Will Rent Control, Increased Government Regulation, and Artificial Intelligence Drive Small Landlords Out of the Real Estate Business?
It’s a triple whammy. Politically, this is a major challenge.
If we want to keep small investors in the business of providing housing, we need to give them a reasonable path to succeed. Otherwise, the future may look very different from the “passive income” ideal promoted by real estate influencers.
Over the past 20 years, regulation related to new construction has increased significantly. In the name of safety, building codes such as the International Building Code have driven up the cost of construction and ongoing maintenance. Whether the project is wood-frame housing or an industrial building with a concrete tilt-up structure, no type of construction has been spared. The most significant effect of these codes is that they have made building materially more expensive.
In the name of protecting families from earthquakes, improving insulation, and fireproofing properties, costs have risen sharply. Inflation is not the only factor; everything has become more complex, from sprinkler systems and water heaters to electrical work and structural components.
Even though inflation has fallen to around 2.7%, prices remain about 25% higher than they were in 2020. Meanwhile, certain sectors such as housing and healthcare have far outpaced that rate, placing growing strain on consumers. https://www.visualcapitalist.com/chart-inflation-hit-the-hardest-by-category-2000-2025/
Property owners face rising costs
Property owners are also facing higher repair and maintenance expenses. While the 2022 increase was the largest on record, it reflects a broader trend. Excluding 2020, when social distancing restrictions caused many routine maintenance items to be deferred, repair and maintenance costs rose 12%, 11.3%, and 21.2% in the years since 2019. As a result, median repair and maintenance spending per apartment increased from $1,140 in 2018 to $1,664 in 2022, a 46.0% increase over four years. https://www.novoco.com/notes-from-novogradac/repairs-maintenance-expenses-see-big-jump-2022-start-trend-or-catch-period
There is very little margin left for a real estate investor to get rich. That may also help explain why the market often feels stuck.
Artificial intelligence
Artificial intelligence can already take phone calls, schedule appointments, coordinate maintenance, and process rent payments. In the future, it will likely be able to assemble financial statements as well.
Investors who own one to five properties account for 87% of all investor-owned homes, while 4% belong to those who own six to ten properties. The rapid growth of AI will likely bypass many small real estate investors because they may not have the capital or technical knowledge to integrate these tools into their rental operations.
That said, more than 52% of investor purchases in early 2025 were made by “mom-and-pop” investors. Many still see real estate as a path to retirement, and the market will likely continue to adapt to them, though the adjustment may come at a significant cost. https://nationalmortgageprofessional.com/news/small-investors-dominate-single-family-home-market
Is rent control beneficial for tenants?
As rents rise to offset higher construction and operating costs, tenants’ budgets are being squeezed. In response, many have successfully lobbied lawmakers to impose limits on rent increases. As a result, rent control or rent stabilization has either been enacted or is being considered in many states across the country.
For example, California, New York, New Jersey, Maryland, Oregon, Maine, Minnesota, Washington, and Washington, D.C. have rent control or rent stabilization policies. While only Oregon and California have statewide rent caps, the others allow local jurisdictions to set restrictions, and more than 30 states prohibit rent control altogether. https://naahq.org/advocacy/policy/issues/rent-control
The biggest challenge property owners face is the constant stream of regulations intended to protect tenants. Rent control, code updates, and zoning changes all affect the economics of investment property and can reduce its viability. In many cases, these rules have the unintended effect of slowing new construction and forcing the sale of rental units.
For example, after the implementation of rent control and stricter tenant protections in Portland, Oregon, the city lost approximately 14.4% of its single-family rental units between 2017 and 2020, as many were converted to owner-occupied housing. Data indicates that single-family rental properties declined from 27,656 before the rules to 23,669 by 2020. https://www.sellingdchome.com/rent-control/https://affordablerentforall.com/portland-lost-14-of-rentals-did-rent-control-cause-the-decline/
Some investment-property owners choose to exit the market rather than deal with rent control. Rent control does not appear to have increased the number of rental units in Portland. Fewer units are available, especially for families who rent single-family homes. A reduction in rental supply increases demand, which can push rents even higher and undermine the original purpose of rent control.
We need a way to align tenant and property-owner interests and show that policies such as rent control can sometimes worsen the very problems they are meant to solve. Small investors — including owners of homes and plexes, who make up a large share of landlords in the U.S. — are often the most flexible landlords. Larger landlords tend to be less flexible because they rely more on standardized rules and procedures.
Conclusion
What is a real estate investor to do? How much risk is there in buying real estate today if rising expenses continue to squeeze both landlords and tenants?
Even large real estate investors will feel the pressure when they move outside major markets and encounter tenants who cannot afford higher rents. States with lower income taxes may have an advantage because tenants have more disposable income and landlords have more cash flow to absorb rising operating costs.
At a larger level, we may be approaching an inflection point where owning real estate becomes more viable for the wealthy, who can afford larger properties and benefit from operating efficiencies. For example, a 150-unit property may have a painter and two maintenance workers on site at $40 an hour, while the owner of a fourplex may need to hire outside help at $150 an hour. That creates a clear disadvantage for owners of smaller properties.
At the same time, we have expanded the ability of voters to change the laws, while legislative mandates continue to squeeze small investors. It is no surprise that many small landlords want lower taxes and less regulation.
Will the path to real estate ownership remain available to the average mom-and-pop investor? It would be a pity if it did not. We should focus on reducing taxes and regulations and making artificial intelligence accessible to small property owners, so the market can function more freely and the pressure on rents can ease.
Clifford A. Hockley is Principal Broker at SVN | Bluestone, as well as the managing member of Cliff Hockley Real Estate Consulting, LLC. As a Certified Property Manager & Designated Managing Broker, Cliff has 42 years of experience in the brokerage and management of Real Estate companies. Bluestone and Hockley Real Estate Services managed condominium associations, multi-family, and commercial properties in the greater Portland area. He was focused on running the company and involved with investment property brokerage. He worked with financial institutions, governmental agencies, private investors, and not for profit organizations. He also has vast knowledge in budgeting, organizational management, and building structures. His previous experience includes over five years in accounting, production supervision for a manufacturing company, and work for state agencies in California.
Cliff grew Bluestone and Hockley Real Estate Services into a 100 employee company that managed over 2 billion dollars of real estate assets before he sold the company in 2021. He also supervised a sales team of over 15 real estate brokers for over 35 years. His monthly newsletter, QuickFacts has over 2,300 subscribers. He has been involved in numerous real estate transactions that include industrial, retail, office, and multifamily properties. Cliff has also written a book called “Successful Real Estate Investing; Invest Wisely, Avoid Costly Mistakes and Make Money” published by Morgan James Publishing in 2019.
Cliff has successfully coached real estate investors and CEOs located throughout the United States since 2015. He has acted as a sounding board to help untangle knotty issues that need an experienced outside opinion. He guides leaders who find it is “lonely at the top” and need an experienced hand to help set a strategic direction, sort out operational problems and want to talk through challenging business decisions.
He has served as an adjunct professor at Portland State University from 2028 – 2021, teaching classes in: Intro to Real Estate, Basic Real Estate Finance, Property Management as well as Real Estate Investment Fundamentals. He has instructed hundreds of students and believes that substantial preparation and active student engagement are crucial for learning and appreciating the field of real estate. Students appreciate his candor and real-world experience.
Among his many civic activities, Cliff served on the Board of Directors for the Portland Chapter of the Institute of Real Estate Management (IREM) and the Rental Housing Alliance of Oregon. In 2014 he was recognized by IREM as board member of the year, and in 2015 he earned an achievement award in brokerage from SVN International. In the years 2000 & 2003, he was recognized by IREM as Certified Property Manager of the Year.
