Governor Ned Lamont proposed limiting annual rent increases to 5% for properties owned by out-of-state landlords, marking his most aggressive move yet to address Connecticut’s housing affordability crisis.

The proposal, unveiled Tuesday during his budget address, would apply only to landlords who reside outside Connecticut and own residential rental properties in the state. In-state landlords would face no such restrictions under the plan.

“We’re seeing too many Connecticut families priced out by investors who have no stake in our communities,” Lamont said during his State of the State address. “This targeted approach protects tenants while preserving local property owners’ flexibility.”

The rent cap would take effect January 1, 2025, if approved by the General Assembly. Violations would result in fines up to $5,000 per unit, with repeat offenders facing potential license suspension.

Fairfield County, where median rent has climbed 23% since 2020, would see the proposal’s biggest impact. Cities like Stamford, Norwalk and Bridgeport have attracted significant out-of-state investment, particularly from New York-based firms seeking higher returns than available in saturated metropolitan markets.

“The math is simple for these investors,” said Sarah Chen, executive director of the Connecticut Fair Housing Center. “They can charge Manhattan-adjacent rents without Manhattan-level operating costs. Meanwhile, families who’ve lived here for generations can’t afford to stay.”

Real estate industry groups immediately criticized the proposal. The Connecticut Association of Realtors called it “discriminatory” and warned it could reduce rental housing investment.

“This creates an arbitrary distinction based on where someone lives rather than addressing the real issue, which is supply,” said Michael Rodriguez, the association’s legislative director. “Out-of-state investors often renovate neglected properties and bring them back to market.”

Lamont’s proposal comes as Politics & Government debates in Hartford increasingly focus on housing costs. The governor has faced pressure from progressive Democrats to take stronger action while business groups warn against policies that could discourage development.

The rent cap includes several exemptions. Newly constructed buildings would be exempt for their first five years. Properties undergoing major renovations costing more than $50,000 could petition for temporary relief. Units in buildings with four or fewer apartments would also be excluded.

Legislative leaders offered cautious support but suggested modifications. House Majority Leader Matt Ritter said the proposal merited “serious consideration” while noting constitutional concerns about treating residents and non-residents differently.

“We need to be careful we’re not creating legal challenges that could tie this up in courts for years,” Ritter said. “But the underlying concern about speculation driving up rents is legitimate.”

Data from the Connecticut Department of Housing shows out-of-state ownership of rental properties has increased 34% since 2019. In Fairfield County, nearly 40% of rental units in buildings with five or more apartments are owned by out-of-state entities.

The trend accelerated during the pandemic as remote work made Connecticut attractive to New York residents while investors sought alternatives to commercial real estate. Stamford saw particularly heavy investment, with several large apartment complexes changing hands to out-of-state buyers.

“These aren’t mom-and-pop landlords,” said State Senator Julie Kushner, whose district includes parts of Fairfield County. “These are sophisticated investors treating housing like a commodity rather than a community resource.”

Tenant advocates praised the proposal but questioned whether 5% caps go far enough. With inflation running higher, even capped increases could strain household budgets.

“It’s a step in the right direction, but 5% annually still means rents double every fourteen years,” said Maria Santos, a Bridgeport tenant organizer. “For families already spending 40% or 50% of income on rent, any increase hurts.”

The proposal faces an uncertain path in the General Assembly, where Republicans hold enough seats to sustain vetoes if they unite with moderate Democrats. Some lawmakers worry about constitutional challenges under the Commerce Clause and Equal Protection provisions.

Similar policies in other states have faced mixed legal results. Oregon’s statewide rent control survived court challenges, while local ordinances in Texas and North Carolina were struck down on various grounds.

Legal experts suggest Connecticut’s approach of targeting only out-of-state owners could prove more vulnerable than broader rent stabilization policies.

“The distinction between in-state and out-of-state residents raises Commerce Clause issues that wouldn’t apply to general rent regulations,” said Professor Janet Williams, who teaches housing law at Yale Law School. “It’s legally creative but potentially risky.”

Lamont administration officials said they consulted extensively with the Attorney General’s office on constitutional questions and believe the proposal would withstand legal challenges.

The governor’s budget also includes $50 million in additional funding for affordable housing development and streamlined permitting for residential construction, acknowledging that supply constraints contribute to rising rents.

Business groups and some Democratic lawmakers prefer focusing on supply-side solutions rather than price controls. They note that Connecticut’s lengthy approval processes and local zoning restrictions limit new construction, keeping vacancy rates low and rents high.

“If we made it easier to build housing where people want to live, we wouldn’t need rent caps,” said Tom Murphy, president of the Connecticut Business and Industry Association. “This proposal treats symptoms rather than causes.”

The proposal reflects Lamont’s evolution on housing policy since taking office in 2019. Initially focused on business-friendly policies to compete with neighboring states, he has increasingly embraced progressive positions as housing costs became a dominant political issue.

Recent polling shows 67% of Connecticut residents support some form of rent regulation, with support highest among younger voters and urban residents. The issue has particular resonance in competitive suburban districts where housing costs affect middle-class families.

Republican leaders signaled strong opposition to the rent cap while supporting other housing proposals in Lamont’s budget. Minority Leader Vincent Candelora called it “government overreach” that would discourage investment.

“The best rent control is more housing supply,” Candelora said. “This policy moves us in exactly the wrong direction.”

Public hearings on the proposal are expected to begin in February, with votes possible before the legislative session ends in May. The complex legal and economic questions involved suggest extensive debate ahead.