Washington St rent stabilization (aka control) eff 5/7/25 - what's your prediction?

Question

Now that we have a statewide rent stabilization (control) bill in Washington that went into effect immediately upon signature (May 7, 2025), love to hear your predictions on investment property values. No prizes if you're right and no consequences if you're wrong. What will be our market trends? Just thoughts, comments, etc. that may help us investors and agents consider market conditions going forward.

I'm running numbers on multifamily opportunities where many have massively lagging rent rolls. For example, rents are $1200 but current market rents should be $1600. New regs restrict rent hikes at 7%+CPI or 10%, the lesser of the two. Latest Seattle CPI checked in at 1.7% so the most a $1200 rent could be bumped in 2026 is 8.7% or about $104 to $1304. If CPI remains the same for two years out, the next possible max increase is $113 to $1417. That's for a 2027 renewal and the property owner would still be $183 short of 2025's $1600 market rent.

I don't see how prices for occupied properties with significantly under market rents cannot come down. I'd be concerned that the current or new owner will be playing ongoing catch up on the rents for years. "Proforma" for year two or selling the upside on rents is now limited. Potential sellers will need to keep their rents as close to market as possible or provide vacant units for a buyer to place tenants at market rates. The only way to achieve market rents on these properties will be via at turnover or serving notice to terminate tenancies due to substantial rehab of the unit(s).

Nik Moushon · Answer

I see older apartments and smaller multi-family (5-12) that have rents that are under market getting a knock in value. Those that are in the 13-20 year age group are going to get a little knocked down but not too bad. They are still new enough that they aren't going to need major renovations or upgrades to stay relevant. The older ones will probably get a healthy knock down in value...my guess...maybe 10%...they only thing going to keep it still not higher than that is the demand. What I foresee happening here is that you will see a lot on non-renewals happening. This will allow for a higher increase in rent. Still not a lot higher....but higher. So a little offset can add up over a lot units. Obviously will vary depending on region. However, on rentals in the 1-4 range, I don't see much in the way of value being knocked off. If they are newer than 12 years, it will be zero....maybe even a slight increase because of demand from all the people getting non-renewals I mentioned above. If they are older than 12 years...maybe...but I doubt it. Demand is too high for these smaller one as these are the "entry units" for new investors and easy grabs for the veteran investors who have a little extra cash on hand or need a "loss" for taxes.  That and the lending practice for these is not the same as larger apartment complexes as they still fit into the typical 30yr fixed rate residential loan. So terms are very favorable. As for rentals, of any size or year, that are up to or new current market rents....these bills really do not do much to them. Most Landlords aren't raising rents 8-10% a year anyways. This isnt covid anymore and those kinds of yearly increases invite a lot more turnover, which has the potential of hurting any increase in rent. Every situation is different, so it could be worth it, but not always. What I see happening on this is that rentals will automatically increase every year for every tenant regardless of how great of a tenant they are. Landlords cant risk getting too far behind CPI every year. Some years CPI is a tiny 1-2%....others its 8-10%. It wouldn't take but 1 bad year to make it so that LL have to raise the rent to the max every year for multiple years AFTER CPI has come back down to just get back to "normal". I've made a habit to never raise rent on good paying tenants for at least 2 years....that is going to have to get studied and risks weighed now. Most my tenants have note stayed for more than 2-3 years. So I normally just never raised rent until they left. Its easier and tenants appreciate it and thus try better to keep up with things. Not sure I can do that anymore unless I over charge on year one and then get back to "normal" on year two.