WA Statewide Rent Control Measure

[Sean Smith]

Over the weekend Washington State Legislature passed controversial rent control measure EHB 1217. It is now out for signature with Governor Bob Ferguson.

For anyone who owns investment real estate in Washington, make sure to read up on the details. If there's information I missed please chime in the comments below.

Residential Housing:

- No rent increases within the first year of tenancy.

- After the first year, yearly rent increases are capped at 7% plus CPI (up to 10%).

- 90-day notice required for rent increases.

- Rents can increase beyond the cap in between tenancies.

- Month-to-month leases cannot differ by more than 5% from term leases.

Manufactured/Mobile Homes:

- No rent increases in the first year of tenancy.

- After the first year, yearly rent increases are capped at 5%.

- A one-time increase of up to 10% is allowed if the tenant sells the mobile home, with prior notice.

- Move-in fees capped at one or two months' rent (if a pet is involved).

- Late fees are tiered based on consecutive months of late payment (2%, 3%, 5%).

Exemptions:

- Buildings under 12 years old, public housing, nonprofit organizations, and owner-occupied duplex, triplex, and fourplexes are exempt.

- Real estate investment trusts, corporations, or LLCs with corporate members are not exempt for residential properties.

I'm curious if anyone here feels this will meaningfully affect their portfolio. How are you adjusting strategy going forward, if at all?

[Brandon Vukelich]

@Allan C. that assumes CPI stays positive. It ran negative in 2015 so there may be times rent can't be bumped at a full 7 percent. Fortunately, recent CPI trends shows that the max should allow in the 7-10% range.

@Bill B. there isn't really much of an issue for 1st year market rent renewals. Most agree that 7%+ is more than most landlords would normally bump newer, market rent tenants for year 2 or 3 that they wish to renew & have stay anyway. When I owned a PM business in Seattle, we ranged between 0-5% at renewals for great tenants that we wanted to retain. The main issue with all of this are the 1000s and 1000s of tenants currently paying well under market rent (i.e. $1000 when they should be $1600) and the years it will take to catch them up, even at 10% a year rent hikes. I'm mainly considering buyers/new owners of rental properties and inheriting the seriously lagging rent rolls.

Prices for many properties with under market rents will need to come down as buyers will have their hands tied trying to increase rents in a timely manner other than via potential turnover. We'll see...