Media

The unintended consequences of rent control policies

Here’s another one to file under ‘unintended consequences.’ Rent control policies designed to protect tenants are increasingly straining the very buildings meant to house them. Rent-stabilized properties from New York to Seattle are struggling to cover rising costs, widening the performance gap with market-rate apartments, according to analysis from Trepp.

Delinquency patterns, property sales and NOI spreads tell the story. Trepp’s data, complemented by insights from Seth Glasser of Marcus & Millichap, show that national multifamily delinquency recently surpassed seven percent, the highest level in nearly a decade, with much of the pressure concentrated in older, regulated properties. Rent-stabilized delinquency in NYC reached 10.8 percent year-to-date, peaking at 16.3 percent in February, while market-rate properties maintain delinquency near 0.7 percent.

Glasser notes that many older stabilized buildings are financially strained as a direct result of rent control laws. Units with average rents of $1,200–$1,300 often face operating costs exceeding $1,500 per month before debt service. In some cases, this creates a financial incentive to keep units vacant, delay maintenance or consider alternative uses for the property, as owners cannot keep pace with rising expenses under legal rent restrictions.

The figure below highlights the trajectory for sales volume across pre- and post-1974 properties:

The issue has gained fresh urgency following New York City’s recent mayoral election, in which the mayor-elect campaigned on a citywide rent freeze. The proposal captured national attention and renewed debate about how rent caps and related policies might affect multifamily performance in other major metros. Cities including Los Angeles, Seattle, Washington, D.C., Montgomery County, MD and Saint Paul, MN, are now considering similar measures that range from rent caps and vacancy-control rules to extended purchase opportunities for tenants or nonprofits.

Rising insurance, utility, and labor costs amplify the challenge, highlighting the tension between policy objectives and financial realities for property owners.

Valuation trends further illustrate this divergence. Before 2019, stabilized buildings in New York typically traded at cap rates around three percent. Following major rent legislation and ongoing expense inflation, cap rates climbed to five percent by 2020 and now exceed nine percent, reflecting both higher costs and increased policy uncertainty. Market-rate properties, by contrast, continue to attract active buyers, with transaction volumes remaining elevated.

Growth in property values underscores the unintended consequences: market-rate assets have increased at a 1.75 percent compound annual growth rate since 2019, reaching $438,000 per unit in 2025, while stabilized buildings have grown only 0.27 percent reaching roughly $356,000 per unit.

Similar patterns are emerging in other regulation-heavy metros, where rent caps intersect with rising expenses to compress returns and complicate investment strategies.
Recent policy developments, including vacancy reset litigation and the proposed Community Opportunity to Purchase Act (COPA), further influence multifamily dynamics.

Vacancy reset lawsuits challenge restrictions on updating legal rents for long-vacant stabilized units, sometimes revealing apartments where necessary repairs cost more than the legal rent. COPA would grant nonprofits or tenant groups early purchase rights, potentially delaying sales and adding underwriting uncertainty. While intended to enhance affordability, these policies introduce additional operational and financial complexity for owners already navigating tight margins.

These trends also have clear implications for commercial real estate finance. Regulated properties face ongoing pressure on operating margins, while the gap between regulated and market-rate assets continues to widen across securitized portfolios. And, transaction dynamics in cities adopting extended purchase rights or stricter rent restrictions may grow more complex, requiring specialized expertise and long-term investment strategies.

In conclusion, Trepp’s metrics and Glasser’s on-the-ground perspective reveal a widening gap between regulated and market-rate multifamily assets, underscoring the challenge of balancing affordability objectives with the financial realities of property ownership.

Author: Wendy Broffman

Source: https://yieldpro.com/2025/12/the-unintended-consequences-of-rent-control-policies/