On July 16, President Biden called on Congress to enact legislation to temporarily cap annual residential rent increases. Under the proposal, rental property owners with over 50 residential units in their portfolio would not be allowed to take the property depreciation tax write-off if they raise annual rents by more than 5%. While unlikely to be enacted, the proposal is thematic of the Biden administration’s ongoing efforts to place more conditions on housing providers as a method to address housing affordability issues.

Rent Cap Proposal

Under current tax law, rental property owners can use depreciation to deduct a property’s purchase price and improvement costs from their tax returns over the course of many years. Congress would be left to deliberate the finer details of President Biden’s policy proposal, but the general intent is to use the tax code to pressure rental property owners to temporarily cap rent increases until more housing supply becomes available through construction and renovation.

The proposal would exclude newly constructed buildings and substantially renovated buildings, which the Biden administration believes will incentive the market to create a net increase in the number of housing units. According to the White House, the rent cap proposal would apply to more than 20 million rental units, which is approximately half of all rental units in the market today.

FHFA New Tenant Protection Requirements

President Biden’s proposal comes as the the Federal Housing Finance Agency (FHFA) recently announced several changes to required tenant protections for multifamily properties financed by Fannie Mae and Freddie Mac. Starting Feb. 28, 2025, all new multifamily mortgage loan documents will require borrowers to provide tenants with:

• 30-day notice of rent increases;
• 5-day grace period for late rent; and
• 30-day notice of the lease term expiration.

The new protections announced by the FHFA will apply prospectively to newly originated or refinanced mortgages, meaning existing loan documents signed before the Feb. 28, 2025, effective date will not be required to abide by the new policy. A detailed description of the tenant protection policies will be published by Fannie Mae and Freddie Mac in August. Failure to comply with the protection requirements could result in penalties as defined under the loan agreement.

The FHFA published a Request for Input (RFI) in May 2023 to identify best practices across the country seeking to strengthen tenant protections. A summary of the RFI report was published in January 2024 and is available here.

Potential Impacts

President Biden’s announcement was telegraphed almost a week ahead of time through off-the-cuff remarks during his recent NATO Summit press conference. While answering reporters’ questions, President Biden said his administration will seek to ensure corporate and residential rent increases “are limited to 5%” if he is reelected. The FHFA’s announcement also previewed further action, stating that the agency will continue to evaluate options for codifying additional tenant protections that “advance sustainable housing in a manner that reflects the needs of both tenants and housing providers.”

Both policies would be far reaching, impacting millions of property owners and renters nationwide. While the FHFA policy will only apply to newly originated and refinanced mortgages, the scope of covered properties could be quite broad; Fannie Mae and Freddie Mac accounted for nearly two-thirds of newly originated apartment loans in 2023, according to data released by the Mortgage Bankers Association. Professional housing providers have noted that the FHFA’s new policy is consistent with best practices already employed by industry leaders.

Meanwhile, the rent cap proposal is intended to ease housing costs for renters, but there is longstanding and significant debate and analysis among economists about whether such proposals would achieve that goal. Some argue that placing limits on rent will make the housing sector less profitable and ultimately discourage new investments. Rising construction costs may also contribute to a slowdown in the housing sector. However, the White House argues the policy coupled with local zoning reforms could bring an additional 2 million new units to the market.