These REITs could get hit by the rent control craze sweeping the country

Many states are seeking to curb rent increases
April 23, 2019 05:00PM

Equity Residential CEO Mark Parrell (Credit: iStock)

Equity Residential CEO Mark Parrell (Credit: iStock)

As roughly a dozen states pursue rent control measures, the proposals are raising concerns for publicly-traded landlords.

Equity Residential, AvalonBay Communities and Essex Property Trust are among the apartment real-estate investment trusts that could be affected by the changes, the Wall Street Journal reported. The potential for stronger rent control legislation has emerged as the apartment business has otherwise been strong. The outlook for apartment REIT earnings has been optimistic: A recent Barclays report noted high occupancy rates and low turnover.

Most of the proposals, which seek to curtail rent increases, are in early stages — but a few are already underway, the report said.

Oregon passed a law in February that limited rent increases to 7 percent plus the local inflation rate. Meanwhile, Democrats in Colorado introduced a bill this month to repeal a ban on rent control, while New York legislators are also considering a cap on rent hikes.

The proposals could lead apartment stocks to underperform, according to John Pawlowksi, an analyst for the real-estate research firm Green Street Advisors.

Industry players have plans to spend millions to push back against the measures. Equity Residential CEO Mark Parrell said his company plans to expand its political efforts. New construction, he added, is a way to address affordability issues.

“You should expect us to be active trying to convince both the public and the policy makers of the value of these supply-driven solutions,” he told the Journal.

In New York, multifamily building sales in the first quarter of 2019 dropped to their lowest point in six years. State Assembly Speaker Carl Heastie hasn’t yet made the bill part of the housing reform agenda for the year, but his spokesperson appears to have left room for a statewide measure to tackle rent control, the report said. [WSJ] — Meenal Vamburkar