On Monday, a coalition of national real estate associations, including The Real Estate Roundtable, wrote to President Biden expressing strong opposition to recently proposed nationwide rent control measures. (Letter)

Key Points

• Last week, the White House announced a nationwide rent control plan that aims to cap rent increases at 5%. Owners of rental housing would only be able to take advantage of depreciation write-offs if they limit annual rent increases to no more than 5%, effectively trading depreciation deductions for price controls. (Roundtable Weekly, July 19)

• Negative impacts of rent control: Rent control consistently leads to instability in the housing market and reduced supply, undermining efforts to foster a healthy and equitable housing environment.

• Economic consensus: Economists across the political spectrum widely agree that rent control is a discredited policy. Jason Furman, the former Obama administration's top White House economist, asserts that rent control would worsen housing supply issues instead of solving them.

• Disincentive for investment: Rent control discourages necessary housing investments, particularly in areas with limited affordable options. It disproportionately benefits higher-income renters, impeding access for lower-income households.

Coalition Recommendations

• Increase housing subsidies: Instead of imposing rent control, the coalition urges the administration to increase subsidies for those in need and to work with housing providers on solutions that expand the affordable housing supply.

• Support proven solutions: The coalition advocates for enhancing federal programs such as the Low-Income Housing Tax Credit (LIHTC) and Section 8, which have been effective in creating and preserving affordable housing units.

Industry Testimony

• On Wednesday, the House Financial Services Committee Subcommittee on Housing and Insurance held a hearing, “Housing Solutions: Cutting Through Government Red Tape” to discuss the nation’s housing affordability crisis and burdensome federal government reviews and permitting processes.

• The committee heard testimony from Carl Harris (Chairman, National Association of Home Builders (NAHB) and James H. Schloemer (Chair, National Multifamily Housing Council (NMHC) who testified on the rent cap proposal and the federal push to mandate costly and restrictive national energy codes.

• NMHC Chair Schloemer stated in his testimony, “Decades of research shows that rent regulation devastates rental housing quality and harms affordability. The Biden administration proposal to cap rents will not add a single new unit of housing, and, in fact worsens housing availability and quality.”

• Hastening the permit approval process must be a critical part of any policy legislation aimed at increasing the supply of affordable housing. (NYT, July 8)

The Roundtable and the coalition will continue to educate policymakers about and push back against flawed rent control policies while advocating for bipartisan solutions to boost supply and affordability.

Today, The Roundtable wrote to U.S. Treasury Secretary Janet Yellen requesting that the Treasury Department provide additional clarifying guidance regarding transition relief in the Foreign Investment in Real Property Tax Act’s (FIRPTA) regulations for domestically controlled REITs.  (Letter)

Key Concerns

• In April, Treasury issued final regulations that redefined what constitutes a domestically controlled REIT exempt from tax under FIRPTA. The regulations created a new look-through rule that extended the reach of the discriminatory FIRPTA regime to common investment structures. (Roundtable Weekly, April 26)

• Clarifying guidance is necessary and urgent to enable a qualified investment entity (QIE) to make a timely determination concerning its direct or indirect ownership of “U.S. real property interests” (“USRPI(s)”) under the conditions of the Transition Rule.

• Impact on foreign investment: Foreign investment can attract significant capital, helping to support market stability and create jobs. The final regulations, designed to define a domestically controlled QIE, are feared to be deterring foreign investment in U.S. real estate.

• Outstanding questions: Specifically, the letter seeks additional guidance on: what constitutes “direct or indirect” ownership of real estate when it is held by a REIT through multiple subsidiaries, how to treat acquisition costs and capitalization expenditures, and situations where ongoing construction or substantial renovations are occurring. 

Roundtable Advocacy

• The Roundtable has consistently advocated for the withdrawal of regulations and policies that hinder foreign investment in U.S. real estate. (Roundtable Weekly, April 26)

• David Friedline, a tax partner at Deloitte and Vice Chair of RER’s Tax Policy Advisory Committee (TPAC) said, “The official guidance would provide needed clarification for our members, who have been adversely affected by the final regulations’ new look-through rule, on how to comply with the conditions of the transition relief.”  Friedline was a principal drafter of the Roundtable letter. 

• Building new affordable housing and office-to-residential conversion projects requires encouraging more investment, not less. Erecting new barriers to passive foreign investment in U.S. real estate runs counter to important bipartisan policy priorities.

The Roundtable remains committed to collaborating with the Treasury to ensure that the final regulations can provide much-needed clarity and stability, supporting the industry's efforts to attract foreign capital and drive economic growth.