By Armand Resto-Spotts, AttorneyThis article originally appeared in the March 22, 2019 edition of the Daily Journal of Commerce Oregon.
On February 28, 2019, Oregon Governor Kate Brown signed Senate Bill 608 into law, which is the nation's first rent-control bill. Senate Bill 608 caps annual rent increases at 7 percent plus inflation. For the rest of 2019, the cap will be 10.3 percent.
Beyond rent control, Senate Bill 608 also significantly limits landlords' ability to evict tenants after the first year of tenancy. Primarily, evictions without cause after the first year of tenancy are prohibited, except in very limited circumstances. After the first year of tenancy, landlords can end month-to-month rental agreements given a 90-day notice to the tenant, which must include a "qualifying landlord reason," such as plans to demolish the unit or convert to non-residential use or plans to repair or renovate the unit in a "reasonable time." The landlord must provide "supporting facts" in their "qualifying reason" to end the rental agreement. In most cases, the landlord must also pay the renter one month's rent with the termination notice.
Within the first year of tenancy, landlords may evict tenants without cause, provided the landlord gives the tenant a 30-day written notice (though in Portland, 90-days' notice is required).
The new law includes penalties for noncompliance, including "actual damages sustained by the tenant as a result of the tenancy termination."
Senate Bill 608's rent control and eviction provisions go into effect immediately, except that the rent increase provisions do not apply to new construction for 15 years.
Rising housing costs, less income, and vacancies
Nationwide, renters are facing increasing rents, but limited income growth and alternative housing options. According to a recent report produced by PolicyLink, Center for Popular Democracy, and the Right to the City Alliance, which incorporates data from the 2015 and 2016 5-year American Community Survey (U.S. Census Bureau), approximately 80 percent of low-income renter households are "rent-burdened," meaning they pay more than 30 percent of their income on housing.
In Oregon, approximately 90 percent of renters making less than $20,000 per year are rent-burdened, and 81 percent of those making up to $35,000 are rent-burdened.
Gross rent continues to climb as well. Statewide, monthly gross rent has increased over 14 percent, and in Portland, nearly 20 percent—both of which surpass the nationwide increase of roughly 6 percent.
Amidst these rising housing costs, the median household income for the nation and Oregon has remained largely stagnant for nearly two decades.
Similarly, the housing options for renters looking for cheaper, or possibly newer units comparable in price, in the Portland-Vancouver-Hillsboro metropolitan area, have been severely limited. According to the U.S. Census Bureau, in fourth quarter 2018, the area had an approximately 2.4 percent rental vacancy rate, down from 3.6 percent in first quarter 2018, and 6.6 percent in first quarter 2016.
Pair these factors with a lack of affordable housing and continued population growth from the influx of new residents to the state, and it comes as no surprise that there was enough political momentum in Oregon to get Senate Bill 608 passed.
Proponents of the bill believe that the rent control provisions will provide immediate relief to Oregon renters struggling with rising rents and income that does not pace the rising costs. Indeed, Senate Bill 608 does provide immediate protections to renters, namely that tenants can project their housing costs going forward and accurately gauge their needs.
Landlords are deeply concerned with further restrictions on the rent-increase cap. But for a region that has seen unprecedented growth in housing costs, the rent control provisions bring a welcome policy change—regardless of its ultimate success—to the affordability crisis, and potential further rent restrictions in the future are an inevitable reality of political movement.
However, rent control provisions cannot alone fix the housing affordability crisis in the region. Land use policies, such as development permitted (and not) within the urban growth boundary, are equally impactful, as they directly influence developmental and construction costs for new units, which inevitably are passed on to tenants at the time of rental. Lawmakers must remain open to new approaches to state land use policies, and the public—whether part of the development and housing or environmental community—must continue to push for new approaches to management of urban versus rural lands.
Truly, the more interesting aspect of Senate Bill 608 is its practical impacts on tenants' actions and motivations. Theoretically, for example, with these new rent control provisions, Tenant A, who is secure in a unit today at an average rental rate, has a greater confidence remaining in their current location, knowing that their rent cannot exceed a certain amount in the coming year. This assurance in future housing costs has a direct influence on Tenant A's decision whether to remain in their current location or seek out alternative housing options, which may be cheaper, or may be a newer and nicer unit, but exempt from rent increase limitations. Thus, practically speaking, Tenant A is more likely to remain in their current location, as to secure those rent control protections.
The obvious issue? The rental market gets tighter, and new tenants are left pursuing "new" construction options, which are exempt from these rent control provisions. And with a need for additional rental units, we may see a concurrent increase in new-rental rates. For the Portland region especially, one must wonder whether Senate Bill 608 begins to influence individuals' consideration of moving to the state.
Thus, while Senate Bill 608 does indeed provide immediate relief and assurances to a large sub-set of the state's renters, the practical implications of the law are varied and unknown.
Certainly, other states will be closely monitoring the implementation and impacts of Oregon's new rent control law, which could quickly become a model for the rest of the nation.
Armand Resto-Spotts is an attorney at Jordan Ramis PC who focuses his practice on land use, real estate, and environmental law. Contact him at email@example.com or (360) 567-3900.