More developers are avoiding building apartments in rent-regulated markets as the cost of living and rising rents remain key political flashpoints.

Thirty-five percent of multifamily firms have cut back on investment in rent-regulated markets, the National Multifamily Housing Council found in a survey conducted earlier this month. That is up 9 percentage points from a 2022 survey, and a similar number of builders are staying away from those markets altogether.

The survey of 98 multifamily CEOs or top executives found that 41% are avoiding rent-regulated markets, up from 32% in 2022. Just 7% of developers in markets where rent controls exist are planning to move ahead with business as usual, down from 23% in 2022.

The rising cost of rent has been a key gripe from American consumers squeezed by inflation. Dozens of bills from the local to the state level have been proposed or passed, and a sprawling antitrust investigation into software firm RealPage and many of the country’s largest landlords, alleging that the group colluded to push up rents, has further soured tenants’ perspectives.

The Los Angeles City Council voted in November to put a 4% ceiling on annual rent increases on rent-stabilized apartments in the city, which account for nearly 74% of the total inventory.

Developers have long said New York City’s rent regulations were not only curtailing new construction but also dragging down existing owners who can’t offset rising costs with higher rents. The city’s own coffers have been drained by a $500M investment into real estate, including rent-stabilized units.

Multifamily landlords have also been facing rising operating costs as a wave of new construction comes online, weighing down rent growth and pushing up vacancies.

“A softening labor market combined with high levels of new apartment supply is resulting in slowing rent growth in many parts of the country,” NMHC Chief Economist Chris Bruen said in a statement.

Rent moderation is the strongest in the Sun Belt, where rents are falling in some markets, he said.

The average national asking rent fell by 0.2% in November, the most significant monthly decline in 15 years, driven down by falling rents in places like Austin, Denver, Phoenix and Naples, Florida.

The NMHC’s survey broadly tracked a softening multifamily sector.

It found executives see market conditions loosening, with 43% saying conditions were looser than three months ago and just 7% seeing tightening in the sector. Sales volume slipped despite most respondents reporting that they felt that the market was unchanged.

More than half of the executives surveyed said equity financing conditions had held flat over the last three months, while 21% saw an improvement and 15% reported a decrease in availability.

The debt financing environment was seen as the most favorable, with 53% reporting better borrowing conditions today than three months prior.