Executive Summary

In May 2025, Washington State enacted House Bill 1217, implementing a statewide rent increase cap of 7% plus consumer price index (CPI) inflation, or 10% maximum annually—making it the third state to adopt such measures[1]. However, this demand-side price ceiling was implemented without addressing the underlying supply constraints that drive housing costs. Simultaneously, Washington's Growth Management Act (GMA) restricts urban development to just 3.74% of the state's total land area, concentrating growth pressure in artificially scarce urban zones. This case study examines the fundamental contradiction between rent control policy and land use restrictions, analyzing whether a 7%+CPI cap represents empirically sound policy or a misdiagnosis of the housing affordability crisis.

Problem Statement

Washington State faces a genuine housing affordability crisis. However, policymakers employed rent control—a demand-side price cap—without simultaneously addressing supply constraints imposed by the state's own land use regulatory framework. This creates a policy paradox: the state simultaneously restricts housing supply through zoning limitations while capping prices for the scarce supply that does exist. Economic research consistently demonstrates this approach produces short-term benefits for covered tenants at the cost of long-term supply reduction and potential affordability deterioration.

Background: Two Competing Policies

Policy 1: Rent Control (House Bill 1217)

Implementation Details:

House Bill 1217, signed into law on May 7, 2025, established the following rent increase limitations[2]:

• Standard residential units: 7% plus annual CPI inflation, or 10% maximum (whichever is lower)
• Manufactured and mobile homes: 5% cap (even more restrictive)
• First 12 months of tenancy: No rent increases allowed
• Frequency: No more than one increase per 365-day period
• 2025 rate: 10% (as 7% + 3.3% CPI = 10.3%, capped at 10%)
• 2026 rate:683% (announced July 2025)
• Enforcement: State Attorney General can recover up to $7,500 per violation; tenants can terminate lease with 20 days' notice if overcharged

Policy Rationale:

The bill framed rent control as a tenant protection mechanism, emphasizing stability and displacement prevention. The Consensus research summary provided shows that rent control advocates cite short-term benefits: covering tenants experience lower rent burdens, improved mobility stability (San Francisco: 20% reduced mobility), and reduced forced displacement[3]. The 7%+CPI formula appears to moderate the harshness of stricter controls while theoretically allowing landlords to maintain investment incentives.

Policy 2: Land Use Restrictions (Growth Management Act)

The Geographic Constraint:

The most damning finding emerges from Washington Center for Housing Studies' 2025 GIS analysis: only 3.74% of Washington State's total land area falls within Urban Growth Areas (UGAs) where urban-level development is permitted[4]. This represents one of the most restrictive land use frameworks in the nation. Outside UGAs, the Growth Management Act prohibits residential subdivisions, commercial centers, and industrial facilities requiring urban services, instead limiting development to low-density housing, agriculture, and small-scale businesses.

The Math of Scarcity:

Consider the implications:

• Washington's population (8.7+ million) concentrates in UGAs covering just 3.74% of state land
• Housing unit growth (67% since 1990) occurred entirely within these constrained zones
• Each percentage point of developable land must accommodate dramatically higher density or prevent new construction
• Land prices in UGAs experience upward pressure mechanically, regardless of rental price ceilings

Concurrent Zoning Reforms:

Notably, 2023-2025 legislation (HB 1110, HB 1491, SB 5184, SB 5471) attempted incremental zoning reform—legalizing middle housing, reducing parking mandates, and enabling higher density near transit[5]. However, these reforms operate within the 3.74% UGA boundary constraint. Easing internal zoning restrictions without expanding developable land area addresses only one dimension of the supply problem.

Empirical Analysis: What Does Rent Control Actually Do?

The Consensus research synthesis provided—drawing on MIT, Stanford, and international studies—establishes a robust empirical consensus. This is crucial: the Consensus analysis is not ideological opposition but synthesized research findings across multiple methodologies and geographies.

What Rent Control Accomplishes (Short-Term)

Rent Reduction for Covered Tenants:

• Catalonia (2020): 6% average rent reduction without immediate supply loss
• Germany's Mietpreisbremse: 5-9% initial rent dampening
• Berlin rent freeze: Mechanical rent reduction while in effect

These successes are real but narrowly scoped: they benefit covered tenants in the short term[3].

Displacement Reduction:

San Francisco expanded rent control and achieved measurable results: tenant mobility decreased ~20%, and displacement-driven out-migration declined[3]. For incumbent tenants, stability improved.

Where Rent Control Fails (Medium to Long-Term)

Supply Contraction:

This is where the Washington case study becomes critical. San Francisco's experience provides a natural experiment:

• Supply response: Landlords converted or redeveloped controlled units; rental supply decreased ~15%
• Market-wide effects: Long-run rents actually increased as scarcity worsened
• Winners and losers: Covered tenants benefited; new renters and the broader market paid premium prices for scarcer supply[3]

German rent control produced similar patterns:

• Fewer new rentals created
• Shifts toward high-end newbuilds targeting unregulated segments
• Gentrification in unregulated neighborhoods as landlords redirected investment
• Quality deterioration in controlled units

Temporary Effects:

Germany's rent brake impact—initially 5-9% reduction—vanished within about one year, as the market adjusted and substitution effects emerged[3]. This suggests Washington's 7%+CPI formula may produce headline rent reductions in 2025-2026 while long-run supply constraints reassert upward pressure.

Shifted Burden: Empirical evidence shows non-controlled units consistently experience higher rents, higher yields, or both, offsetting gains for covered tenants[3].

The Land Use Contradiction: Why Washington's Policy Mix Fails

The Economic Problem

Washington state has simultaneously implemented two policies that work against each other:

The Benchmark Problem

The 7%+CPI rent cap appears to lack empirical grounding in Washington's specific economics:

1. No Washington-specific cost analysis: The cap does not reflect actual landlord cost increases (property taxes, maintenance, insurance, debt service). Washington's property tax structure, as of 2025, does not provide corresponding flexibility for landlords facing costs exceeding 7%+CPI.
2. No supply sensitivity analysis: The policy does not adjust for Washington's unique supply constraint (3.74% UGA limitation). States with higher developable land percentages face different supply elasticities.
3. Arbitrary inflation tie: Using CPI (consumer price index) rather than landlord-specific cost indices (building operations, property tax, utilities) may underestimate true cost pressures.
4. No capacity adjustment for UGA density limits: The cap assumes landlords can pass cost increases through supply expansion—but UGA boundaries prevent this mechanism in Washington's market.

Why Expanding Internal Zoning Doesn't Solve This

Washington's 2023-2025 zoning reforms (HB 1110, HB 1491, SB 5184) represent genuine supply-side progress:

• Middle housing legalization in UGAs
• Parking mandate reductions
• Transit-oriented density requirements (FAR 3.5 near rail, FAR 2.5 near rapid transit)
• Estimated 1.8 billion square feet of new capacity in Puget Sound region

However, these reforms face a ceiling: they operate within the 3.74% UGA constraint. Without UGA boundary expansion, zoning liberalization reaches saturation quickly. As developable parcels within UGAs fill, future zoning reforms produce diminishing returns.

Evidence: Have Other States' Rent Control Policies Worked?

Massachusetts (Cambridge Rent Control Elimination)

MIT researchers Autor, Palmer, and Pathak studied what happened when Cambridge eliminated strict rent controls:

Result: Housing stock values increased substantially. Most significantly, positive market spillovers benefited even previously uncontrolled properties through improved neighborhood quality and reduced regulatory uncertainty[6]. This suggests rent control imposes broader economic deadweight losses beyond covered units.

New York City (Long-Term Rent Control Case)

By 2024, decades of stringent rent control in NYC produced:

• 20,000-60,000 vacant apartments (economically unviable to renovate or re-rent due to strict caps)
• Substantial deferred maintenance in controlled units
• Stagnant housing stock unable to adapt to modern demand
• Remaining supply scarcer and more expensive than in unregulated markets[6]

New York shows the long-term trajectory: short-term affordability gains fade as supply constraints deepen.

Consensus Research Findings on Best Practices

The Consensus synthesis identifies what actually works for affordability:

Effective Approaches:

1. Supply expansion: Direct housing production is the most reliable mechanism for long-run affordability improvement
2. Modest, inflation-tied protections: Due-process eviction rules, relocation assistance, anti-retaliation policies, and modest (not strict) rent-increase caps tied to inflation do not necessarily shrink supply
3. Pairing supply + protections: "Strong tenant protections" need not mean rent control if paired with aggressive supply expansion

Failed Approaches:

• Maximalist rent control (hard ceilings without supply flexibility)
• Rent control isolated from supply policy
• Price controls without addressing land use constraints[3]

Washington's Policy Gap Analysis

What Washington Did (Supply-Side, 2023-2025)

Positive steps:

• HB 1110: Middle housing legalization
• HB 1491: Transit-oriented density requirements (FAR 3.5 and 2.5)
• SB 5184: Parking mandate reductions
• SB 5471: County middle housing authorization

These measures address zoning rigidity and regulatory friction within UGAs. Estimated impact: 1.8 billion square feet of new capacity in Puget Sound region alone[5].

What Washington Didn't Do (Supply-Side, Fundamental)

Critical omission:

• No Growth Management Act boundary expansion: UGA limitations remain at 3.74% of state land
• No state-level infrastructure funding for rapid transit and utilities to support higher-density development
• No removal of development fees or streamlined permitting in high-growth zones
• No agricultural land release or county-level boundary adjustment mechanisms

What Washington Did (Demand-Side, 2025)

Rent control policy:

• 7%+CPI cap (or 10% maximum)
• No clear linkage to landlord cost data
• No supply-side coordination

Policy Misalignment

The misalignment is stark:

Table 1: Washington State Housing Policy Matrix: Identifying the Gap

Scenario Analysis: What Happens Next?

Years 1-2 (2025-2026): Rent Control Honeymoon

Expected outcomes:

• Covered tenants experience stable or declining rent burdens
• Media reports "success" in rent stabilization
• Landlords absorb cost increases or draw down reserves
• Limited immediate supply response (existing buildings don't vanish)
• Rents in uncontrolled segments (new construction, ADUs, secondary market) may increase

Probability: Very high. Short-term results will likely appear positive for covered tenants.

Years 3-5 (2027-2029): Supply Adjustment Begins

Expected outcomes (based on San Francisco, Germany, Berlin cases):

• Landlord investment in new rental construction declines
• Conversion to condominiums accelerates in high-value markets
• Capital redirects to uncontrolled markets or out-of-state
• Deferred maintenance increases in rent-controlled stock
• Tight UGA boundaries prevent compensatory new supply
• Overall rental availability tightens; prices rise for marginal units

Probability: High, given UGA constraint prevents easy supply expansion.

Years 5-10 (2030-2035): Long-Run Disequilibrium

Expected outcomes (extrapolating New York, Cambridge cases):

• Covered tenants enjoy stable rents but face quality decline
• New renters face scarce, expensive housing (uncontrolled market)
• UGA boundaries bind harder as population grows
• Pressure for policy liberalization or rent cap increases
• Gentrification concentrates in uncontrolled segments
• Net welfare for broader renter population may decline despite gains for covered tenants

Probability: Medium-to-high, unless UGA boundaries expand or new supply mechanisms emerge.

What Washington Should Have Done (Alternative Analysis)

Alternative Policy 1: Supply-First Approach

Rather than rent control, prioritize supply expansion:

1. Expand UGA boundaries: Model adjustment mechanisms allowing 5-7% of state land in UGAs
2. Fund infrastructure: State bonds for transit, utilities, and roads in UGAs
3. Streamline permitting: Reduce approval timelines for housing projects
4. Targeted tenant protections: Anti-retaliation, due-process eviction rules, relocation assistance (without hard price ceilings)

Advantage: Addresses root cause (scarcity) rather than symptom (prices).

Empirical support: Molloy (2020) review found "easing supply constraints is more reliable for lasting affordability than relying on rent control alone"[7].

Alternative Policy 2: Mixed Approach

Implement moderate rent control paired with aggressive supply expansion:

1. Modest rent cap: 5% annual increase (without CPI adjustment—stricter but time-limited)
2. UGA expansion: 5% of state land by 2035
3. Supply incentives: Density bonuses, fee waivers for new rental construction
4. Transition clause: Rent control sunsets when regional vacancy rate exceeds 5%

Advantage: Balances tenant protection with market mechanisms; creates incentive for supply growth.

Empirical support: Catalonia achieved 6% rents cuts "without immediate supply loss" through higher-coverage regulation—but the "without immediate" qualifier is crucial. Longer timelines would reveal supply effects[3].

Conclusion

Washington State's House Bill 1217 implements a 7%+CPI rent control regime without addressing the fundamental supply constraint embedded in the Growth Management Act's 3.74% UGA limitation. This policy misalignment reflects a diagnosis error: treating housing affordability as primarily a demand-side problem (high prices) when Washington's core problem is supply-side (scarcity).

Empirical evidence from San Francisco, Germany, Berlin, and New York demonstrates that rent control alone produces short-term affordability gains for covered tenants at the cost of:

• Reduced new supply (San Francisco: -15%)
• Quality deterioration in controlled units
• Shifted rents to uncontrolled segments
• Long-run market disequilibrium and scarcity

Washington's concurrent zoning reforms (HB 1110, HB 1491) represent genuine supply-side progress, but operate within an artificially constrained land base. Without UGA boundary expansion or novel supply mechanisms, internal zoning liberalization reaches saturation within one to two decades.

The case study's central finding: Washington adopted a policy tool (rent control) incompatible with its land use framework (severe development restrictions). The state should either:

1. Expand supply mechanisms (UGA boundaries, infrastructure, permitting speed) and replace rent control with modest, targeted tenant protections, OR
2. Pair rent control with aggressive supply expansion and include automatic sunset provisions tied to vacancy rates

Current policy does neither, ensuring that short-term affordability gains for protected tenants will eventually give way to broader scarcity and market distortion.

References

[1] Washington State Department of Commerce. (2025, May 7). Governor Ferguson signs House Bill 1217 into law—Rent increase caps effective immediately. https://www.commerce.wa.gov

[2] Stoel Rives LLP. (2025, May 12). Washington Enacts Statewide Rent Control: Key Rules Now in Effect. Commercial Real Estate News. https://www.stoel.com/insights

[3] Consensus Research Synthesis. (2024). Rent control effects through empirical research. Consensus.app research compilation (based on multiple peer-reviewed studies including Jofre-Monseny et al. 2023; Diamond et al. 2019; Hahn et al. 2023; Baye & Dinger 2024; Breidenbach et al. 2021). https://consensus.app

[4] Washington Center for Housing Studies, Building Industry Association of Washington. (2025, July 16). More Homes, Higher Prices: How land limits contribute to Washington's housing crisis. GIS analysis of Urban Growth Area boundaries. https://housingstudies.biaw.com

[5] Sightline Institute. (2025, May 15). Washington Takes Statewide Zoning Reform to the Next Level. Analysis of HB 1443, HB 1491, SB 5184, SB 5471. https://www.sightline.org

[6] Reason Foundation. (2025, May 12). Washington State rent control bill will shrink housing supply and worsen affordability. Policy commentary citing Autor, Palmer, and Pathak (MIT); New York City vacancy estimates. https://reason.org

[7] Molloy, R. (2020). The effect of housing supply regulation on housing affordability: A review. Regional Science and Urban Economics, 80, 103350. https://doi.org/10.1016/j.regsciurbeco.2018.03.007