Councilmember Sawant Floats Disastrous Rent Control Idea for Commercial and Retail Space
Cities and downtowns across Washington state have been hollowed out due to COVID-19 and related bans that reduce foot traffic into stores, offices, and restaurants. The unprecedented impacts on commercial and retail space are significant. Local bans on commercial and retail evictions have resulted in extraordinary losses in property value and in state and local tax revenue.
As the commercial and retail sectors only just begin to recover, Councilmember Kshama Sawant is floating a disastrous idea that would cap rents on commercial real estate in Seattle.
This is not the first-time commercial rent control has been brought up as a solution. In 2016, the mayor assembled a Commercial Affordability Advisory Committee to examine policy, potential regulations and provide recommendations. The group was comprised of small-business owners, developers and arts and music community members.
The Committee’s report rejected rent control as a solution for commercial affordability. It stated that reducing a landlord’s income while costs are increasing could lead to negative consequences around regular upkeep and the condition of the building. In turn, this can lead to depreciation of the building and the neighboring area.
Washington’s statewide ban on rent control only applies to residential units so there is no legal obstacle to the Seattle City Council enacting commercial rent control. However, if a building has both commercial property and residential this creates another issue. A developer might resort to increasing the residential rent to compensate for increasing costs on the commercial property.
A recent ECONorthwest report on residential rent control stated that rent control will not address Washington’s housing crisis or economic fallout from COVID-19. In fact, rent control’s negative effects extend beyond just erasing housing creation. It also reduces investment in housing, property tax values and sales tax revenues. These are all negative effects that could be mirrored in the commercial real estate industry if rent control is enacted.
Like residential rent control, commercial rent control is not the remedy Sawant believes it to be. Just like Washington’s housing crisis, there is a broad range of issues affecting commercial property affordability that need to be addressed. This includes policy changes, lack of supportive services, lack of financing for small businesses, a short supply of quality spaces and availability of the right size of spaces.