Industry Experts See Portland Rent Control Backfiring Amid Maine Housing Crisis

Pearl Place II housing in Portland (Source:

Portland voters are hoping recent rent control ordinances will provide relief to struggling renters amid a growing housing crisis, but property owners and industry experts tell the Maine Wire the new rent control scheme — passed by socialist-sponsored ballot initiatives in 2020 and 2022 — may have perverse or unintended consequences.

Ironically, the new rent control regulations, intended to protect renters from unfair rent increases, may have actually led landlords to increase rents in the short-term beyond what they would have sought without the new rules.

“In our direct experience at our management company, the Portland rent control ordinance has largely backfired and achieved the inverse desired effect,” said Daren Hebold, a partner at LUX Residential, LLC in Portland.

“Thrust into scarcity mode by this artificial, legislated ceiling imposed upon their rental income, landlords are left with little choice but to grab the maximum allowed annual rental increase percentages for fear those limits will likely taper in coming years,” Hebold said.

“They are simply attempting to stay afloat with ever escalating operating costs, necessary capital improvement expenditures, rising interest rates and other non-recoupable costs,” he said.

That’s just in the short-term. Over the medium- and long-terms, industry veterans believe investment will flow to Portland’s surrounding communities in search of a friendlier environment for real estate developers.

Rents in Portland were already the highest in Maine, which likely contributed to popular support for ordinances intended to limit rent increases. Portland is the first city in Maine to adopt rent control, but South Portland is now looking at becoming the second.

The current rent control regime began in the fall of 2020 when the Portland chapter of the Democratic Socialists of America (DSA) put up a ballot referendum question, which won by 57 percent. DSA’s victory was built on the failure of 2017 ballot initiatives and demonstrated the group’s organizational ability in campaigning during the COVID-19 pandemic lockdowns.

Last fall, a second successful DSA-backed initiative imposed even more severe requirements on landlords.

So far, the reviews for Portland’s rent control regime, even in the liberal-leaning mainstream news media, are mixed.

Rents have only gone up 1.6 percent on average versus 2.5 percent in units exempted from controls. Landlords and tenants alike have faced confusion in complying with the new regime. And many of the new renters coming to Portland from places like Boston, New York and other very high rent regions are reaping the rewards of Portland’s rent control ordinance.

“People who need the help aren’t getting it,” said Brit Vitalius, president of the Rental Housing Alliance of Southern Maine, an advocacy group for area landlords. Now with 700 members, Vitalius says he’s seen a huge growth in members since the rent control question passed.

The reasoning behind the DSA initiative and rent control generally is the belief that landlords would simply get massive windfall profits without the caps.

This assumption collides with reality. In addition to taxes to taxes, general maintenance, and property management, landlords are constantly making capital improvements and – when scarcity like we’re seeing today exists – building more units. Under rent control schemes, they are dis-incentivized from investing in their current properties or investing in new ones. Available – not to mention affordable – housing stock stagnates and calcifies. Housing crises worsen.

At the same time, Vitalius points out, unit vacancy in Portland is close to zero.

Last fall, the second rent control measure reduced landlords’ ability to keep rents in pace with inflation. From the landlords’ perspective, this only tightened the vise.

John Finegan, associate broker with The Boulos Company, said different versions of rent control have been implemented in various American cities over the years, and not every rent control policy is the same.

“The devil is in the details,” said Finegan. “Each one has some formula. How it actually functions plays a very heavy hand in what incentives they’re setting up for landlords,” he said.

Before 2022, Portland landlords were allowed to increase rent at 100 percent of the Consumer Price Index (CPI), the government’s measure of inflation. Now, increases are limited to 70 percent of CPI.

If a tenant vacates a unit, the landlord is allowed an additional 5 percent increase beyond CPI, but even that is capped at 10 percent of total rent. Prior to 2022, landlords were allowed rent increases commensurate with tax increases, but that provision is gone now.

“No matter what all those other numbers add up to, you’re still limited to 10 percent total and only one increase in a year,” said Finegan.

The end result is that landlords cannot adjust rents to reflect high inflation and increasing taxes.

Portland’s measure is also distinct from other American cities in that landlords are not allowed to freely reset rent levels in between tenants.

The new ordinance also creates a rent control board which will adjudicated landlords’ requests for rent increases.

Some landlords the Maine Wire talked with for this story expressed concern that the board would end up being stacked with activists who are hostile to investors, another factor that would scare away potential new investment.

Industry experts said the rent-control ordinance may benefit those currently renting in the city, but the lack of a “rent reset” option, along with other details of the law, will decrease investment in Portland’s housing stock, including capital improvements and new construction.

Investment in rental units, they said, occurs in an environment where other alternative investments are available to people with capital. If investors believe they can secure higher returns in equities or bonds, for example, that’s where they’ll put their money, and every constraint rent control adds to real estate investments makes the alternatives look better. Overtime, the lack of investment will cause the quality and quantity of housing to suffer.

“Most of the cities and states currently debating expansions of rent regulation are places with high barriers to entry that have consistently failed to build enough housing to meet population and job growth,” the left of center Brookings Institute wrote in 2019.

“Rent control is a blunt instrument to address income inequality and declining federal housing support,” the Brookings report concluded.

Looking at affordable housing stock in Portland like Bayside’s Kennedy Park, which date back to the 1980s, the lack of new building is obvious. The “blunt instrument” that Brookings describes is scaring away any new developers and doing medium to long-term harm to the city’s rental market.

In its first legal challenge, a local court upheld the ordinance, but the city decided not to press the pro-tenant provisions to the max.

Earlier this month, a Superior Court judge in Cumberland County denied a landlord’s appeal against a finding he violated Portland rent control regime but the housing safety officer charged with enforcement then declined to fine him more than $13,000, which the city’s rent control board sought in fines and penalties.

At the time, landlord Geoffrey Rice had argued that the rent control law is “unconstitutionally vague” and “does not include the most basic and fundamental information necessary to intelligently implement the law.”

Rice had lost a case at trial last year brought by former Portland mayor and DSA activist Ethan Strimling, whom Rice sought to evict from one of his properties. Strimling maintained his eviction was retaliation for organizing tenants.

Those tenants who were happy with their lease arrangements when rent control went into effect are a kind of urban gentry, who lucked into housing prices kept low by an artificial ceiling. New York, San Francisco and other cities where rent control was first tried had a “first generation” of beneficiaries, and the new campaign to revive rent control nationally speaks to the “second generation.”

By definition, rent control helps a few while making things worse for the many.

According to Assar Lindbeck, a Swedish economist who chaired the Nobel Prize committee for many years, once reportedly declared that rent control is “the best way to destroy a city, other than bombing.”

Like high gas prices and public malaise, rent control is another feature of the 1970s that is seeing a renaissance of sorts in America today. Activists in St. Paul, Minnesota are currently pointing to Portland as a success story to emulate, as are folks closer to home, just across the Fore River.

Meanwhile, Portland voters will get a chance to re-consider whether their rent control scheme is fair when they go to the polls in local elections this June. The Rental Home Alliance of Southern Maine has submitted signatures for a ballot question asking that landlords can at least keep pace with inflation.

It will be interesting to see who turns out.


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