I thought to myself: what about capping some of the rapidly rising expenses that make up the rent? Like the electric generation rate that went up 100% recently, the insurance premiums that have increased 15-20% this year because building costs have soared, or the taxes that went up 40-60% in Hartford last year for apartments? That doesn’t seem to matter to them. Even as inflation hovers around 7% yearly, they would push for a 3% rent cap if they have their way. They repeatedly pointed out that for the 12 years prior to the pandemic, the median rent had only risen between 2.5% to 3% yearly, so that should be enough now as well. But that point only proves that housing providers are generally reasonable and fair business people who don’t need big government thrust upon us to control a free market.
Myth: Half or more of property owners’ expenses are fixed and don’t change.
Maybe for a two-family the mortgage is fixed but most larger buildings have 5-10 year term notes and then adjust to current rates, which have about doubled since 2020. And according to the national apartment association, about 38% of each dollar paid as rent goes to pay the mortgage. Not much in this industry is a fixed expense.
Rent Caps are a failed idea from the waste bin of history rebranded to sound milder and more acceptable. No matter what you rename it, it comes down to rent controls, and that requires the force of government inference in the free market. The controls exasperate the very shortages they seek to solve! It discourages investment and chases away the financing necessary to build. We’ve seen the effects of rent controls in the past, in crumbling cities with vacant uninhabitable buildings.
Even today New York City has 40,000 vacant deteriorated apartments because the rent (caps) controls don’t justify spending large sums of money to refurbish the properties back to livable condition. Boston rid itself of the controls after many years in 1994, because investment money fled the city, practically halting new housing construction as the existing buildings steadily fell into disrepair. The city has bloomed for 30 years since, but apparently, they didn’t learn their lesson the first time as new calls for rent stabilization (controls) have come from the city’s mayor. Maybe both New York and Boston can learn something from St. Paul, Minnesota, whose voters approved rent stabilization only to have the policies rescinded the year later because major developers threatened to pull out of the city. You see, everyone knows the solution to the problem of a tight housing supply (and rising prices) is more supply of housing. Already rent prices are declining around the country as a large number of new apartments are coming onto the market .
In the last few years around the Hartford area there are major housing projects in the planning stages and currently being built. Even if much of it is market rate or luxury housing, more units for rent will help alleviate the shortage across the spectrum of price points. Young upwardly mobile professionals who desire the glitter of marble countertops and stainless-steel appliances of a new housing development will move and that in turn frees up their old unit for someone new to move in. Let’s not make the mistake of killing the golden goose by chasing away investment and developers who we desperately need to resolve the issue. I hope we learn from past mistakes instead of repeating them.
In the meantime, knowing that residents of Connecticut are a generous and caring people, here are a few things that would help ease the shortage of housing and rising prices. Support zoning changes in your towns to allow larger, higher-density housing that are the most efficient way of building affordable housing. Encourage the building of infrastructure necessary for the expanding housing system. And immediately increase and expand the scope of various rental subsidies like the RAP program and the renter’s rebate. Make them a simple and direct subsidy to anyone who qualifies. The cost burdens of such programs will be upon all the taxpayers like any other program the state offers to help its citizens.