The Biden Administration’s Plan to Address Skyrocketing Rents in the US
The Biden administration has proposed a new solution to tackle the issue of skyrocketing rents in the United States. The plan involves imposing a limit on annual rent increases for corporate landlords to 5% or risk losing significant tax breaks. This move comes in response to the alarming increase in rental costs across the country, with rents soaring by 26% since the start of 2020, according to a report from the Joint Center for Housing Studies at Harvard University. Despite a slowdown in inflation for many goods, home prices continue to rise, jumping by 5.2% annually in June.
The Purpose and Impact of the Proposal
The primary objective of the plan is to compel midsize and large landlords, accused by the Biden administration of excessively raising rents, to rein in their rent hikes. The government claims that this practice has led to “huge profits” for corporate landlords. President Joe Biden emphasized the need for affordable rents, stating, “Rents are too high and homeownership is out of reach for too many working families and young Americans.”
The proposal, however, would require congressional support to be enacted. It is expected to face opposition in the Republican-controlled House of Representatives and potentially even from some Democrats. Nevertheless, the idea may resonate with voters ahead of the November presidential election, especially those who have been burdened by years of escalating rental costs. This initiative is part of a broader strategy by the Biden administration to enhance housing affordability, such as the introduction of a $10,000 tax credit for first-time homebuyers launched in March.
Implementation of the 5% Rent Cap
To enforce the rent cap, legislation would need to be passed mandating large and medium-sized landlords to restrict annual rent increases to a maximum of 5%. Landlords failing to comply would forfeit the privilege of accelerated depreciation, a tax benefit that allows them to front-load property costs like wear and tear. This move specifically targets landlords with more than 50 apartments, covering over 20 million rental units nationwide, representing about half of the US rental market.
Senior government officials highlighted that the threat of losing tax benefits would incentivize landlords to keep rent hikes below 5% annually, as maintaining depreciation proves to be more financially advantageous. Accelerated depreciation enables landlords to offset rental income by depreciating their properties over shorter time frames – 27.5 years for residential properties and 39 years for commercial properties.
In conclusion, the Biden administration’s proposal of a 5% rent cap for corporate landlords aims to address the affordability crisis in the rental market and offer relief to struggling renters. While the plan faces hurdles in Congress, its potential impact on housing affordability and the rental market cannot be understated.