Washington State Legislature Considers 7% Rent Cap

A bill that would make Washington the third state to enact statewide rent caps within the last five years is being considered in the state legislature.

The measure, which would cap residential rent increases at 7% a year, has passed Washington’s House of Representatives and now is being considered in the Senate.

The bill under consideration in Washington would only apply to lease renewals. Landlords would be allowed to increase rents at will when leasing to a new tenant. To avoid a negative impact on the development of new housing, the rent cap would not apply to the first 10 years a building is occupied.

The bill also proposes to restrict late fees to 1.5% of a tenant’s total monthly rent.

Supporters of the measure are running out of time to push it through: the legislature is due to adjourn on March 7. A similar bill failed to win approval last year.

The bill under consideration in Washington proposes a flat 7% cap, which would differentiate it from rents caps that have been adopted in Oregon and California, which are tied to the rate of inflation. Oregon’s cap is 7% plus the inflation rate, California’s is 5% plus inflation; both states set maximums of 10%.

When states weigh in on rent caps, it usually is to enact laws preventing local jurisdictions from adopting them. More that 30 states have done that, most recently in Montana, Florida and Ohio, according to the National Multifamily Housing Council, which tracks legislation.

Another bill under consideration in Washington would raise the state’s transfer tax on property transactions of more than $3M while decreasing the tax rate for some less expensive sales.

Washington’s current property transfer tax has four tiers: the portion of the sales price up to $525K is taxed at 1.1%, while the highest tier, reserved for deals above $3.025M, raises the levy to 3%. The proposed bill would expand the first tier to cover sales of up to $750K and add another 1% tax on sales that exceed $3.025M.

The Washington Multi-Family Housing Association, which represents property management companies, sent 150 members to Olympia, the state capital, in January to lobby against the proposed 7% rent cap, according to a report in the New York Times.

According to the association, profit margins in the rental industry are low, with each $1 in rent yielding just six cents of profit. The group believes the imposition of a rent cap could jeopardize the construction of 15K units of housing over the next 20 years, the report said.

Asking rents for apartments in Seattle averaged $1,883 per month in Q4 2023, a slight decrease from the Q3 average of $1,897 and a 2.17% increase in a comparison with Q4 2022, according to a multifamily market report from Kidder Mathews.

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