The Seattle City Council has put a $10 cap on fees for late payment of rent. This is on the heels of the cities of Auburn and Burien who have recently passed a similar restriction on fining late paying renters. The typical late fee for non-payment of rent is between 5% and 20%.

The $10 cap will give Seattle property owners another reason to sell their Seattle rental properties to avoid Seattle’s draconian and heavy-handed approach to regulation of the rental housing market. For those who cannot afford to sell in a rapidly declining property value market, their only recourse is to increase rent to mitigate the additional cost of a potentially bad renter.

Just because a renter doesn’t pay their rent on time, doesn’t mean the property owner can make a late payment on a mortgage they may have on the rental property. The property owner will have to pay late fees and interest to the bank on any loans or mortgages they have on the rental property.

A $10 late fee is not a deterrent to a renter who may be faced with making a choice of which bill to pay first during hard financial times. Renters have traditionally prioritized rent over other payments, especially since it represents, in most cases, the largest monthly financial commitment for the renter.

Showing complete disregard for the financial situation that the new law places property owners in, many of whom own only one rental property, Councilmember Kshama Sawant told the Seattle Times, “Late fees can suck renters into a debt vortex”. Unfortunately, many property owners, faced with non-payment of rent and after two years of government mandated eviction moratoriums and restrictions on recovery of lost payments from bad tenants, will pull out of the Seattle rental market. This will only exasperate rental unit availability and increase rents.

Understandably, this is a difficult situation for both the renter and property owners. Many reach agreements with payment plans or reduced rent when the renter is unable to pay on time. It is nearly always in the best interest of the renter and property owner for the renter to stay in the property.

It is those renters that are abusing the situation deliberately, that will force property owners to make a hard choice.

Rental costs will increase as a result of overregulation and municipal leaders and legislators need to consider carefully the laws they introduce. Any legislation (and less legislation is more in many cases) needs to create a competitive rental market that will allow for additional homes to be built, placed back on the market, and in greater numbers.

The $10 cap, intended by the Seattle City Council to help renters, will have exactly the opposite effect and will increase rents.

For ideas on how the rental and housing market can be improved, see Washington Policy Centers recommendations here.