Rent regulation emerges as macroprudential tool as multifamily delinquencies hit 10-year high

Multifamily CMBS delinquencies climbed above 7 percent in late 2025 for the first time in a decade, exposing how speculative underwriting in rental housing has created systemic fragility that rent regulation can address, according to a new Roosevelt Institute brief.

"Rent regulation is not merely a response to past crises — it is a tool for preventing the next one," said Anisha Steephen, policy analyst at the Roosevelt Institute and author of the July 1 brief.

The report argues that rental housing has become a financial asset class financed through commercial mortgage-backed securities valued on projections of future rent growth rather than tenant affordability. More than half of the roughly $100 billion in securitized commercial mortgages coming due in 2026 are projected to fail to pay off at maturity, according to Morningstar DBRS data cited in the brief. The special servicing rate on multifamily CMBS reached 8.3 percent in early 2026.

With federal regulators dismantling post-2008 supervisory frameworks — including the halting of Basel III capital requirements and the effective defunding of the Consumer Financial Protection Bureau — the brief positions rent regulation as one of the few macroprudential tools available to state and local governments. It argues that capping rent increases and strengthening eviction protections compresses speculative premia in property valuations and forces lenders to underwrite based on actual stabilized income rather than projected displacement.

The Minsky Framework Applied to Housing

The brief draws on economist Hyman Minsky's theory that financial systems endogenously generate fragility, moving from conservative hedge financing through speculative financing and eventually into Ponzi dynamics where deals only work if appreciation continues indefinitely. Rental housing has followed this path, Steephen argues. A decade of near-zero interest rates allowed lenders to accept pro formas built on aggressive rent growth assumptions, producing a wave of overleveraged acquisitions that could only be serviced through continued tenant displacement or rent paths above what local wages could sustain.

The mechanism runs through acquisition financing. When a multifamily building goes up for sale, buyers compete by presenting lenders with pro formas projecting future income. The buyer with the most aggressive projection can secure the largest loan and offer the highest purchase price — and must then deliver on that projection to service the debt. In rent-stabilized markets with vacancy decontrol, that means displacing tenants to deregulate units. In unregulated markets, it means raising rents above what current tenants can afford.

"Even a landlord who wants stable tenants and reasonable rents finds that to pencil out, the debt structure their lender approved requires displacement," Steephen wrote.

Signature Bank as a Stress Test

The brief uses the March 2023 collapse of Signature Bank as a case study. The bank's $11 billion portfolio of loans to rent-stabilized buildings had been underwritten on the assumption that landlords would displace tenants and convert units to market rate. When New York's 2019 Housing Stability and Tenant Protection Act closed vacancy decontrol pathways, those valuations collapsed. Cap rates on rent-stabilized buildings in Queens jumped from 3.95 percent in 2018 to 5.03 percent in 2019, according to Ariel Property Advisors data cited in the brief. By 2024, some heavily rent-stabilized properties were trading at cap rates approaching 9 percent, compared with typical pre-reform levels of 3.5 percent to 4.5 percent.

The Federal Deposit Insurance Corporation marketed Signature's loans after the collapse, but even New York Community Bank — the city's other major rent-stabilized lender — refused to purchase the multifamily portfolio despite acquiring $12.9 billion in other Signature assets. The city government ultimately intervened with $60 million in pension funds to preserve 35,000 units.

The same dynamic operates nationally, the brief argues. Arbor Realty Trust, the Long Island-based REIT that became a dominant lender to Sunbelt multifamily syndicators, reported $570 million in delinquent loans and roughly $500 million in real-estate-owned assets by the end of 2025, nearly triple the $177 million a year earlier. Apartment buildings Arbor has taken back through foreclosure are on average only 45 percent occupied.

Racial Dimensions and Policy Implications

The brief notes that Black renters face eviction rates roughly double those of white tenants, citing Eviction Lab data showing that Black Americans account for 51.1 percent of eviction filings despite making up only 18.6 percent of renters nationally. Speculative capital has concentrated in historically Black and brown neighborhoods that were redlined in an earlier era, the report says, creating a feedback loop between financial fragility and racial inequality.

Steephen argues that rent regulation serves two functions: redistribution of scarcity windfalls from landlords to tenants, and financial stability by disciplining speculative credit. The second function has received far less attention but may be more consequential, she wrote, because it addresses the architecture of the financial system that determines how housing is valued, financed, and owned.

"Capital requirements prevent banks from overleveraging their balance sheets," the brief concludes. "Rent regulation prevents landlords from overleveraging buildings against speculative displacement."

This article is for informational purposes only and does not constitute investment advice.