Biden vows to limit rent price hikes to 5%, but there’s a catch

In a last-ditch effort to sway inflation-stricken voters, President Joe Biden has unveiled plans to cap rent increases to 5% a year.

Under his proposal, landlords who raise rent prices by more than 5% a year would lose tax benefits. The rule would apply to landlords who own at least 50 rental units—roughly half of all rental properties.

“If I’m reelected, we’re going to make sure that rents are capped at 5% increase—corporate rents, for apartments and the like, and homes, are limited to 5%,” he said during a press conference following a July NATO summit.

To avoid discouraging new builders, the proposed policy only applies to existing units, not yet to be built properties.

“While the prior administration gave special tax breaks to corporate landlords, I’m working to lower housing costs for families,” Biden said in a statement.

The proposal would still need to be approved by Congress before it goes into effect. That could be a steep hill to climb, given that so much attention is shifting to the presidential election.

Biden’s new proposal is part of his agenda to fix housing affordability.

Earlier this year, Biden introduced a bill to cap rent increases at 10% for government-subsidized affordable units. Later, the president added that the initially proposed caps would be expanded.

Biden is prioritizing rent at a time when more Americans are growing fed up with the cost-of-living crisis. Whether this will be enough to convince Americans to vote for another round of Bidenomics remains to be seen.

Housing unaffordability takes its toll

With so much of the public’s attention fixated on home prices and mortgage rates, rent unaffordability has flown under the radar.

According to the Joint Center for Housing Studies at Harvard University, half of American renters spend at least 30% of their income on rent and utilities, placing them in the dangerous “rent-burdened” category of tenants.

Low-income households face the biggest risk of all.

“Places in the market that need the most relief are at the very low end, and it’s hard to reach those people through market rate supply alone,” said Whitney Airgood-Obrycki, a senior research associate at the Joint Center for Housing Studies.

According to Zillow, the average rent for all bedroom and property types reached $2,150 in July, based on nearly 564,000 available units in the database.

The average rent price for studio, 1-bedroom, or 2-bedroom units in the 50 largest metro areas is a more digestible $1,876 per month, according to Realtor.com data.

Still, that’s the highest level ever recorded. It’s also 27.6% higher than in June 2019 before the onset of Covid.

Even with rising costs, renting is still much more affordable than owning a home. According to Creditnews Research, rent is cheaper than homeownership in all of America's 100 largest metro areas.