"... there could be a big effect in rapidly gentrifying neighborhoods like Boyle Heights in Los Angeles, where typical rents on apartments not covered by the city’s rent regulations have jumped more than 40 percent since 2016."
A deceleration in rental inflation in neighborhoods such as the above? A reduction in newly homeless populations?
So are you willing to accept that if none of these things happen, and the homeless problems increase, that this measure failed and should be repealed?
It's one thing to describe a proposal's political motivations, but quite another to actually declare that you might be wrong in your approach and are willing to define object criteria for success.
To be clear, this is a 20 year old article, the literature on rent control has changed a lot since this was written. Basic economic consensus rn seems to be that rent control is a poor long term solution to rising housing costs but a necessary short term solution as the required supply shock wouldn't even be able to happen in the near term even if regulatory barriers are eased due to labor, construction, and land costs in expensive metros and that the anticipated negative impacts of rent control (less liquidity in rental market, higher prices) dwarfed by the impact of lack of supply.
It’s a 20 year old story about rent control in San Francisco. So, we are talking about a long term problem?
“ A few months ago, when a San Francisco official proposed a study of the city's housing crisis, there was a firestorm of opposition from tenant-advocacy groups. ”
yes, and there was a huge well funded study a few stanford professors conducted of rent control in SF in 2018 that is a much more accurate study of the affects of rent control policies.
"Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood."
To be clear, the rent control studied was a yearly rental increase of ~2/3 CPI, or 1-2% annually, while market rents increased at about 7% annually since the 50s in SF. The proposed policy is a rent cap of around 8%, which is higher than the aggregate rent increase in the SFBA over the past 30 years or so (also 7%). This isn't a rent control law as much as it is an anti gouging law, disallowing landlords from increasing rent 10-20% YoY, which happens to maybe 1-3% of the market.
its a great solution for people who's landlords are price evicting them by raising their rents by 25%. This law will allow people 2-3 years to find an alternate living arrangement compared to the 30-60 days they have today.
If I were to guess, this bill will likely be positioned as a long-term solution and the other bit where housing supply is addressed will go largely neglected.
Which is, coincidentally, an apt summary of San Francisco's housing policy for the past twenty years.
So does this bill automatically expire at some point? If not, why not? Not many laws are easily repealed as the side effects they create work to entrench them in society. A bad person is a person that think they can engineer other people's lives for the better through legislation.
The real solution here is to build more housing, as high prices are a market signal of a shortage. While I support more unit creation more than I support rent control, in the current crises we need both. What I still can't get over is how much of CA land use politics is pure generational warfare, the olds vs the millennials, and it seems that the millennials are finally starting to win some fights.
> generational warfare, the olds vs the millennials
This is a good example of that. Rent control tends to benefit the older generation at the expense of younger people and families. It does nothing to solve the actual problem of lack of housing inventory.
millennials in CA are disproportionately renters, not home owners. This bill will provide millennials with some extra security so they know their rent won't be spiked and they'll need to move.
imo It will still benefit the older generation more. There's now even less motivation for people to build more housing inventory to rent out. With ever dwindling housing inventory, it's first come first serve. Guess who's there first?
"Economists from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing. Studies in San Francisco and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes. And since rent controls typically have no income threshold, they have been faulted for benefiting high-income tenants."
This is what would really help with the housing problem
"State Senator Scott Wiener, a San Francisco Democrat, offered a bill that would essentially override local zoning to allow multiple-unit housing around transit stops and in suburbs where single-family homes are considered sacrosanct. The bill was shelved in its final committee hearing this year, but Mr. Wiener has vowed to keep pushing the idea."
did you read the article or understand the bill? This bill doesn't impact construction finance because it doesn't apply for the first 15 years after a building is constructed (pretty much all residential construction loans use a 15 year rent projection for valuation). Additionally, the median market rent increase is a few percentage points lower than the rent increase allowed by this law. The main thing the law does is allow people who are being price evicted to be price evicted over 3 years instead of 60 days.
until they need a two bedroom for a kid. rent control works great if you have your shit together and have no life changes coming up. If you're settled in your life and you already have a place, rent control is great, if you're going thought the life change stage of your life, rent control doesn't help to much. Rent goes up to market when you move out to go to college, then it goes back to market after you leave college to get that first job, then when you want to move into a place by your self or with a significant other, back to market. Need something bigger to start a family? Back to market. Once you finally get your shit together and ease into a stable part of life (if you haven't bought a house) your rent is stable. But it's not a big help until you're stable. So while most people are renters in the younger demographic, rent pretty much stays at market for the majority of the time through 20's and 30's. The answer is still more housing to lower the overall price of housing.
"The answer is still more housing to lower the overall price of housing." I am not arguing against that at all, but if we decide to go extreme SB50 style urbanize California we wouldn't see real price impacts for maybe 5 years at the earliest. What are we supposed to do between now and then, just accept 15% YoY rent increase?
IF this was passed at the same time as laws that allow more housing and tapered off after the expected return of more houses, I'd be fine with it. But as it stands now, the idea of rent control until more housing is a pipe dream since the more housing part never seems to come.
The studies are clear, rent control is a benefit to a few but long term doesn't really add much value and instead makes the market stagnate in funny ways.
Can you explain what you mean? I don't follow. Rent control is a bandaid that provides a level of stability to the lower classes. They can live without daily anxiety of being rudely defacto 'evicted' by radical, surprise rent increases.
This enables a society to continue to grow and function at a somewhat more sustainable pace, letting cities and counties grow without intense boom-bust and crash cycles, with a more stable working class, and therefore a long-term sustainable housing construction market.
I understand that rent control is no grand solution, and that we need more houses built - but I do not understand how rent control is part of the problem.
The problem starts and ends with personal and corporate greed. The rent control is an attempt at constructing a sustainable, stable society from the ashes of an out-of-control capitalism that is leaving most of its consumers in the dust.
Rent control is not part of the problem and would not deter rational actors from building additional housing - I believe it would increase it.
Rent doesn't get changed daily, only when a lease is up for renewal.
Rent control deters the creation of new housing. This reduce in supply raises the price, which is bad for the poor - exactly the people it is meant to help.
That seems to be Washington, not California. According to http://www.hrc-la.org/doc.asp?id=36 it seems to read that some leases allow rent increases mid-lease.
I believe you might be thinking of month-to-month, which is not a traditional lease. On all fixed term leases over a month rent cannot be changed during the term of the lease.
> Why does rent control deter creation of new housing?
If you have a lot of money and you want to build/buy a rental property, would you do it in a) a growing city with no rent control where your discounted future cash flows are unbounded or b) a city where there is a law placing a ceiling on your returns.
All else being equal, you are going to choose the city without rent control to build your new housing units in (or invest in something other than real estate altogether), thus illustrating how rent control disincentives new investment in housing, and specifically low-income rental housing.
I think your illustration has failed, though, because I would very much choose b). I consider a) as an evil in the world and would avoid participating in that if at all possible. b) sounds like a really good choice for long-term investment in in sustainable society.
> All else being equal
Okay but all else is not equal, and in the real world, it is never equal. These thought experiments do nothing to improve conditions in the real world, since they are based on flawed models of how people behave.
> Okay but all else is not equal, and in the real world, it is never equal. These thought experiments do nothing to improve conditions in the real world, since they are based on flawed models of how people behave.
By that logic, nothing affects anything else and we should all give up trying to think or plan.
I don't agree. We know that people are not 'rational actors' that maximize personal profit at every turn, and we should not base our economics around that known false idea.
I think it is wise to produce better models with new information - not to ignore everything or to knowingly use false models. People do not - and should not - act according to those 'rational' ideas of maximum profit.
The problem is that this is well a well studied problem and your first principles approach to it gives us the wrong results. Rent control policies like this one (only works on buildings 15 years old or older) do not impact new housing starts.
Rent control does indeed make the housing shortage worse in the following ways:
- It makes it so new renters subsidize the old ones, raising prices for newly vacant places, defeating the purpose of controlling costs. It also doesn't offer tons of protection from boom/bust cycles, as mainly those riding the boom will be able to afford absurd prices in highly regulated places like SF — Where a 1br can fetch 3.7k/mo (!!)
- "FU, got mine" attitude disengages renters from organizing the same way NIMBY homeowners do. For example, SF renters could easily outnumber homeowners to allow much more housing to be built, but ~70% of housing stock there falls under rent control.
I do want to be clear that I fully support controlling costs in some manner, however, this desperately needs to be tied to a solution that results in more housing.
do you have any clue about this specific measure? Its limited to buildings that are 15 years old or older, and it limits rent increases to 8% annually, which in practice is about 1 - 3% of all lease agreements in CA, a very small amount. Commercial construction loans are based on the 15 year revenue generating potential of the proposed building, this law was created specifically with that in mind so as not to interfere.
> do you have any clue about this specific measure?
Any price control inevitably has negative consequences in the market. This is practically a law of economics.
> Its limited to buildings that are 15 years old or older, and it limits rent increases to 8% annually, which in practice is about 1 - 3% of all lease agreements in CA, a very small amount.
If it with have such minimal effect why even have it?
> Commercial construction loans are based on the 15 year revenue generating potential of the proposed building, this law was created specifically with that in mind so as not to interfere.
Then it's not as bad as it could be. Doesn't mean it's justified.
The landlords that jack up rent more than 8% a year, at least in SF, are the commercial landlords of large apartment complexes like Avalon. At the very least this will stop the ones managing older complexes built 2004 and earlier from doing that anymore.
This is simply about spreading out massive rent hikes over the course of a few years instead of a few months. It gives families time to adapt or move. The allowable increases under this law are very high.
It may not seem justified to you, but to a low income family in a rapidly gentrifying area, it means everything.
> Any price control inevitably has negative consequences in the market. This is practically a law of economics.
There is an exception: if the price ceiling is higher than the market price, then the ceiling will have no effect. It may be that the allowed rate of increase is high enough that it's an ineffective price control, in which case there would be minimal market distortion.
I wonder if they put in measures to make permitting easier for builders so we can actually get more housing built?
I guess we’ll find out in some years whether rent control entices builders to build more or if it will depress the market for building (as it usually does) such that at some point we see people (families) bunking together ala Soviet housing solutions to demand.
Berkeley and Oakland are two places that have outrageous transfer taxes when you buy/sell your house. Its 15x what it is in most other cities in California. Basically more impediment to owning a home.
1.5% is definitely high, but I have a difficult time believing that it's a larger impediment to owning than the generally high price of property due to lack of supply.
It is a lot in some ways (it’s a remodel, or repair, etc.) but you’re not going to buy your fist home in Berkeley if you’re working with a tight budget. People are paying cash in some instances.
SF's (and CA's) housing crisis has it's roots in NIMBY-ism and property tax policy. Both are intertwined and share proponents. Rent control is a bandaid, which isn't to say it's not needed as an emergency measure.
It doesn't help the housing crisis when the core problem is severe lack of inventory. It will help politically though since this helps seniors, the most reliable voting bloc. Pricing controls will just make it worse for everyone else, especially younger generations and families.
Limiting rent increases to max 8% (what this bill encodes) is only going to affect maybe 1-3% of lease agreements annually. This isn't about vast controls of housing stock, it about limiting 20% rent spikes people experience.
this doesn't impact new buildings (only buildings older than 15 years old), its impact on housing creating is miniscule compared with the regulatory barriers of zoning and cost barriers of impact fees and construction costs.
The value of a new building (for finance purposes, IE getting a loan for construction) is based on the DFCF over the next 15 years, this is an industry standard. This rent control implementation doesn't start until the building is 15 years old, it will not impact real estate finance for new buildings.
In a vacuum, yes. Just as much as on paper 0.1+0.2=0.3 but in most floating point implementations it doesn’t.
In application Toronto has seen the opposite effect to what you describe. We hear this argument over and over as we just had our rent control stripped, but it’s counter to the experience.
A consensus of opinion is irrelevant. And among those articles is hardly a consensus. One wants regulations limited to an extent, another wants vouchers instead of rent controls.
Those (The few of those I could actually read, thanks paywalls!) all focused on the effects on owners bringing rental units out of the market and don't really show that there was an overall decrease in the number of housing units available. The economist article for example doesn't have any real info on the effect of rent control just the fairly standard arguments about it affecting the willingness of land owners to build.
> Every field of economics agrees that rent control causes harm to the people it's supposed to help.
Is that for rent control as in New York or San Francisco, where the allowed rent increases are very small; or for rent control as in San Jose (8% until reduced to 5% in 2016) or Oregon, or maybe this bill, where the allowed rent increase is larger than most of market increases?
A limit of 5% + inflation is probably more than most markets in most years, and more importantly, is a big enough limit that most leases will be able to catch up to the market over a few years.
So, this would still distort the rental market, but in a much more limited way, that may be more likely to actually help people.
Here's the problem: Prop 13 amended the CA constitution to prevent the state from increasing assessed property value by more than 2% a year. Landlords recognize that the real value is actually increasing faster than 2% and so increase the rent at the actual market rate. Given living costs make up the single largest force controlling cost of living, including for tax payer funded workers: police, firefighters, teachers, etc this fundamentally resulted in a massive tax cut for landlords, and more importantly businesses (who unfortunately aren't impacted by this).
The increasing disparity between taxed value and real value results in all tax payers having to pay increased income tax, which is then directed largely to landlords who aren't contributing their fair share - their properties are benefiting from services that they aren't paying for.
So tax-control bad, rent-control good? Owners’ properties benefiting from services that they aren’t paying for also bad? Renters benefiting from services they aren’t paying for doubleplus good?
Renters are paying for services though - that’s part of what the rent they are paying to their landlord is for. But landlords currently aren’t paying that so the burden has been shifted to tenants income. So tenants are currently having to pay market rates for rent, and increased income tax to subsidize their landlord.
> I am Senior Fellow, Economic Opportunity at the Charles Koch Institute. My research focuses on cities, urban development, population trends, labor markets, and federal and local urban public policy.
"As in previous polling, the law [to dramatically increase the housing supply] is more popular with Democrats than with Republicans, with 76 and 55 percent support respectively."
Yeah, thats why we're seeing oodles of houses now that the Democrats practically control all of california. Are you trying to argue that the current one party rule is a good thing?
You having problems reading your past posts? You just basically said evil Republicans are blocking common sense housing solutions and indicated the solution is an even greater proportion of Democrats but then said that a Democrat blocked it and their numbers don't matter.
I am a landlord in Oregon, but not California. The curious, although ultimately predictable, outcome of the new rent control measure in Oregon is that while I have historically had an arrangement with my property management to be restrained in annual rent increases, they are now advising a default annual increase of the maximum allowed (7 percent before inflation). This is because larger adjustments cannot be made if and when necessary due to market conditions, so it's smart to just steadily increase rent at the maximum rate permitted. If I agree, I believe the result will be more profitable for landlords, and hurtful to tenants.
The real solution to a housing problem is to incentivize and facilitate the building of more housing. ADUs, relaxed zoning, reduced building regulations, reduced fees for permitting, etc. I fear rent control is actually going to do more damage to the housing market than good.
Landlords who choose to increase rents at the maximum rate permitted each year do so at the risk that they will be undercut by competing property owners who do not do so. Given this, I think that your property management company is offering you bad advice.
Most landlords already increase rents at the maximum rate that the market will bear. Capping annual increases at 7% just ensures that in a year when the market would allow landlords to get away with increasing rents by over 7%, they won't be able to do so.
I do not follow when you say that the strategy of increasing rents by the maximum amount permissible is necessary "because larger adjustments cannot be made if and when necessary due to market conditions". In what scenario would larger adjustments be necessary? If you made a viable investment in a property and are currently renting it out, wouldn't rent increases just need to equal inflation in order for you to maintain the same level of profitability? Sure, increasing by more than inflation allows you to increase profits, but I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.
That’s how large corporations behave, but what the OP is voicing is a common sentiment for smaller investors or people doing landlording as a side gig or housing hack to financial independence.
If the market can support it, these laws guarantee the maximum increase. If the market cannot, well you are already at the top of the market aren’t you? So no benefit here.
One example I could imagine is that a landlord may not want to raise rents significantly on a long-term reliable tenant, but would want to increase rents when the reliable tenant leaves. “Market price” probably doesn’t include the cost risks of having a nightmare tenant.
>>> If you made a viable investment in a property and are currently renting it out, wouldn't rent increases just need to equal inflation in order for you to maintain the same level of profitability?
Not necessarily - taxes on property owners don't follow inflation. They may go up greatly compared with inflation.
>>> I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.
Because if don't allow it to be profitable people won't do it. Particularly in California it can be quite risky the rent out a property. It's an extremely tenant friendly location, so much so that evictions for major infractions can take several months, or in some cases years.
In Chicago, a lot of multi-units (2+ flats) are converted to single large SFH, so the net effect could be worse especially if prices were to go down that it would be attainable to do that.
Interesting! I wonder about the economics of that?
Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)
>Landlords who choose to increase rents at the maximum rate permitted each year do so at the risk that they will be undercut by competing property owners who do not do so.
Price ceilings (even non-binding ones) can create market power for suppliers by providing a focal point for tacit collusion.
The entire point of the law is to prevent you from being able to make those larger adjustments, though.
How often do you replace tenants? And what's your occupancy rate? If you're in a situation where you can reliably raise rent 7% YoY indefinitely without decreasing your occupancy rate, then you were severely underpriced for the market (and you should probably fire that management company for pricing you that absurdly low). 7% YoY after inflation is a big increase that outstrips average wage increases.
If you aren't severely underpriced, then what's going to happen is that when you increase by 7%, the tenants will choose to end the lease because they can find something cheaper (or they emmigrate from the city because nothing is affordable), and you'll struggle to replace them with wealthier tenants willing to pay what you think is market price, so you'll have to lower rent to attract a tenant. Once you get to the point where your price is roughly in line with what the market will bear, you'll only be able to squeeze one or two years of rent increases out of a tenant before the non-monetary costs of moving are outweighed by the cheaper rent, so constantly trying for 7% YoY post inflation will just mean a decrease in your occupancy rate, both because you'll be replacing tenants more frequently and because finding new ones will take longer.
There's certain hot zones in cities where the rent can increase by much greater than 7% YoY. In those hot zones no one's wages are rising at the same rate, so that law is the only thing that prevents the people previously living there from being forced to move even if they would rather stay. Essentially, it's the policy that is in response to all the stories about retirees being forced out of a home they rented for decades or the stories about the cops and firemen sleeping in their cars because their job is a 20 hour drive from their house and they can't afford anything closer to their job.
They outbid everyone else on every available unit.
They use their money to build new units in that area or entice someone to build new units on their behalf on which they will then outbid everyone else.
Cops and fire fighters are unionized, protected and well paid. For years the argument for higher pay for cops in Frisco was that cops couldn’t afford to live where they worked. That was effective marketing, cops never wanted to live in the city they all live in Santa Rosa. Perhaps using teachers as an example would be better.
I think your argument is contradicting itself at least partially because you say if an LL (landlord/landlady) was already getting market price, they’d price themselves out of the market so the 7% cap is more than enough... so in essence you’re saying the market will tell the LL not to raise the rent... which then means you’re relying on market forces... but you’re saying despite that you need a YoY cap... so something seems amiss...
No no that's not my argument here at all. I'm not making any argument about whether the cap is enough or needed. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent by that much every year (ostensibly because they are now planning to do this), and my response is that it's absurd to claim that anything in the law will change things so that you could make that sort of increase now if you couldn't already make that increase before the law existed.
I think what OP was saying was that in an unrestricted market they have wider range (due to discretion) but given this shackle on hikes, they are going to max it out. Maxing it out means there will not be downward adjustments when warranted (economic trends) and will instead ride it out (not make it avail at lower price) because when the economy picks up they’ll more than make the loss up.
what you are arguing is the captured surplus under the supply curve. We can assume that demand is essentially inelastic for a relatively large price range (hence the introduction of rent control) so the extracted value is the area under a curve that changes rapidly over the short term, or a less volatile curve that shifts out 7% every year. I don't see how either of you can be confident in the expected future actuals.
What in your second paragraph doesn’t apply without rent control? In other words, what makes 7% the magic number? Your entire argument seems based on market forces (if you raise too much, your tenant leaves and if there’s no wealthy people to replace them, you're stuck). How is this not the case without rent control? Do wealthy tenants somehow appear without rent control?
Growth; markets can grow faster than 7% a year, this slows that down so people aren't losing their homes because suddenly their market gets more popular.
Nothing. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent by that much every year (ostensibly because they are now planning to do this), and my response is that it's absurd to claim that anything in the law will change things so that you could make that sort of increase now if you couldn't already make that increase before the law existed.
The thing that would be different is the game theoretic situation where every landlord feels compelled to do that so the market rate increases by 7% per annum.
They could already do that. Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year. The entire point of the 7% cap is to stop that from happening above 7%, because certain hotzones experience that already, not because of a formal agreement, but because the demand outstrips supply by that much and supply can't (or won't) catch up.
However, there's an issue with how you're calculating the market rate: You're assuming that tenants can/will bear that cost indefinitely, so the market rate can be "whatever the landlords want to make it". That won't always be true, not just from landlord defectors who might try to undercut the oligopoly on price, but because the tenants can move elsewhere and effectively remove demand.
Let me put it more simply, all that rent control does is put a damper on large increases [1], but the rental market will still seek a market price. The only way to do that is to spread the increases to leaner years where the natural rate increase would be lower than the cap. Every landlord would independently conclude the same, no collusion needed.
To undercut that this year would mean being below market price in a future year. The only arbitrage would be between present and future prices. Perhaps some subset of landlords only seek to rent out for the front-end years, so they would have a different calculus, but all that would do is to pull down the average transaction price by a little, according to their size in the market. So if the current price demands a natural increase of 2%, maybe the market will clear at 5% instead of the 7% max, but it remains the case that there will necessarily be years where the clearing price is higher than without rent control.
[1] This is assuming the government "guesses" it right that 7% is the average rate of increase over the long term. If it is below average, then the market gets severely distorted.
I'm saying that game theoretic situation you proposed where every landlord raises their price by a similar amount is exactly what the law is working to limit to a fixed ceiling because the situation you described already exists in enough areas that there's political will to do something to limit the maximum yearly percentage increase.
And the cap was explicitly set to be below the average rates of increase for many areas because the effects of the higher increases in those areas is what the law is explicitly trying to prevent.
Spreading the increase to a leaner year only works if the unit is below the market rate. If the unit is already within 7% or so of market rate, then market won't bear that increase. Instead the tenant will move out to a market rate unit. If the entire city increases in lockstep that means people near the bottom of the market will be literally priced out and either move to another city or resort to sleeping in their cars or become homeless, but everyone else will just downgrade the size of the unit they rent since once the price of the current unit exceeds their ability to pay. At the very top end of the market that will mean units will have decreasing occupancy rates assuming the landlord refuses to compete on price to increase demand and insists on capturing the 7% increase.
> Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year
Well, “Nothing” is an unusual way of referring to the Sherman Anti-Trust Act.
Many landlords are not paperclip maximizers. REITs are, but small time families often charge below-market rents to the long term tenants they personally like or can’t be bothered to replace. They feel comfortable doing this because they can always revert to market rate later. With that long-term optionality going away, some will revert to market rate or as close as legally possible right now.
Sure some absolutely will, but there were enough paperclip maximizers relative to the total available rental units that a law limiting their maximizations had enough political will to actually pass through the legislature even though it's blindingly obvious that putting a limit on rent increases encourages all landlords to always increase rent by the maximum allowed.
If eligible landlords in SF all started raising rents by 7% per year, every year, the city would empty out. As much as housing is crazy expensive in SF, there's no way the market would bear those kinds of increases
SF already has rent control, which limits most landlords to increasing rent at 60% of inflation.
Needless to say, costs are increasing faster than 60% of inflation... In turn, landlords are only willing to write leases at very high prices and the supply of rental units is even lower than it would be otherwise...
So in other words, landlords love to reserve the right to kick a tenant they stop liking out at the drop of a hat for no specific reason, by jacking the rent up as high as they want. As compensation for this power, they are willing to charge well below market rates to help indigent tenants.
If they lose this “right”, they insist on becoming pure profit maximizing machines?
A better way to think about it is that a social norm that constrains landlords will be completely upended by the new legal norm. This legal norm will likely encourage behavior that otherwise wouldn't be exhibited, due to unintended consequences - in particular the landlord's estimation of what other landlords are going to do under the new law.
> So in other words, landlords love to reserve the right to kick a tenant they stop liking out at the drop of a hat for no specific reason, by jacking the rent up as high as they want.
It's disingenuous to pretend like the landlord is the only party with any control. Landlords cannot remove a tenant at "the drop of a hat" by any stretch of the imagination, nor can they arbitrarily increase rental prices. Rentals usually involve a lease that protects the tenant from arbitrary removal and price modifications as much as it protects the landlord from unexpected vacancy. If you're renting, you should know when your lease is up and know that the landlord has the option not to renew and/or to modify the price. (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)
On top of conventional lease protections, virtually every state has default tenant protections written into statute that can't be overridden by lease agreements, and that include a default implicit month-to-month tenancy term, providing at least basic protection from out-of-the-blue demands to vacate.
If an eviction must occur, it has to be conducted as prescribed in state law. Tenants overstaying or defaulting on their leases frequently can't be removed without 3-6 months of legal wrangling, which is no fun.
>>> (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)
The CA law allows the rental price to reset to market rate for a new tenant, so unless the landlord doing you a solid was planning to stick you specifically with a rent increase down the line to recapture the present solid, they can still keep your rent stable across lease terms.
I am a CA landlord of a single house. Keeping track of “market rate” is an annoying exercise and I tend to just leave the rate unchanged for multiple years (3-5) then bring it up in one go. The last time I did this the rent increased ~12%.
Before, the tenant was happy because they got below market rent for 4 years, and I was happy because I could defer pricing work without long term penalty or risking a move-out during an already busy year. This new law will likely result in my tenant paying more, and me working more at times I don’t want to work.
It’s not the end of the world, it’s just one more annoying piece of red tape that doesn’t seem to help anyone.
You can still do it that way. But instead of raising the rent 12% in one year, you can just raise it by 7% one year and then by 4% the next year.
The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year.
I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).
The point is, if you decline an increase now-- and costs increase unexpectedly, you have a hard cap on how much you can do to adjust. This incents landlords to be more aggressive with pricing, because a mispricing now can extend to be mispriced for many years.
It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.
Increase by 7% followed by an increase of 4.67289719626168224299065420561%.
The point is that the 12% hike every 3 to 5 years can be accomplished over the same time frame because the max the law allows for is 22.5043% in 3 years and 40.25517307% in 5 years.
But the reality is that landlords aren't going to want to take the risk that they'll have to spend extra time at a below-market rate, and since there's no way to predict what the market is going to do, there's no guarantee that they'll only be missing 4% of that value for only one year. Landlords are thus incentivized to increase rent by the legal maximum each year to keep the risk minimized.
Your hypothetical also assumes that in the next year, the market value will stay the same, when in reality the expectation would be that it would increase another percentage point or two, meaning they'd have to come close to maxing that second year's increase to fully recapture the value.
It also creates an effect where now that there's a legal range, the landlord will still feel like a nice guy by increasing rent "only" 4% each year, for example, and that's worse for tenants overall. It strongly incentivizes small-time landlords to imitate commercial landlords and squeeze the tenant for more each year, which other posters have adequately demonstrated is a significant loss to the tenant over a simple periodic adjustment every 3-5 years.
These policies may be better justified in high-density areas like San Francisco (probably still net negative), but applying them state-wide is crazy. California is a very large state and they just made things substantially more complicated for both tenants and landlords throughout.
FWIW, this is still more bookkeeping for me (have to track when to raise, how much remaining to raise). I also personally feel like a dick every time I serve the rent notice - it’s a small town and everything feels a little personal.
It’s not a lot of work, but my FT job isn’t being a landlord, and we’re talking about a property that nets maybe $8k/year. It’s been a better rate of return than the stock market, but the alpha is small relative to my SWE salary.
I guess another possible outcome of this is pushing marginal small landlords out, or pushing them to use property management firms since the fees possibly start making more sense. Neither of these seem like good outcomes to me.
Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants. A smaller annual increase will give them time to adjust to market conditions and choose over a longer period whether or not to move and to save up to do so.
You are doing no one any favors except short-term renters who never get an increase. In other words, your so-called benefit is actually a detriment to long-term renters.
I have done this twice with the same tenant without complaint or moveout. My tenant was presumably getting basic inflation based increases at work, which offset most of the delta.
Unclear on why doing it all at once is worse than doing it regularly and extracting more rent in the period in between. Is the theory that they will be unable to adjust
their budget in 60 days?
It's beyond me why people would think this is worse for the tenant. Can I move to CA and be your tenant? You're basically giving your tenants free money.
Let's say the rent is $1000/month (for simplicity). That's $12000/yr in the first year. If you increase the rent by 12% ever 4 years they'll have 3 years of paying $1000/month, followed by a 4th year of $1120/month and so on.
If you instead raised it yearly by 2.87%, which give-or-take is the same as a 12% one-off increase we can calculate the net rent paid over the period in the two scenarios:
The result is that by deferring rental increases you've given your tenant a benefit of $2106, and we can safely assume the rent is a lot higher than $1000/month. I.e. every month of the rent not keeping with market increases is more money for the piggy bank.
Not only that, the money saved in the short term (those 4 years without a rent increase) can be allocated however the tenant chooses. It can be frivolous spending, or the tenant can choose to turn it into long-term investments for compounding effect. I love being a tenant in these scenarios.
I think people that are arguing bigger rent increases that happen less often are bad are assuming tenants are stretching their housing budget to the max and won't be able to afford the large hikes. In which case they wouldn't have been able to afford it with smaller increases either.
Getting a surprise bill for 48 months of interest free credit is still a surprise bill. The landlord in question admits both to deferring out of disinterest in tracking market value (which as a trend is simply not hard work to determine) and to increasing the rent enough to recoup the rent lost by deferring the increase. During this time a tenant has no idea there is a claim on some undisclosed portion of their budget and has every incentive to set their operating budget accordingly.
It is well known that most people can not afford significant sudden expenses. I think the inability of some folks here to recognize how bad a 4 year rent hike can be have the privilege of not being in that group.
Renters generally understand that rent can be changed when the lease runs out and should be braced for the possibility that there will be a moderate increase. If the renter doesn't understand that, they probably haven't rented much before, and they'll learn it the first time their rent increases. If you are lucky enough to go multiple years without any adjustment, you should expect that the landlord will want to correct the differential at some point and budget accordingly.
Note this works both ways. If the market goes down, if no one wants to live there anymore, tenants have a lot of room to negotiate. Vacancies are expensive and the hassle of getting a new tenant is not something many people want to handle even in good conditions.
To clarify, when I increase, I bring it up to market rate, not over market rate. So my losses on missed rent are not recouped.
I also contend that not all markets make this easy. I rent a single family home in a town of 4,000. This is not a super liquid market. There are not a lot of good comps - my house is a block from the town’s best park, and walking distance to the small downtown. On the other side, it is a substantially smaller lot than the average house. There are essentially zero houses that are equivalent, and I have to do a lot of digging (including calling up other folks I know that are landlords) to figure it out.
My tenant is not on the verge of financial collapse. They’re a manager at a local business, they probably spend about 20% of their gross pay on rent. They have demonstrated an ability to absorb the bump without issue.
Could the tenant not save the amount of money the rent was not going up to be prepared for the day when rent did go up? The tenant could have saved 5%’s worth of increase, invested it in an index fund for the day that the rent eventually did rise. A 12% rise after 3-5 years would be no big deal since the tenant would have been prepared.
> Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants.
No, the market kicked out most tenants. The tenant should be expected to also monitor market prices for their rental and know automatically when they're getting a deal or when to expect an increase.
If I own a house or an apartment complex, my costs are relatively fixed -- that is, after all, the primary argument for owning rather than renting -- which means that if I am leasing that house or units in that complex to someone else, there is nothing requiring me to raise rents to keep up with "the market" rather than merely keeping up with my own actual costs. I can choose to make the same absolute amount of net income year after year. If "the market" is increasing faster than inflation and property tax, I can choose to take advantage of that.
"The market" is not an entity with its own volition, and speaking of it as if it were obscures the reality that it's comprised of individuals and collectives making individual or collective choices about what to charge and what to pay.
More like a household renting to a family friend, a student, an artist, someone who helps with child- or elder-care, etc. Homeowners put situations like that on the "market" in large part because they're allowed to change their minds later when the lease is up.
Landlords love to reserve the right to increase their prices.
Maybe inflation gets crazy, maybe taxes increase, maybe maintenance turns out to be more expensive, maybe they realize they've been underpricing, maybe they sell the property to someone who has the same reasons.
If you tell them that you will limit their freedom to choose the rent price, they will try to retain as much freedom as they can.
You can still revert to market rate if your tenant leaves. As a landlord who values consistent occupancy over maximizing profit, I am fine with this. And I agree with above comment, if you are raising rent 7% every year then you or your prop manager lowballed your rent, that’s not the fault of rent control.
you didn't have to make that response before the law, as a hot market that drove up rates by 15% could be addressed shortly. If you loose the option to make quick upward decisions and any downward movement is essentially irreversible, game theory suggests you'll try to minimize how much increase you leave on the table.
Downward movement isn't irreversible, it's rate of reverse is capped. And the rate limit is pegged to inflation. And roughly equivalent with expected average stock market returns [1].
These guys going to pretend they did not raise rents out of the goodness of their hearts and not cold hard economic reality. What's even the point except to spread FUD?
This makes me curious... is it the property management company or the landlord that sets the rental price? I recently rented a house and tried to haggle with the PM but they refused to budge on price but were willing to negotiate on other factors (like lease term and property rules), which made me wonder if the PM's hands were tied re: price.
I don't know exact specifics of typical PM agreements, but usually yeah the PM follows whatever the landlord specifies. If the PM doesn't like the landlord's terms, they will just decline to do business with them, but ultimately they're just the landlord's agent.
I'd hazard that the PM charges a percent of the gross rent, but has a minimum irrespective of the rent actually charged, so the landlord will then just tell them that they don't want the PM to rent at a price where the PM's minimum fee is more than the fixed percentage. (or in hard numbers. If the PM requires the greater of 10% or $100, then the landlord will just say "don't rent below $1000")
Most property owners leave rent decisions to their property managers, as they're treating their property as a somewhat passive investment. It's basically the entire point of having a property manager.
Some PMs will try to act the opposite, but if you're the property owner, you're HIRING the property manager to find you tenants and/or manage the rental process. Their responsibilities are defined in the property management contract.
Sadly, their contracts are pretty slimy - they usually absolve the property manager of any wrongdoing whatsoever. Do they hold up in court? KINDA. Unless you're incredibly rich and have a fantastic lawyer.
- He may be socially responsible and not want to charge through the roof. E.g. likes the tenants, prefers stability etc.
- The whole point of the law is indeed to prevent large raises. But what if expenses suddenly skyrocket, or inflation does, and he has to increase more or go bankrupt? That’s the worry here. No, the law won’t react quickly enough. It’s preventing him from being socially responsible.
- You assume annual 7% would not work eventually because it will raise the price too much in the market. This assumes free market, but you don’t have it anymore, now you’re regulated. In particular, your missing that everybody else will adopt the same rational self-preserving policy. Approximately the entire market is going to grow 7% YoY now.
> The real solution to a housing problem is to incentivize and facilitate the building of more housing.
You need to have some degree of control. I live in a suburb close to a tech hub in WA. They built a lot of housing in the past 3 years. And I mean a lot. At least a couple of hundred of apartments on the market every year, after raising 3-4 buildings at the same time, in a town of 20k people.
One would think that the price would go down based on supply and demand, right? More than half of the apartments were empty while the management companies were not budging on the price. Nobody wanted to go below 2k/month for a one bedroom and they were sitting around with empty apartments. Finally they managed to reel in some suckers by offering 2-3 months free rent but again, no rent was going below 2k so the next year, you pay up or move out.
Right now, people are moving out and the apartment buildings aren't what you'd call full but again, the rent is not going down. It actually increased. Because what happens is that they're owned by large landlord corporations which can take the hit for a year or two to keep the prices up. I know this because I used to live in one. They increased my rent (years ago) from 1.2k to 1.7k and I moved out. The apartment was on the market afterwards for about a year and they didn't try too hard to get new tenants, they just posted it periodically on Craigslist. I tried to negotiate to bring it down to 1.4k and they said no. It was way profitable for anyone to keep the price up, although they lost a year of rent from it.
Losing an entire year of 1.2K rent breaks even with 1.7K rent after roughly 3.3 years, breaks even (1.7(x-12)=1.2x, x = 40 months). And that’s if the new tenants stay with no churn and you don’t play the same game forcing them out for another year. Had they just raised your rent $200, the break even point becomes almost 6 years. I don’t understand your landlords at all.
With regard to the story before it, it sounds like they actually lowered rent to about $1600 (2 months free is a 17% reduction, which is pretty hefty. Sure, you’re betting on them staying after, but it switches to month to month usually after a year so it’s risky).
There's some weird legal implications that I know that I don't understand.
I see this all the time where a large ownership company will leave apartments or commercial real estate totally unoccupied rather than allow a cheaper rent.
Losses on rental, including depreciation and fixed costs like property tax can be counted against profits on other units. These losses can be carried forward and applied against future taxes indefinitely in the US.
So, leaving an apartment empty that could be rented for $X isnt quite a straightforward loss of $X, since you also gain the ability to offset future taxes.
I believe part of the explanation for this is that big landlords have more ways to make money off property than just collecting rent over long periods of time due to the way buildings are valued in the commercial real estate market. Building net operating income has a direct relationship to market value; the ratio of these things gives you the capitalization rate, which tends to be known for a given type of building in a given market.
If the unit sits vacant for a while but they do eventually succeed in growing building revenue through rent increases, they don't have to wait out the full breakeven timeline to make money since they can sell it on to the next buyer at the newer higher price indicated by the latest year's financials.
Let's take an example building where the local market has apartments trading at a 3% cap rate. If there are 30 units renting at 1.2k with no vacancy, that's $432k in annual rent. Let's say running this property requires a $80k property manager, $80k in property taxes, $40k in utilities, $40k in insurance, and $25k in miscellaneous expenses for a total of $265k/yr in expenses. The net operating income is $432k - $265k = $167k/yr. The market value of this building to a prospective buyer would be $167k/0.03=~$5.56M
Renting the 30 units at $1.7k (41% rent increase), gross rents would be $612k. Expenses constant at $265k/yr (taxes would go up, but this is napkin math), the NOI is now $347k and the building is worth $347k/0.03=$11.56M .
In this example, a 41% rent increase more than doubled the value of the building. For an investor with deep enough pockets, the $6M of equity created by renting units at the higher price is enough to cover the cost of a long vacancy / rehab process. But they can't get too greedy or the units will never rent and they're just stuck holding the bag on a high-vacancy underperforming property.
These dynamics amount to what is basically a slow-motion flip playing out over 4-10 years. Some REITs do this across their entire portfolio to achieve healthy annualized returns.
Alright, that makes sense. But can we all agree that it's a problem?
When I said there needs to be some level of control (and apparently nobody agrees), I was referring to something like the taxes put in place by local governments against foreigners buying up property, keeping it unoccupied thus creating scarcity and driving prices up.
In this particular case, the local government practically gave away building permits, changed codes, the whole town was at the developer's feet (roads closed, free traffic enforcement, less green space, redesigned roads to deal with the forecasted traffic, etc..) under the promise of building plenty of 'affordable housing'.
But when after you build it (tons of this crap https://www.bloomberg.com/news/features/2019-02-13/why-ameri...) you raise the rent for no reason and practically drive people away (I'm not saying it's gentrification, I'm saying it's well-off young professionals who are now choosing to move to a different city), the local market stops being competitive, you sit around with empty apartments, somebody went wrong somewhere. All new developments are under the ownership of two or three giant entities which have a vested interest of keeping prices very high as opposed to competing among themselves. The management companies who own these also made sure to buy a lot of the existing (crappy) apartment buildings.
The argument I was trying to make is that more housing does not necessarily solve the rent price problem, especially if the new housing is governed by a handful of large corporations. And that is usually the case.
This tends to happen with new apartment buildings for the first 2 years or so, and its an artifact of real estate finance. For finance purposes, the building is valued on the theoretical sum of its leases when its at full capacity. If you have a 100 unit building where each unit rents for exactly 2.5k/month, then your building is valued on a multiple of of the $250000/month it generates. That value is used as capital for the real estate company that owns the building to use to get a loan to build another apartment complex. Where this gets tricky is that the max cashflow a building can generate is decreased when you lower rents in leases for for finance and accounting purposes,but when you give someone 1/2/3 months free rent the "max theoretical monthly rent" remains the same as if you hadn't given them the free rent. Thus, while the 2 months free rent is an effective ~18% rent decrease for the tenant, it doesn't impact the ability for the development company to borrow, and thats why it is widely used.
This seems about right. Also, there is a time frame when a new complex after completion transitions from a short term builder/construction loan to a long term permanent loan. For that loan as mentioned above the building is valued at theoretical sum of it leases by the bank. Thus for that loan it is better to show high actual rents and extrapolate to secure a better loan value / term.
Indeed. If you have a crises stemming from "not enough housing", increasing the number of potential customers for that housing is only going to make the lack of supply worse.
This same thing happens prior to rent control coming into effect - landlords institute a forward looking rent increase to compensate for the fact they’ll be limited in the future.
Same when a rent control unit opens up in SF, the goal is to push the rent as high as possible since it’s not going up much after that.
I would suggest you fire your property management company. Any relatively savvy tenant is not going to pay above market rate. Then you'll be out of a presumably stable tenant and taking a risk on a new one. You'll also forfeit the money while your unit is vacant. Lastly you're gonna have some repair and cleaning costs. All in all unless there's crazy price appreciation in your market this strategy is going to cost you money.
> they are now advising a default annual increase of the maximum allowed (7 percent before inflation).
7 percent is a pretty high allowed increase. I suspect that it really doesn't do much except stop gouging in the case of someone who had really cheap rent in a place that gentrified suddenly.
You are absolutely correct: rent control (1) increases upward pressure, and (2) decreases rental supplies (and therefore drives up the price of rent) , and (3) benefits high-income earners when not coupled with income limits.
(1) Since rent control laws put limits on increases (and not decreases) every landlord understands that he/she should test the upper boundary at all times to avoid renting severly below market rates during boom years. With sufficient landlords undertaking this task, rents should go higher than without this limitation. Moreover, the cost of moving is higher for the tenant (who has to find a home and move his/her property) than the landlord (who has to find a new tenant).
(3) high-income earners tend to benefit the most on rent control over time. As market rates for rentals increase (i.e., property up for rent), only higher-income individuals can afford to move in. Over time that leads to the displacement of lower-income individuals. Anecdotally, I can attest how some of my high-income earning friends pay very little for housing in SF because they locked in rates before 2011.
Lastly, pro-rent-control reports/papers I read highlighted the need for a comprehensive housing strategy beyond rent control, like increasing rental supply by making it easier to build ("It is also critical to recognize that the need for reforms extends beyond rent control and housing policy more broadly ... This includes developing new funding sources for affordable housing development and addressing exclusionary zoning policies at the root of the displacement crisis, https://haasinstitute.berkeley.edu/opening-door-rent-control). As the article already mentions, Scott Wiener's bill to override local zoning laws was shelved. The CA legislature did not have the stomach to address the underlying cause.
A far more sensible solution (IMO) is: (1) override zoning laws / ordinances that prohibit building more homes (2) tie rent control to income.
In Montreal we've had universal rent control all my life, and it actually works quite well. The rents are comparatively low. We have a decent tech scene, but it's still an affordable, left-leaning city, where even struggling artists can scrape by if they want to dedicate themselves to artistic work. I'm sure some people would argue that apartments in Montreal are less well-maintained as a result of universal rent control, but I've lived in the bay area, been to San Francisco many times, and uh, a two-bedroom San Francisco shithole which rents for over 3000 USD/month would rent for about 700 CAD here (~550 USD). If you go to the 800USD/month+ range, you can find very nice apartments.
Funnily enough though, I would say that Montreal has less of a supply problem, despite being on an island with no room to expand into an infinite suburban sprawl like the bay area has. Construction still seems to happen here. People are bitching that too many condos are being built, but I think more supply is good.
Anyway, I think rent control can work pretty well, as exemplified by this Canadian city. At the very least measures to prevent surprise rent tripling while someone is renting an apartment are very much a good thing. Sidenote: I think that rent control can also help prevent property price explosions. It makes no sense to buy an apartment for over a million dollars when its rental value is only 1000/month.
Montreal has a large supply of old housing stock. Its population growth has also been much slower than Vancouver and Toronto's over the last few decades:
>>Montreal is not shrinking, but it is growing slower than other big Canadian cities – driving down rental demand in the process. From 2013 to 2014, despite gaining nearly 43,000 immigrants from other parts of the world, Montreal tallied a net loss of 10,000 residents to other provinces.
If either Vancouver or Toronto had had more stringent rent control in place over the last few decades, the housing situation in these cities would be much worse than it is right now.
The effects of rent control have been heavily studied and are well-known:
A note: EconLib appears to be run by the Liberty Fund, which is a group that certainly has a slant of its own[0]: an essentially anti-regulation stance in the name of personal liberty. I have attended a colloqium put on by a Liberty Fund-sponsored think-tank, and can attest to that slant.
I'm not saying the contents of the article is wrong, but just be aware of its source/publisher.
Yes you should definitely judge the content on its own merit and not blindly trust the source. The article is well sourced and even cites "left-wing" economists (yes they exist) and political figures.
the reason rent control works in that case is because the difference between the rent control the amount dictated by the free market is very close. In that case, efffectively, the rent control doesn't really do much at all and hence isn't interfering with the pricing signals and incentives to build. In CA, the rent controlled prices are currently so far lower than the current cost of building it makes it pretty much impossible to build.
Another thing to consider is that rent control can depress interest in building more housing units. Why build if you won't be able to make the profit you'd expect due to price controls? More generally, this is an effect of price controls, especially those that can't easily be worked around.
>they are now advising a default annual increase of the maximum allowed (7 percent before inflation)
Is the property management company collecting an extra commission each time a new tenant moves in? Because all this strategy is going to do is let tenants quit once the rent goes considerably above the market rate.
A much wiser strategy, IMO, would be to watch the market rates and keep the existing tenants' rate constant until the market rate climbs considerably higher (7% sounds like reasonable threshold) and then raising it to be marginally below the market, incentivizing the tenant to stay.
A new rent control law changes the market. If the tenant leaves, they will need to sign a new lease, and the leasor will build in extra rent because they are worried they won't be able to raise it enough later.
In other words, it scares all the landlords at once, and they all raise prices a little because of it.
I was talking with a real estate agent in SF and he said it’s not unusual for landlords looking to sell their rent controlled building to just let units sit empty.
Why? Because it can increase the value of the building by hundreds of thousands of dollars. Losing out on $24k worth of rent each year is easy if you know it comes with an extra $300k in your pocket when you sell.
What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.
Well, what you do is get rid of prop 13 and do yearly appraisals. Then you just tax the property on what it's worth, and if a landlord refuses to rent, then the tax is now a vacancy tax.
The real problem is we're not taxing these properties at the true value they could provide to society, so a massive market inefficiency exists.
My landlord's building is worth $5 million ($5,000k) and he pays $3k a year in property taxes. He can evict all tenants and wait for someone to pay him $10 million for the property. He can wait for generations and never pay more than $4k a year because of how prop 13 is structured.
Who said eviction? I said to charge to the property tax as it's valued today. Put a lien on the property and collect at time of transfer. There's no reason to evict people based on property taxes. Texas handles this just fine.
I'm trying to understand: are you saying landlords should be able to not pay property taxes on the current value, not get their property seized by the state if they don't pay property taxes, collect market rate rents from tenants, and also keep all of the profit from property value gains once they sell?
But ignoring that absurdity - property taxes are usually 2% of the property value. So you'd need to what... Not pay any property tax at all for 100+ years for that scenario to play out?
But let's say we allowed that to happen, and we're somehow sympathetic to that owner. You still don't evict anyone over property taxes. The next buyer will just have to work it out. See Detroit and its $1 homes with $20k in back taxes.
I guess the problem here is I don't see housing as something anyone should expect a guaranteed profit from. I view it just like anything else - there's real risk, and if you're going to privatize the profit, you damn sure better privatize the risk, too.
I'm very much for private ownership of property, not sure why you would think otherwise. All I've said is to do what just about every other state does: if your property is worth $200k, you pay $2k that year in property taxes. If it's worth $2 million, you pay $20k. This isn't hard, and it isn't controversial.
Edit: just to appeal to authority: every single legitimate economist agrees with me on this as well.
I know that was a typo but CA Prop 14 is maybe the only thing worse than Prop 13 that CA voters ever passed.
If the fact that allowing landlords race-based leasing won the vote isn't enough to convince you that direct democracy is a stupid idea I don't know what is.
Repeal prop13 and landlords will just pass the additional taxes on to their tenants. You'll only succeed in displacing a different group of people. And you won't be the one buying those homes at a sweet discount. Assuming some real estate mogul, rich kid, tech bro doesn't out bid you, you'll be paying all those mega property taxes every year too.
The real issue is that there is no central authority at the CA State or even Bay Area level planning growth holistically.
A company can hire 5,000 people tomorrow and they'll all just move here and look for a place to live, regardless of whether the city their employer is based in has any housing or not. That drives up rent. It creates the absurd traffic that we now get to enjoy every day of the week. It drives up the costs of goods and services.
Bay Area leadership and California leadership need to sit down and have a discussion with employers and cities about how to effectively and responsibly grow, and then move towards developing new infrastructure to support the plan that comes out of those discussions.
What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.
If you're putting the place up on AirBnB more often than not, the unit is not your primary residence and shouldn't be afforded benefits as such. If the goal of a vacancy tax is to increase rental supply, AirBnB does pretty much the opposite.
In California, and most of the US, property assessments are done by elected officials on an annual basis. In California the rate of increase is severely capped, but you're free to apply for a reduction if the value of your property decreases. If you're legitimately on vacation (or whatever), apply for an exemption. It's not that complex.
The presumption (right or wrong) is that the problem the first regulations solved is bigger than the problem that the regulations created. After seeing this new (smaller) problem, more regulations are applied creating a new even smaller problem. Making life better.
This may or may not be true, but that is the idea.
Rent control (regulation) creates more problem, I agree with that.
But I don't think it's fair to say that expensive housing, full stop, is a product of regulation.
There are desirably places to live that have housing that goes up at a good enough rate to be considered an investment. As long as there are people of sufficient means, some of them will add property to their portfolio of assets. A home that sits unused on prime real estate is, frankly, more of a drain on that community than $100,000 in cash sitting under a mattress going unused.
It's not perfect, and it IS a regulation, but penalizing people for hoovering up housing stock and then not using it, can benefit society.
I'm not sure I'm in favour of rent control in the first place, but as a Vancouver renter I have seen vacancy tax really help with both house prices and rental availability. It also seems to be a fair tax, you are being taxed on a luxury that affects other people negatively.
Vacancy rates in San Francisco are very low compared to the rest of the state and the country. Rent control in SF is problematic not because it leads to vacancies but because the allowable increase is far too low, way below inflation.
What units go into the vacancy rate? The comment seems to be saying these units aren't even listed as available. Would they still show up in the vacancy calculation? How do they get in there?
Vacancy rates are empty units that are available as a percent of all units available for rent. It doesn’t typically include units that aren’t available for rent.
The estimate is there are 100,000 empty homes in the SF area.[1]
I’ve seen an estimate of 20,000 for SF proper.
This [2] report to SF Planning states the number of empty units has doubled over time.
Even if that was added to the vacancy rate, that would still leave SF with around the national average (~7%) vacancy rate, and that's without counting the off-the-market housing anywhere else in the average (and not double counting actual on-the-market vacancies everywhere else, either.) Anyway you cut it, SF has a low vacancy rate/rate of empty homes.
SF added 2,000 jobs in 2019 alone. If those were put on the market even in a huge lump sum, there's no way it would cut rent prices in half. Maybe it would keep the prices from rising for a year or so?
As a landlord this doesn’t make too much sense. The value of the property is net operating income divided by cap rate, so vacancies would lower value. It doesn’t matter what the gross scheduled rent is in that calculation.
You can also look at the value as discounted future cash flow. And in that calculation, an empty apartment that the buyer is confident they can fill quickly and rent for $5k is worth more than a full one renting for $4k.
Also, if you take your reasoning to the extreme then an empty apartment building has a negative value.
Bay Area has more jobs than it does housing for the people who work those jobs. There just isn't an option for everyone to move away from the bay area and still have work.
Take your "I've got mine so screw everyone else" attitude out of the bay area, we don't have room here for people with so little empathy for their neighbors.
It's a fair comment. You entirely brushed aside point 3 by using a personal criticism on the parent poster to ignore the fact that rent control is imposing a cost on an entire massive state, in order to regulate a thing that is an issue in a small number of counties.
Every tenant, regardless of what county they live in, needs basic protections for their home.
This law is not targeted at SF per-se because SF already has strong rental protections, this law offers the bare minimum of protection for everyone in the state. The bay area should, and must, pass stronger protections than this statewide law.
"There just isn't an option for everyone to move away from the bay area and still have work."
>>>>>>>>>
If you can't afford to live in a box in San Jose, obviously staying isn't an option either.
>>>>>>>>>>>>>>>>>>>>
"Take your "I've got mine so screw everyone else" attitude out of the bay area, we don't have room here for people with so little empathy for their neighbors."
>>>>>>>>>>>>>>>>>>>>
Oh I don't live in the Bay Area. Theres an entire nation outside of San Francisco, large parts of which are better than the bay area in every objective fashion other than this weird cult obsession with having to live in the poop filled streets of Silicon Valley.
Why do people NEED to work in san francisco/LA? You may think you're contributing something valuable being a barista or adjunct ethnic studies professor in the Bay Area but if you can't survive there maybe the others don't agree. Move to a house bigger than a shoebox with less traffic, less filth, and less crazy politicians, and lower costs. Whats the hangup? I don't understand these people who watched pirates of silicon valley and now they have to live in a shack on location.
You are right that it is a bit weird and hard to understand why productivity differs so much.
But that labour productivity (eg measured in salaries the market can bear) differs so much is a fact. Whether we like it or not.
That puzzle is mostly about productivity differences for tech workers. For the baristas in the Bay Area relatively standard explanations like the Baumol effect do most of the explanatory work.
The productivity is higher because you have one of the highest concentrations in the world of big companies at the top of the field employing the best people and most resources. Not rocket science.
This has nothing to do with people that think they deserve to work there (which I frankly don't get what the big deal is, you're not a teenager scoping out the best colleges anymore) but obviously the marketplace disagrees.
I'm not sure it has much to do with anyone deserving anything. It's just good for the economy if more people work in more productive places.
So if the best companies could employ more people in those places and pay them high salaries, those people would also pay high income taxes that could finance public infrastructure for the rest of the country.
If it's true what you say that "the result will be more profitable for landlords, and hurtful to tenants," then it seems odd that landlords are not universally applauding rent control.
Landlords want to be able to raise rents at whatever rate maximizes profit without generating turn over - except when they want turn over (to get renters out).
When the market will bear an increase less than rent control, it gives landlords something to point at as justification and help mitigate turn over. When the market will bear a greater increase, it is unfair and harmful to communities, etc. etc. etc.
In the US, it is very common the past decade or so.
I'm in bumblefudge-nowhere-Midwest USA, and even we've averaged 10% yearly rent increases, for more than 5+ years now. Every top-20 metro area I've looked at, has had it worse than us on rental price increases.
I’ve been back in the USA for more than 3 years now and haven’t experienced this yet. I’ve lived in hot housing markets also (LA and then the Seattle area).
And I strongly suspect these numbers are below real-world ones (they use Zillow-listing advertised price, which like most advertisements, are usually slightly lower than the actual price a real person would have to pay)
I’ve been told that supply “caught” up in 2017 when I moved into downtown Bellevue, so the market has been weak on apartments (indeed everyone was offering incentives). Anyways, as anecdotal, we aren’t paying more than 7% more for our third leasing period in 2019 as we were in our first leasing period in 2017.
It really depends on the landlord. I just renewed my lease on a single-family home in a relatively hot market with no price increase. Of the 7 or 8 different units I've rented across 4 different states, only 2 of them had landlords that routinely nudged the rent upward at lease renewal. My personal experience is that unless someone is really working to maximize profit per unit, they're usually content to leave well enough alone, and only raise rates when the unit goes empty. I know multiple people who've rented for 15+ years with no increase in rent.
Indexes and aggregations may show something, but it's important to remember that they're lossier than many people appreciate. You'd have to dig into the data to learn how representative it may or may not be. Since small-time landlords are hard to collect data from, most of these city rental indexes are probably relying on large-scale apartment landlords who are constantly trying to squeeze maximum price-per-unit. I'd say you'd do well to take it with a grain of salt.
Before Mountain View landed rent control a few years ago, my rent was being increased 10% year over year - I had enough after 3 years and moved to Sunnyvale where my rent was $50 more a month for an extra bedroom and 300-400 sqft extra.
Interestingly, my rent has remained stable ever since moving - guess it's possible to have much better luck with smaller landlords.
Not really, landlords who choose to increase rent with rent control in effect , will increase rent no matter what. The only thing stopping any landlord to not increase rent are supply/demand (market conditions)
Counter anecdote: I've lived in a rent controlled apartment in Santa Monica for 5 years. My rent increases by the maximum allowed every year, but that's drastically lower than the non-rent controlled apartments in Santa Monica and West LA. My rent is now pretty significantly below market.
I was simply thinking, Unintended Consequences in 5,4,3,2,1...but that's one I hadn't thought of. Of course people will push up against the limit in order to buffer out market values.
You could easily see rents above where they should be from a market standpoint simply because of the inertia in a system of annual increases.
It also makes me wonder if you are allowed to increase rents if you improve a dwelling. If not, nothing gets fixed beyond the bare minimum.
> because larger adjustments cannot be made if and when necessary due to market conditions
When are "larger adjustments" necessary vs just opportunistically profitable?
The question I always see is "why shouldn't I have the right to make as much money as possible from my investment," but the answer seems pretty clear: because evictions and massive rent hikes have nasty social consequences, as does treating rent-seeking as an investment.
Landlord here in Oregon with just a single unit. I was a renter and now I’m fortunate enough to be an owner and I go out of my way to do right by my tenant. Rent increases are just for inflation for me 1-3% on renewal only.
There is a lot of knock on affects that rent control brings that are negative that I don’t have time to go into
I agree with your final statement, even if zoning and build regs are revamped rent control restricts the potential profit of those new buildings which will cause developers to build elsewhere.
The tendency for government regulation is to subsidize demand (rent control, housing assistance) and restrict supply (zoning, permitting, etc). The side effect is always higher prices.
> it's smart to just steadily increase rent at the maximum rate permitted.
FWIW rent control advocates agree with you.[1] It’s a point in which the “PHIMBY” left[2] and the real estate lobby agree.
The reasoning is that it’s not actually a full rent control bill (it just stops the most extreme cases of gouging) which is why the California Apartment Association stopped opposing it. Thus it doesn’t go nearly far enough to stabilize rents.
I know there are a lot of supply siders on HN champing at the bit to dump on rent control, but this particular bill is a bit more nuanced.
> The real solution to a housing problem is to incentivize and facilitate the building of more housing.
This argument comes up here in Australia with regards to Sydney and Melbourne in particular -- the two largest cities.
Building more houses only makes more sprawl. Increasing density causes problems for current residents and puts enormous strain on existing infrastructure[1].
The only real solution is to get people to live in other places that have more and cheaper housing.
[1] Not just utility infrastructure like water, sewer, power, gas, (roads, sanitation, what the Romans did for us etc) but natural environment and leisure like sport and recreation areas, parks and bush land, and (particularly in Sydney) beaches. It's really hard making new beaches for the increased population.
That’s not a real solution, that’s just wishing the problem would go away on its own. What you are advocating for here is that prices should be more expensive due to limited supply, so that people are forced away due to inability to afford living there.
It's not wishing anything. People ARE ALREADY struggling to afford rent in Sydney and other large cities. They have been getting bigger and bigger in the past decade yet the problem only gets worse (like building highways to solve traffic congestion).
The solution is to make other places attractive for living and have hood opportunities for employment.
Look at it this way: your house or apartment or whatever can probably fit double the people in it. They might be on the floor or on the sofa or whatever, we can double the density. The quality of life will be decreased for everybody.
At what point do we say "It's full, go somewhere else."
In a country with freedom of movement? Never. Your wishful thinking won’t change that. But by all means go ahead advocating to build housing where nobody wants to live, and continue your NIMBY policies to price people out of desirable locations.
I hear what you're saying, but can do without the NIMBY rhetoric. The discussion about "build more houses to reduce housing cost" is exactly the same as "build more highways to reduce traffic congestion" in that it doesn't work for long.
What needs to happen is effort put in to make other cities and towns attractive. This could mean encouraging commerce and industry to re-locate or set up new factories or offices. It certainly means ensuring city-level standards of health care and education, something that is a good thing to do anyway
Lastly there needs to be a campaign to encourage people to move to these places. Australia already has migration programs that require people to live anywhere other than the main capital cities.
Australia has a scarcity of fresh water, and low rainfall. Our inland rivers are dying because water is diverted to irrigation for farming; Sydney's water supply is pretty stretched and the option to build more dams is neither environmentally desirable nor possible, because all the rivers have already been dammed, and most are less than full due to low rainfall.
So without resorting to calling NIMBY, at what point can we say "we cannot support any more people"?
There are key differences between building more highways and building more dense housing.
I suspect induced demand is more of an effect with highways than housing. People can change their driving habits from day to day more easily than they can change their living habits.
Expand a highway, and more people in the area start taking more car trips on it.
Add housing, and more people don't instantly come into existence to occupy it. (Maybe, over a few years, people stop cramming themselves into crowded roommate arrangements as much, and over decades they have more kids.)
But if I granted that induced demand applied to both...
Driving is a means to an end. People stuck in traffic are suffering.
Having a home is an end in itself. People need shelter, and living near your community/job/family is a huge quality of life improvement.
Plus, when you expand a highway, strictly more mileage is created. It's not like the additional car trips in this city are taking the place of car trips in another state. It's a net loss for society and the environment.
Whereas, when you add housing, even if it induces more people to move into that city, they're moving out of some other city, easing the demand in the housing market there.
The Hilarious thing in Oregon is some of the 'marketing' for this new rent control law stressed over and over that rent had grown 25% in Oregon over the last 4 years, so 'something needed to be done'. So they capped at 7% per year.. Someone really, really sucks at math...
I've been tenant in France, with restrained rent increases. Every year my rent was increasing 20 euros or so.
I've been tenant in California without rent control. After one year, my rent went up 500 dollars.
But well, maybe that's because in France the allowed increase is calculated from a rent index in the area, not a fixed number like "7%" (no idea where it comes from).
Also, don't say "necessary due to market conditions" when the reality is just "can get away with it due to market conditions". It's not like the increase of the rent market causes you more fees or increase your mortgage.
Yes, the real solution is to make life as easy as possible for real estate developers and strip tenants of their rights. That is definitely good for tenants, according to landlords such as yourself. For the rest of us, I hope you understand why this sounds fairly nonsensical. "More housing" does not automatically translate to "affordable housing" and many regulations are there for a reason--including regulations protecting tenants from unscrupulous landlords.
The government is perfectly capable of paying for housing if it is so inclined. It is also capable of providing incentives for creating new housing in certain markets, such as discounts; the idea that this can only be incentivized by charging new and existing tenants insanely high rents is the problem. Perhaps it could get some of the money required to do this by extracting it from the tremendous number of wealthy people living in SF, many of whom are probably browsing HN right now. It would likely be easier to do that if their rents weren't so astronomical, of course...
As for "does not translate to affordable housing"--right now landlords and property developers have two ways of extracting money from the system: charge high rents, or pass the property on to other landlords. Maximizing profit on either of these requires rents to keep going up, and for the second there's no particular reason to actually have tenants. Beyond that, "market rate" in SF right now is nowhere close to affordable for most people and will not be for the foreseeable future, even if building greatly increases, which means that the people currently protected by rent control--those who can't afford "market rate", like the vast majority of people in the U.S.--aren't helped one bit by the creation of new housing.
As amazing as it seems, a lot of far left people in the Bay Area who engage in the housing debate actually don’t believe in supply and demand. Hard to have any kind of discussion on that basis.
I believe that, on average, housing prices increase when housing is limited and decrease when it is not. I don't believe this relationship is nearly as linear as people imagine, especially since not all "demand" for housing comes from people wanting to live in it (thanks to rampant speculation in the market). I also don't believe that even a tremendous increase in available housing will cause the price to decrease enough that rent is actually affordable for the people who currently depend on rent control, and I am not willing to treat those people as "collateral damage" in the quest to lower housing prices in SF.
If we built lots more housing, there are two mutually exclusive possibilities (though honestly, they are on a spectrum):
A) Housing becomes affordable, or B) housing stays expensive.
The latter means we added trillions of dollars to the national wealth.
By the way, please go ahead and do tax property a lot. Ideally, you'd only tax the unterlying land with a land value tax. But even a naive property tax is OK.
That way foreigners buying up local real estate for speculation means foreigners paying for local services.
> "More housing" does not automatically translate to "affordable housing"
Imagine two hypothetical cites, each with one million residents. The first one has half a million apartments, while the second one has ten million apartments.
What city are you imagining where ten million apartments would be built with no demand for them? I'm assuming the city with ten million apartments and half a million residents is economically depressed, since that many apartments were clearly built for a much larger number of people.
Here's a better question: under a realistic model of building, where building slows down when landlords and property owners feel they have maximized the profit they will get out of it, by what date do you think housing prices will be low enough that current residents who rely on rent control to stay in SF will be able to live there again? 2025? 2035? 2050? What is your recommendation for those people in the meantime?
You don't see any reason why it might be worse for someone who lives in an area, and already has a life there, to be kicked out, than it would be for someone else not to be able to move in?
The biggest bargaining chip a renter has is the ability to leave. If the housing market is functioning correctly then renters should have the upper hand and these issues don't matter.
Nobody is "kicked" out because nobody has an intrinsic right to live in a particular neighborhood. Arguing such a thing is in complete opposition to a free market.
It is the case in New York City, and also in this California Bill (I don't know the case in Oregon) that you can charge a tenant less than the "legal" rent by offering incentives and discounts.
In other words, it is totally permissible to increase the legal rent by the officially allowed 7%, but increase the effective rent paid by your tenants by only 2% (or whatever you want). There does not appear to be any restrictions about removing such incentives/concessions/discounts in the future.
It also appears that the California law resets as soon as the tenancy changes hands; so as soon as there is a vacancy the landlord is free to increase the rent by as much as they want. This is not the case for NYC rent stabilization; there the increase in the legal rent is a property of the unit, not of the tenancy.
In Ontario the rent control is even worse. It’s set by the landlord tenant board at a number near inflation, this year it’s 2.2%, the last few it’s been 1.8%.
Similarly, i tell my tenants that they should expect the minimum increase yearly as i cannot make up for any lost increases nor can i make larger increases if something about the economics of the house changes.
The real issue here is the cost to provide housing, and the limited amount that exists. I wanted to finish a basement in one of my places, to do this legally, i owe the city $140k in fees alone. This is around 5-6years of rent. You can probably imagine why i opted to put this money in a bunch of index funds and do nothing instead...
This is really bad policy... Treating the symptom while making the root problem worse.
The core issue is there is not enough good housing for everyone in California.
The real solution is to greatly loosen building regulation and make getting permits much faster and easier statewide. Then entrepreneurs will double or triple the housing supply and drop the costs of renting or buying a home by 80%. You could see rents go from $2500 per month in LA to $1000 a month or less.
I would argue the core issue is actually overpopulation (or in the case of California too many people wanting to live there but also trying to balance preservation of Nature). And it's certainly much more acute in California. Tokyo is not a desirable way to live, but neither are the suburbs. Too many people means the density gets too high, and poor zoning regulation and poor building incentives get us mcmansions. Every little European city that you've ever been to that was lovely, walkable, and sensible, is the objectively best way for humans to live. You know it and I know it. Loosening building restrictions won't really work if you think that you're going to build single-family homes. It would be a disaster. You have to build entirely new neighborhoods where people can't use cars at all, but I've never seen any level of government in the US allow that. Otherwise you will just end up building suburbs and then the state will build 15 lane highways ad nauseam. Traffic will continue to get worse, it'll be a dystopia.
And you build more and more housing, you'll wind up with 4-lane highways to and through Yosemite or something - that's not at all desirable is it? How would you handle the traffic and flow of people? Giant hotels, McDonalds, and huge traffic stops? It's just not sustainable.
California's problem is that it's not sustainable for the amount of people that want to live there. I think it's a global problem in general too. Less people, and no cars would be most desirable to me.
Counterpoint: Paris is denser than Tokyo (by almost a factor of 3! 21k persons/km for Paris vs 7k persons/km for Tokyo, only a little higher than NYC). While I’ve never heard Tokyo referred to as “undesirable” (though I have heard “crowded”) in the first place, to say Paris is “undesirable” is to objectively fly in the face of mass media and popular perception of society’s regard for the “city of love”
Density does not automatically mean low quality of life, and in fact could just as easily enhance it: what matters is good city planning and design, and I’d very much argue that in e.g. LA (where I live) the vast majority of single family homes in the city are in areas where it makes no sense for them to be, lowering the quality of life for even those that own and live in the home (e.g. single family homes right next to highways and commercial corridors? why?)
In my opinion, the idea that California is “full” is immensely dangerous. Especially considering the fact that SF and LA are losing net population yearly — and yet the rents are still increasing and our suburbs are still sprawling further and further out. Density is the solution, not sprawl and not limiting who can come here.
Tokyo is a fantastic city, I spent two weeks there and loved it. It is extremely clean and safe, loads of good restaurants and entertainment, and good outdoor spaces. If I could speak the language and work there, I would move in a second.
California is in no danger of being overpopulated... The issue is as you say - single family homes are a brain dead way to live. Every homeowner has to spend hours a day maintaining his house... We stopped running our own internet servers after the first ten years of the web. Why can't we do the same with housing? Convert everything to medium (4 story buildings) or high (10+ story) density housing. You would completely get rid of suburban sprawl and everyone rich and poor could live within a mile of the ocean or mountains, walk or ride a five minute train to work, and solve climate change at the same time.
Your on the right track but there's a ton of regulation we need to get rid of before we can truely increase the supply with new innovations in housing production.
I got out of renting out a place I owned in CA a few years ago for this very reason. The company that bought it eventually turned it into a parking lot. I’m just glad it’s not my problem anymore.
I don’t know if this a direct result of the laws passed but prices definitely seem to have dropped from last year to this year (don’t have numbers, just perception of someone living here)
Rent control is abused in SF. Every engineer I know, who has been living in SF for over 5 years is currently paying an absurd amount compared to their monthly income. I even sub-leased an apartment from a friend who took off a sabbatical, and he didn’t want to lose his rent control.
I don’t know who rent-control is supposed to benefit, but it seems broken. Eventually these places end up in the hands of people who know how to game the system. Just build more housing and the incentive will go away.
Abused? When I moved here I heard horror stories of rent increasing suddenly. I did what any sane person would do. I looked only for rent controlled places before moving in.
Certainly it gets abused. People keep their apartments even though they're not living in them, because otherwise the rent would go up. I know someone who did that for 20 years with an apartment on Russian Hill. She would sublet the place for a year or two and then come back.
I know several people that do that: luck into a sweet rent control deal even though you were wealthy enough to afford market rates anyway, never, ever give up the lease even after you've essentially moved away anyway and then sublet the unit out at market rates yourself.
I don't know the same people that get mad at a corporation for allegedly "cheating the system" in some way don't find this sort of thing offensive, but weirdly they don't seem to at all.
> I know several people that do that: luck into a sweet rent control deal even though you were wealthy enough to afford market rates anyway, never, ever give up the lease even after you've essentially moved away anyway and then sublet the unit out at market rates yourself.
If this is in San Francisco, report them to the landlord or the city so they can be evicted. Tenants who abuse the system worsen the housing market for everyone.
> She would sublet the place for a year or two and then come back.
That's generally illegal, unless the subtenant is paying no more than the tenant is in rent. Every tenant who does this in San Francisco can be, and ought to be, immediately evicted. There is zero economic/social justification for abuse of rent control.
It’s illegal, period. The unit has to be the tenant’s primary residence. Obviously the litigation to prove this in an anti-landlord town like SF is messy and often not worthwhile.
When I was interviewing for jobs in the Bay area I noticed entry level salaries (even at smaller shops) were in the range of 100-120k and rent was like 35-40% of your salary after taxes. Certainly higher than the recommended 30% but it's not that different from somewhere like LA or NYC, even Chicago and Miami aren't much cheaper.
After taxes it's a bit under $6,900 so 40% of that is ~$2,700. Browsing Zillow/Apartments.com/Padmapper shows several thousand listings for studios under $2k and single bedrooms around $2.2-2.7k, depending on area. SF proper seems pretty tiny and the most expensive, is everyone just trying to cram in there? Do people try not to commute?
I mean I'm being open here and saying I don't understand why CoL is so high in SF, since researching it from afar doesn't make it look that much pricier than what I've seen living in other cities.
And I commute in LA, it's not exactly enjoyable or cheap. But it's cheaper than living within walking distance of my office.
The other thing to remember is that when rent is that high as a percent of median income it has a rippling effect on the cost of everything else.
Since I moved to Seattle I pay 1/2 as much for groceries, 1/4 as much for the gym, 2/3 as much to eat out. So in the end rent isn’t the only problem. All your costs add up. Add state income tax and the problem compounds further.
You are right that most casual analyses overstate the real cost of living in SF. A Bart commute in the Daly City direction, or Oakland, or a drive in from Pacifica all get you much more reasonable cost / commute trade offs for jobs in the city. Certainly in absolute prices remain absurd.
I can confirm that as of December-January it was possible to find a decent 900-1000 sq ft house with two bedrooms in southern SF (Visitacion Valley or Crocker/Amazon, say) or Daly City, near BART, for $3000 a month. Still more expensive than than the comparable in New York, where a two-bedroom apartment in Jersey City with a comparable commute to lower Manhattan was $2300.
The rent figures are an exaggeration. I lived in a mediocre studio for between $1.8k and $1.9k. $3k will get you a mediocre 1 bedroom or a pretty good studio.
Remember to factor in taxes. You will only see 6k a month cash on 120k a year after maxing our your 401k. A tiny studio will go from 2.5 to 3.5k last I checked.
I’m surprised to read negative opinions about rent control. The alternative to rent control is having one’s rent double next week. I’m amazed that rent control was not a thing!
Most rent control implementations are far too restrictive and create severe market distortions that can last generations. This one, thankfully, is not, and the allowable increases mean units are unlikely to get too far out of whack with market rates.
Sorry if this comes off snarky but perhaps others posting here can see past next week. All too often these quick fix Band-Aids end up causing more problems in the long run while also spreading the problem far beyond where it had previously been contained.
Why? In both cases there should be more housing. If rent control is a thing, now you have more rich people who can’t find a place and are willing to put money in building new housing.
For those living in SF, this significantly expands the number of eligible apartments for rent control. Right now only multi-unit homes/apartment complexes built before June 1979 have rent control. Now everything (except single family homes/owner occupied duplexes) built within last 15 years on rolling basis is eligible.
Given how slowly SF builds housing, the fact that anything built 2004 and earlier is eligible basically means almost everything except new high rises.
One thing I have noticed as I have become more aware is that many of our laws are aimed at trying to freeze a moment of time, often by piling on contradictory policies on top of each other.
Subsidize home loans
Ban new construction
Ban rent increases
It is no wonder why housing prices/rents continue to rise in these markets.
In software engineering sometimes conclude that a rewrite is necessary. How can we completely rewrite our regulations?
Prices should increase in the case of increased demand. Prices must increase in that case if you want the supply to increase, which is the only way to actually meet demand.
The market is not working when actors frequently intentionally cause trauma and unexpected financial and life emergencies to tenets. The 'market' is not some divine thing that cannot go wrong; rather, trying to make the 'market' work is exactly why we have runaway climate change and incredible wealth disparity that's causing unnecessary pain and upheaval in the US today.
There's no need to swear at people, this is an interesting and complicated topic with many valid points to debate.
Not all regulations are equal. Merely because some past law was bad does not mean all future laws will be bad. Saying that rent control is bad because past zoning (or other law) was bad doesn't make sense.
Rent control has never been good anywhere. Yet places keep trying it expecting something different.
Supply and demand is one of the simplest concepts in economics and yet rent control does nothing to increase supply. In fact, it decreases supply by not shifting prices higher to induce more production.
> Supply and demand is one of the simplest concepts in economics
That's what makes it one of the weakest. The housing market does not follow a standard supply-demand curve for a number of reasons.
> Rent control has never been good anywhere.
Citation needed. Rent control has helped a lot of people find stability in a time of need, enabling less trauma, stress and improving chances of class mobility.
> In fact, it decreases supply by not shifting prices higher to induce more production.
Is this a real effect that you can measure in the real world? Has this ever happened in reality before? Or is this a theoretical concept? One that you assume plays out under ideal circumstances and that I assume are never met in real life?
>The housing market does not follow a standard supply-demand curve for a number of reasons.
That would make it the first in history. Extraordinary claims require extraordinary evidence.
>Rent control has helped a lot of people find stability in a time of need
So has the lottery. Doesn’t mean it’s not bad overall. The massive portion of people that don’t hit the rent control lottery (I.e. anyone who has to move) get screwed and the whole middle and upper class gets screwed by a poorly incentivized supply.
>Is this a real effect that you can measure in the real world?
Yes. Look at any place where there is rent control and you will find it still has unaffordable prices often far above the national average. It has never been a net good for society. It doesn’t increase housing supply and the pigeon hole principle should be simple enough for you to understand what that means.
Obviously, but part of that is having your property taxed at those market rates, businesses and landlords got together to pass an amendment to the CA constitution that prohibits any part of CA from increasing the assessed value of your property at more than 2%.
You can't have it both ways: saying you should have free reign in determining the value of your property, while also claiming the government can't tax you according to that value.
In fact a land value tax could replace property tax in a revenue neutral fashion, and would incentivize development of property and density, rather than disincentivize those like property tax does.
How do you distinguish land value from property value - especially given that the resource and service usage is not determined mostly by the amount of land, but rather the property on that land.
If you were to tax on the basis of land value the immediate impact would be massive increases in taxes payed in rural areas as a byproduct of the necessary increase in tax rates on land.
I guess it shows how out of touch you guys are. When I moved here EVERYONE told me to find a rent controlled place. After hearing some horror stories I think you would be crazy to live in a non-rent controlled place.
Heck, I’ve never heard of non-rent control before moving to the US. No surprise there’s so many homeless people.
PS: look at what your free market did to the US healthcare.
And yes, if you’re living in a rent controlled place and paying $1000 per month when the same place is going for $3000, it’s virtually a cash transfer from the landlord to you every month.
That’s why you hear about massive ($100k+) buyouts in SF.
It's only fair to pay market rate rent as a tenant if the landlord pays market rate property taxes. Why should the state subsidies the landlord and not the tenant?
It's mind blowing how landlords forget that the reason the vast majority of them can afford to be a landlord is because they don't pay market rate property taxes.
When every scholarly piece of research cites those as reasons for homelessness (along with the price of housing), then yes, it's easy to repeat what the experts have already said.
Rent controlled places are great for the person living there. But, they’re bad for the supply of housing, which compounds the need for rent controls in the first place.
I live in a city where there are more residential properties than families. Prices are a tiny fraction of what y’all on the coasts cite. Apartments under $1000/month in trendy neighborhoods is common here. I’ve rented small apartments here for $500/month.
Rent controls may slow price increases, but encouraging supply decreases price. You can’t fix the problem until you treat the root cause rather than the symptom.
The US healthcare system is not a free market. In many parts of the country building a new hospital requires government permission. Pharmaceutical drug companies are allowed to set prices at higher prices here than the rest of the world and block imports. Most customers get their healthcare from their employers (due to tax law), so they do not shop around for the best price. Doctors are heavily regulated and it is very difficult for qualified foreign doctors to immigrate to the US.
Not in isolation. But if building restrictions and zoning restrictions were lifted, and supply could meet demand, then rent control wouldn't be necessary, because the landlord wouldn't be able to get away with doubling rent.
It usually comes from a recession or a depression were rewrites are finally deemed necessary. Unfortunately unless people with common sense participate in government and we vote in selfless people a generation will suffer the consequences of our inactivity.
>It usually comes from a recession or a depression...
Don't forget crime and violence. Historically speaking those get laws changed quick. That said, I don't think rent control is going to have a very direct effect on crime and violence.
I've seen this argument before. Why shouldn't it be an investment?
1. Land is a limited resource.
2. Property improvements last for a very long time, and are incrementally improved.
3. The buy-in price is relatively high, so only very interested parties get involved.
4. It's a home for goodness sake, why would you not call it an investment?
Housing cannot be both affordable and and a good investment. The definition of a good investment is a piece of property that has a price that increases over time. The nature of exponential growth means that eventually housing will become unaffordable if it is perpetually a good investment.
Society's expectation that housing is a good investment results in people taking on significant debt to buy increasingly expensive homes. The consequence is that homeowners have a huge incentive to suppress the construction of additional housing, to inflate the values of their homes. And when housing prices do fall, people's financial lives are ruined. Contrast metros like SF, Portland, and Seattle with places like Tokyo where homes can be bought for < $400,000. A big part of this is that housing is expected to be a depreciating asset: https://www.youtube.com/watch?v=iGbC5j4pG9w
That's sort of the classic interpretation of investment. AFAIK, the first question most people ask about investments is "what is the expected rate of return (relative to the risk)?".
I would not describe my car as an investment, since it's basically guaranteed to depreciate. Housing could be expected to behave in a similar manner (although that would likely require a decrease in population growth).
The value of the structure does often decrease over time. The land might be a different story, if it’s a neighborhood where people want to move. Location, location, location. You can get property that decreases in value too, just move into a neighborhood in decline.
A good investment is an exponentially growing investment. Any investment with consistent year over year growth % is growing exponentially. Any investment that does not grow exponentially will eventually be outpaced by inflation and is thus not a good investment.
"In software engineering sometimes conclude that a rewrite is necessary. How can we completely rewrite our regulations?"
A currency collapse or a successful invasion perhaps.
Even 'freezing a moment of time' is kind of a suspicious thing. People don't understand the present time and they sure as heck don't understand previous ones.
While fixing the plane while it's in flight is hard, I'm trusting our upcoming robot overlords to understand tax or criminal law. Accreting everyone's good ideas for a century or two was bound to result in a hairball.
Perhaps an alternative real solution to the housing crises is the abolishment of professional landlords themselves. Why should we support a system where people can own many properties, each feeding them 1/2 of someone else's paycheck? Public-owned housing is the future. It works in Europe and it can work here.
Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year? Who could possibly afford it after several decades of compound growth?
So how is housing going to get built? Are you suggesting that the state have a monopoly on buildings and housing? What process do we use to begin the expropriations and confiscations?
Start small. People can own one, maybe two housing units (everyone loves a good cabin). Get rid of REITs. Expand building of public housing; don't means-test it, it's available to everyone. Means-testing is how you get impoverished housing projects. Universal public goods have a habit of sticking around and getting funded.
Sorry, to clarify... Are you saying that because we have public transit no one can own cars anymore?
The generous way to read the post above is an arrangement where property ownership can be both public and private - possibly where rental units are majority state owned and private ownership is more concentrated in actual residents.
>” ...real solution to the housing crises is the abolishment of professional landlords... Why [] support a system where people can own many properties[...]
Treating housing as an investment vehicle is fundamentally incompatible...
It’s akin to saying most transit should be gov owned: cars, trucks, trains, planes, ships... they may allow you to own one private vehicle.
Eeeeh, in the long run I think it'll just become unnecessary to own a personal car for most people if self-driving car fleets become a thing - I dunno... it might be a luxury like owning your own boat, if you're vacationing on a lake you can always rent one so why pay to maintain something you very rarely need... more apt might be to consider it equivalent to owning your own train car.
At any rate I don't think personal property ownership should be made illegal, it could just be made to cost - taxi companies are taxed for running a fleet of vehicles and charging people to ride on them, that sort of mass property ownership could be similarly taxed.
I grew up in Boston and it actually had a wonderful public transit system - assuming you're a comfortable in the city and not fearful of who you'll bump into on the bus.
You don't need to confiscate anything. We have an abundance of housing stock (nationwide, many more existing homes than families to fill them). If you make it impossible to be a private landlord then these properties will decrease in value until most citizens can afford to buy a house. Public housing will only be necessary for a small percentage of outliers. New housing will be built to be sold at a modest profit and replace decaying stock, just as it is now. The only difference is owners will not be able to sit on the pot collecting rents from derelict buildings while they wait to optimize their redevelopment in a peak market.
Confiscation, it is not, anymore than negative reports are confiscation of stock. You can liquidate and acquire a different asset. Personal preference has rarely been rewarded (re: eminent domain). There are windows of opportunity, timing and strategy inherent to capitalism. Sell before it passes (or the market adjusts) to maximize your realized asset value.
Both your examples (eminent domain and a government using propaganda to devalue a company) are forms of confiscation. It doesn’t matter if smart people would be able to foresee and mitigate the damage.
Sorry, it might be rude, it might be unfortunate for existing landlords, it might even be a terrible idea, but I don't see how you can call it "confiscation". If the defacto situation is maintained ownership until a decision is made to sell that is not confiscation.
If the city builds a trash transfer center right next to my house causing my property value to plummet I might be upset, but nothing has been confiscated from me because I do not own "the character of the neighborhood" except in some small collective part.
What term do you propose? I agree confiscation is imprecise, but I can’t think
of another word that means an intentional act by a government to deprive a citizen of their property, or the value of their property.
The first house I ever owned was a condo I bought in 2005, way out in the sticks, because the further I got from the city the cheaper the houses got, and because I had a strong suspicion that housing prices were too damn high.
By the time I had to move to CA for work in 2009 of course the market had crashed badly and the condo was well underwater, not even counting the $20k I had put into the kitchen and bathroom.
It was a $185k 2BR 1.5BA unit, with a condo fee of $300/mo and a monthly payment (principle + interest) of $980 with a 3/1 ARM at 3.5%. I got lucky because the rate was indexed to the LIBOR and it was being manipulated to ~0% back then, so my rate stayed super low even though it was adjusting every year.
I put the unit on the market for $165k for two months and got zero showings. So I offered it for rent at $1400 on Craigslist and it was rented that weekend.
I just sold the property last year, to the person who was renting it (and had been for 4 years) for $185k. I gave him the last 4 months before closing rent free because we closed without any broker (no commission) and because I didn’t have to do a thing to the unit pre-closing, seeing as how he was already living there.
Not all landlords are scum out to make a buck on the back of tenants they never met and don’t care about. Not all landlords are even in it because they initially set out to be! And very few landlords are being “fed” half of someone’s paycheck, but more like, covering the costs plus a few percentage points, as long as nothing unexpected happens.
I own a condo too. And if I move I probably won't sell it, but rather rent it out until I move back (while living in a rented place of my own). Individual home ownership is not a problem, it should be encouraged. The problem is people (and REITs) who lever up with a bunch of properties to be fed half of people's paycheck in the manner described.
I will nitpick and say that paying your mortgage is not a cost. That is equity you're getting.
You are very confused. A mortgage is definitely a cost. It's only meaningful equity if you ever sell it and get any of the money back, which is not guaranteed at all.
And only public housing would collapse the entire economy. Plenty of countries tried this, most notably the commies in Russia and in eastern Europe.
I agree with you when it comes to a mortgage or real-estate only really being worth what it will actively sell for. Real estate by at large isn'r really liquid. I've known a lot of young people who are too quick to take out huge loans and get into "house flipping" only to realize that they're now playing a risky waiting game of when they'll have enough equity to match the cost of fees to actually sell the house combined with the assumption that they'll be able to sell it.
However, as someone who's lived in a large urban area with public housing - I can confidently say that the only real benefit public housing has is reducing the price of high end real-estate in close proximity and increasing petty crime in the area.
Source - lived in the South End neighborhood of Boston proper.
Public housing already exists in the United States. It has had at best mixed results. There has been more success with HOPE VI public housing that doesn't concentrate everyone receiving subsidized housing together but it has been criticized for having lesser density and availability than straight up housing projects restricted to the financially disadvantaged.
But your anger is misdirected. The distortion in the housing market is the direct and predictable result of specific government policy, of which TFA is just more of the same.
In this case by “more of the same” what I mean is a policy which will do nothing to solve the problem. This particular law seems to be relatively harmless.
> Why should we support a system where people can own many properties, each feeding them 1/2 of someone else's paycheck?
That doesn't make much sense to me. 1/2 of the paycheck is only true for a few places with limited housing supply, which is the root cause of the problem. One could apply the same logic of "x% of the paycheck" to other spending items such as food and conclude that the state should also produce our food.
> Public-owned housing is the future. It works in Europe and it can work here.
Public housing in European countries accounts for less than 10% of the overall market and is mainly aimed at poor people. I do not see how this would be a general solution to the shortage of housing.
> Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year?
True, but here, too, the cause is a lack of supply due to zoning, minimum parking requirements, minimum lot sizes and other restrictions.
We cannot, landlords are a parasite on productivity whose existence is based on the theft from their tenants. If it was not profitable they would not do it, if it is profitable, it is inherently unethical.
Investment requires a return on investment. Return on investment must be commensurate with the risk. Risk adjusted returns are the reason the house/apartment was built in the first place.
I wonder if this was pushed by landlords. It's easier to push a 5% hike in rent every year than random 10-20% hikes. Especially in a nearly tapped out market. The prices are already astronomical and the home prices are fluctuating/faltering. In 10 years, the rent will be 63% higher. And that's after inflation. Your $3,000 1-bedroom will be nearly $4900 after 10 years. Unbelievable. Will FAANG prop up landlords by adding 5-10% TC increases every year? Startups certainly won't. They stopped increasing comp a few years ago.
Before anyone gets too excited, the cap is apparently 5% plus inflation per year [1] which seems pretty mild? (For comparison, Oregon's rent control is at 7% plus inflation, and San Francisco varies but is below 3% [2].)
It seems more and more clear that California, or at least those in power in California, don't want to fix the housing problem. Because if you're a land owner, the only problem is people trying to spoil the good times. All this VC money pouring into the pockets of tech employees, and a larger and larger fraction going straight into landlords' pockets. What's not to love?
If actually you want lower home prices, build more homes. Build tall (curb height restriction rules); build everywhere (no more minimum parking rules); build immediately (reduce complex planning permissions for developers). Just build more.
Supply and demand will decide the price of most goods, and housing is no exception. Rent control does not address the underlying issues that cause prices to rise- lack of supply and growing demand.
Not enough to fix the housing problems CA has. Not nearly. And if that's the problem, tax empty homes.
But even then, even if there are empty homes, building more will still fix the problem. Let those foolish owners leave the homes empty- we can build more anyways.
I really dislike the notion of clearing more land and putting up more cookie cutter houses and apartments for the sake of saturating the housing market in order to get people to rent for reasonable prices.
This may be the pivotal pinch point which marks the root of our disagreement. I honestly feel more fellowship with animals and computers than humans.
Also, when it comes to the "needs" of humanity, I think we've surpassed that mark. It's beginning to appear that people are insatiable consumers that will destroy anything for a bit of convenience, all while being unhappy the entire time.
In shrinking rural towns, sure. In cities like SF that have been adding only one unit of housing for every 5-6 new jobs, there's a very significant housing shortage.
There's plenty of houses if you're willing to move. I live in a house that would cost 1-4 million depending on what part of the valley you want to live in. There's good jobs and the schools are some of the best in the world. But it's a couple hours plane ride from NY and SF. This all just seems like utter madness to someone from the midwest.
> The bill limits annual rent increases to 5 percent after inflation and offers new barriers to eviction
The limits to rent increases seem like they are enough to avoid significant short term spikes, while keeping up with market rate rents.
The biggest problem with some existing rent control (like in SF) is that the limit is so low that rents can't keep up with market rates even over decades, which is clearly terrible economic policy. Maybe this limit is high enough that this won't be as much of a problem for the rest of California.
AirBnb really changes the dynamics of rent control. If you rent to someone in a hot market, you are entering a long term agreement with less flexibility in raising the rent in accordance with market rates. In the past, when faced with rent control, the landlord had to either accept it, or let the property sit vacant.
Now, with AirBnb, landlords have a much more viable option. They can put the property on AirBnb and have the flexibility to charge what the market will bear.
I foresee that as a consequence of this law, there are going to be fewer rentals and more AirBnb properties in California.
However, since both NIMBY owners occupying their home and renters hate AirBnB, it's quick to imagine anti-airbnb legislation (like what SF already has) quickly passed if the tide turned.
It's 5% rent increase, not the 1-2% seen in SF and NYC. Properties don't typically increase in rent that much. This isn't likely to lead to the absurd $1000 studio apartments in Manhattan.
I agree that at this point rent control is a good option. Housing prices are going up so fast that rents need to go up too. The higher rents then give an incentive for house prices to go up. It becomes a cycle for both to increase.
But rent control by itself is not enough. The other leg of the solution is to increase housing via governmental incentives. Otherwise, rent control will make the situation worse since there is no incentive to increase housing.
The problem is that increasing rent has no restraint in CA.
When a landlord increases rent by X% they are saying that the value of the property has increased by X%. Unfortunately businesses and landlords got together to push (and pass) prop 13 which amended the CA constitution to prevent assessed property value from increasing at more than 2% per year.
That means any time a landlord increases rent by more than 2% they are benefiting from incorrect taxable valuation. Because property taxes cover the infrastructure that supports homes + buildings (the roads, police, firefighters, teachers, etc) they are directly offloading the costs of those services onto people who don't own property: The people who don't own property then have to (in addition to insane rent increases) pay higher income taxes, in order to support those services the are functionally there to benefit the undertaxed properties.
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[ 4.0 ms ] story [ 351 ms ] threadA deceleration in rental inflation in neighborhoods such as the above? A reduction in newly homeless populations?
It's one thing to describe a proposal's political motivations, but quite another to actually declare that you might be wrong in your approach and are willing to define object criteria for success.
What could go wrong?
https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...
“ A few months ago, when a San Francisco official proposed a study of the city's housing crisis, there was a firestorm of opposition from tenant-advocacy groups. ”
"Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood."
To be clear, the rent control studied was a yearly rental increase of ~2/3 CPI, or 1-2% annually, while market rents increased at about 7% annually since the 50s in SF. The proposed policy is a rent cap of around 8%, which is higher than the aggregate rent increase in the SFBA over the past 30 years or so (also 7%). This isn't a rent control law as much as it is an anti gouging law, disallowing landlords from increasing rent 10-20% YoY, which happens to maybe 1-3% of the market.
https://www.brookings.edu/research/what-does-economic-eviden...
Which is, coincidentally, an apt summary of San Francisco's housing policy for the past twenty years.
[citation needed]
I've never seen an economist support any form of rent control.
This is a good example of that. Rent control tends to benefit the older generation at the expense of younger people and families. It does nothing to solve the actual problem of lack of housing inventory.
"Economists from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing. Studies in San Francisco and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes. And since rent controls typically have no income threshold, they have been faulted for benefiting high-income tenants."
This is what would really help with the housing problem
"State Senator Scott Wiener, a San Francisco Democrat, offered a bill that would essentially override local zoning to allow multiple-unit housing around transit stops and in suburbs where single-family homes are considered sacrosanct. The bill was shelved in its final committee hearing this year, but Mr. Wiener has vowed to keep pushing the idea."
But the NIMBYs killed it for now https://www.nytimes.com/2018/04/17/business/economy/californ...
> This bill will provide millennials with some extra security so they know their rent won't be spiked and they'll need to move.
I'm not sure that's how rent control works. Unless I missed something, your rent is only capped if you don't move.
The studies are clear, rent control is a benefit to a few but long term doesn't really add much value and instead makes the market stagnate in funny ways.
This enables a society to continue to grow and function at a somewhat more sustainable pace, letting cities and counties grow without intense boom-bust and crash cycles, with a more stable working class, and therefore a long-term sustainable housing construction market.
I understand that rent control is no grand solution, and that we need more houses built - but I do not understand how rent control is part of the problem.
The problem starts and ends with personal and corporate greed. The rent control is an attempt at constructing a sustainable, stable society from the ashes of an out-of-control capitalism that is leaving most of its consumers in the dust.
Rent control is not part of the problem and would not deter rational actors from building additional housing - I believe it would increase it.
Rent control deters the creation of new housing. This reduce in supply raises the price, which is bad for the poor - exactly the people it is meant to help.
> Rent control deters the creation of new housing.
I keep seeing this repeated but I don't understand. Why does rent control deter creation of new housing?
> This reduce in supply raises the price
But you've glossed over why supply is reduced. I don't see any reason that supply would be reduced with basic moderate rent control like this one.
Edit: I have tripped some wire (?) and am not allowed to post any more. In response to the comment below,
> https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...
That seems to be Washington, not California. According to http://www.hrc-la.org/doc.asp?id=36 it seems to read that some leases allow rent increases mid-lease.
I believe you might be thinking of month-to-month, which is not a traditional lease. On all fixed term leases over a month rent cannot be changed during the term of the lease.
If you have a lot of money and you want to build/buy a rental property, would you do it in a) a growing city with no rent control where your discounted future cash flows are unbounded or b) a city where there is a law placing a ceiling on your returns.
All else being equal, you are going to choose the city without rent control to build your new housing units in (or invest in something other than real estate altogether), thus illustrating how rent control disincentives new investment in housing, and specifically low-income rental housing.
> All else being equal
Okay but all else is not equal, and in the real world, it is never equal. These thought experiments do nothing to improve conditions in the real world, since they are based on flawed models of how people behave.
By that logic, nothing affects anything else and we should all give up trying to think or plan.
I think it is wise to produce better models with new information - not to ignore everything or to knowingly use false models. People do not - and should not - act according to those 'rational' ideas of maximum profit.
- It makes it so new renters subsidize the old ones, raising prices for newly vacant places, defeating the purpose of controlling costs. It also doesn't offer tons of protection from boom/bust cycles, as mainly those riding the boom will be able to afford absurd prices in highly regulated places like SF — Where a 1br can fetch 3.7k/mo (!!)
- "FU, got mine" attitude disengages renters from organizing the same way NIMBY homeowners do. For example, SF renters could easily outnumber homeowners to allow much more housing to be built, but ~70% of housing stock there falls under rent control.
I do want to be clear that I fully support controlling costs in some manner, however, this desperately needs to be tied to a solution that results in more housing.
Any price control inevitably has negative consequences in the market. This is practically a law of economics.
> Its limited to buildings that are 15 years old or older, and it limits rent increases to 8% annually, which in practice is about 1 - 3% of all lease agreements in CA, a very small amount.
If it with have such minimal effect why even have it?
> Commercial construction loans are based on the 15 year revenue generating potential of the proposed building, this law was created specifically with that in mind so as not to interfere.
Then it's not as bad as it could be. Doesn't mean it's justified.
It may not seem justified to you, but to a low income family in a rapidly gentrifying area, it means everything.
And what is the magnitude of the consequences of this law? That’s what matters. It’s very small.
There is an exception: if the price ceiling is higher than the market price, then the ceiling will have no effect. It may be that the allowed rate of increase is high enough that it's an ineffective price control, in which case there would be minimal market distortion.
Many of the legislators who supported it specifically cited this aspect of the bill, so I don't think such a change would make it through.
We could also consider building more, and better, mass transit.
I guess we’ll find out in some years whether rent control entices builders to build more or if it will depress the market for building (as it usually does) such that at some point we see people (families) bunking together ala Soviet housing solutions to demand.
Will never cease to amaze me just now inept politicians are.
[1]https://en.m.wikipedia.org/wiki/Four_Pests_Campaign
Here is a different article, more tolerant of private browsing: https://www.forbes.com/sites/adammillsap/2019/09/04/more-ren...
Every field of economics agrees that rent control causes harm to the people it's supposed to help.
In application Toronto has seen the opposite effect to what you describe. We hear this argument over and over as we just had our rent control stripped, but it’s counter to the experience.
Here’s one write-up:
https://urbantoronto.ca/news/2018/11/people-why-universal-re...
> So far, empirical evidence shows that rent control has not crippled the purpose-built rental market.
But the economic concensus is exactly the opposite.
https://www.economist.com/the-economist-explains/2015/08/30/...
https://www.nytimes.com/2018/10/12/business/economy/rent-con...
https://www.businessinsider.com/does-rent-control-work-no-it...
https://www.bloomberg.com/opinion/articles/2018-01-18/yup-re...
https://www.nytimes.com/1989/05/30/opinion/how-rent-control-...
They outline, with numbers, the practical effects of rent control in the sample size of metro Toronto.
I’m not an economist but I didn’t think consensus was a valid benchmark against empirical data.
Is that for rent control as in New York or San Francisco, where the allowed rent increases are very small; or for rent control as in San Jose (8% until reduced to 5% in 2016) or Oregon, or maybe this bill, where the allowed rent increase is larger than most of market increases?
A limit of 5% + inflation is probably more than most markets in most years, and more importantly, is a big enough limit that most leases will be able to catch up to the market over a few years.
So, this would still distort the rental market, but in a much more limited way, that may be more likely to actually help people.
The increasing disparity between taxed value and real value results in all tax payers having to pay increased income tax, which is then directed largely to landlords who aren't contributing their fair share - their properties are benefiting from services that they aren't paying for.
Great source there! No agenda at all.
https://sf.curbed.com/2019/5/17/18629809/sb-50-housing-trans...
The supermajority was irrelevant.
The real solution to a housing problem is to incentivize and facilitate the building of more housing. ADUs, relaxed zoning, reduced building regulations, reduced fees for permitting, etc. I fear rent control is actually going to do more damage to the housing market than good.
Most landlords already increase rents at the maximum rate that the market will bear. Capping annual increases at 7% just ensures that in a year when the market would allow landlords to get away with increasing rents by over 7%, they won't be able to do so.
I do not follow when you say that the strategy of increasing rents by the maximum amount permissible is necessary "because larger adjustments cannot be made if and when necessary due to market conditions". In what scenario would larger adjustments be necessary? If you made a viable investment in a property and are currently renting it out, wouldn't rent increases just need to equal inflation in order for you to maintain the same level of profitability? Sure, increasing by more than inflation allows you to increase profits, but I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.
If the market can support it, these laws guarantee the maximum increase. If the market cannot, well you are already at the top of the market aren’t you? So no benefit here.
(However, your example would still work, if the reliable tenant turns into a nightmare tenant.)
Not necessarily - taxes on property owners don't follow inflation. They may go up greatly compared with inflation.
>>> I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.
Because if don't allow it to be profitable people won't do it. Particularly in California it can be quite risky the rent out a property. It's an extremely tenant friendly location, so much so that evictions for major infractions can take several months, or in some cases years.
What would be the positive effects?
Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)
Except in Cal where they go up much lower than inflation...
Price ceilings (even non-binding ones) can create market power for suppliers by providing a focal point for tacit collusion.
[0] Knittel and Stango (2003), Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards https://pdfs.semanticscholar.org/3848/b5c04ae02c17c0b5135841...
[1] DeYoung and Phillips (2009), Payday Loan Pricing https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77a...
How often do you replace tenants? And what's your occupancy rate? If you're in a situation where you can reliably raise rent 7% YoY indefinitely without decreasing your occupancy rate, then you were severely underpriced for the market (and you should probably fire that management company for pricing you that absurdly low). 7% YoY after inflation is a big increase that outstrips average wage increases.
If you aren't severely underpriced, then what's going to happen is that when you increase by 7%, the tenants will choose to end the lease because they can find something cheaper (or they emmigrate from the city because nothing is affordable), and you'll struggle to replace them with wealthier tenants willing to pay what you think is market price, so you'll have to lower rent to attract a tenant. Once you get to the point where your price is roughly in line with what the market will bear, you'll only be able to squeeze one or two years of rent increases out of a tenant before the non-monetary costs of moving are outweighed by the cheaper rent, so constantly trying for 7% YoY post inflation will just mean a decrease in your occupancy rate, both because you'll be replacing tenants more frequently and because finding new ones will take longer.
They use their money to build new units in that area or entice someone to build new units on their behalf on which they will then outbid everyone else.
I think what OP was saying was that in an unrestricted market they have wider range (due to discretion) but given this shackle on hikes, they are going to max it out. Maxing it out means there will not be downward adjustments when warranted (economic trends) and will instead ride it out (not make it avail at lower price) because when the economy picks up they’ll more than make the loss up.
However, there's an issue with how you're calculating the market rate: You're assuming that tenants can/will bear that cost indefinitely, so the market rate can be "whatever the landlords want to make it". That won't always be true, not just from landlord defectors who might try to undercut the oligopoly on price, but because the tenants can move elsewhere and effectively remove demand.
To undercut that this year would mean being below market price in a future year. The only arbitrage would be between present and future prices. Perhaps some subset of landlords only seek to rent out for the front-end years, so they would have a different calculus, but all that would do is to pull down the average transaction price by a little, according to their size in the market. So if the current price demands a natural increase of 2%, maybe the market will clear at 5% instead of the 7% max, but it remains the case that there will necessarily be years where the clearing price is higher than without rent control.
[1] This is assuming the government "guesses" it right that 7% is the average rate of increase over the long term. If it is below average, then the market gets severely distorted.
And the cap was explicitly set to be below the average rates of increase for many areas because the effects of the higher increases in those areas is what the law is explicitly trying to prevent.
Spreading the increase to a leaner year only works if the unit is below the market rate. If the unit is already within 7% or so of market rate, then market won't bear that increase. Instead the tenant will move out to a market rate unit. If the entire city increases in lockstep that means people near the bottom of the market will be literally priced out and either move to another city or resort to sleeping in their cars or become homeless, but everyone else will just downgrade the size of the unit they rent since once the price of the current unit exceeds their ability to pay. At the very top end of the market that will mean units will have decreasing occupancy rates assuming the landlord refuses to compete on price to increase demand and insists on capturing the 7% increase.
Well, “Nothing” is an unusual way of referring to the Sherman Anti-Trust Act.
You are forgetting about transaction costs.
The new law does provide a Schelling point. (But I do agree that it's probably not going to be an important one.)
Needless to say, costs are increasing faster than 60% of inflation... In turn, landlords are only willing to write leases at very high prices and the supply of rental units is even lower than it would be otherwise...
If they lose this “right”, they insist on becoming pure profit maximizing machines?
It's disingenuous to pretend like the landlord is the only party with any control. Landlords cannot remove a tenant at "the drop of a hat" by any stretch of the imagination, nor can they arbitrarily increase rental prices. Rentals usually involve a lease that protects the tenant from arbitrary removal and price modifications as much as it protects the landlord from unexpected vacancy. If you're renting, you should know when your lease is up and know that the landlord has the option not to renew and/or to modify the price. (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)
On top of conventional lease protections, virtually every state has default tenant protections written into statute that can't be overridden by lease agreements, and that include a default implicit month-to-month tenancy term, providing at least basic protection from out-of-the-blue demands to vacate.
If an eviction must occur, it has to be conducted as prescribed in state law. Tenants overstaying or defaulting on their leases frequently can't be removed without 3-6 months of legal wrangling, which is no fun.
The CA law allows the rental price to reset to market rate for a new tenant, so unless the landlord doing you a solid was planning to stick you specifically with a rent increase down the line to recapture the present solid, they can still keep your rent stable across lease terms.
Before, the tenant was happy because they got below market rent for 4 years, and I was happy because I could defer pricing work without long term penalty or risking a move-out during an already busy year. This new law will likely result in my tenant paying more, and me working more at times I don’t want to work.
It’s not the end of the world, it’s just one more annoying piece of red tape that doesn’t seem to help anyone.
The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year.
I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).
It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.
$1000 +7% = $1070, $1070 +4% = $1112.80
$1000 +12 = $1120.
Increase by 7% followed by an increase of 4.67289719626168224299065420561%.
The point is that the 12% hike every 3 to 5 years can be accomplished over the same time frame because the max the law allows for is 22.5043% in 3 years and 40.25517307% in 5 years.
Your hypothetical also assumes that in the next year, the market value will stay the same, when in reality the expectation would be that it would increase another percentage point or two, meaning they'd have to come close to maxing that second year's increase to fully recapture the value.
It also creates an effect where now that there's a legal range, the landlord will still feel like a nice guy by increasing rent "only" 4% each year, for example, and that's worse for tenants overall. It strongly incentivizes small-time landlords to imitate commercial landlords and squeeze the tenant for more each year, which other posters have adequately demonstrated is a significant loss to the tenant over a simple periodic adjustment every 3-5 years.
These policies may be better justified in high-density areas like San Francisco (probably still net negative), but applying them state-wide is crazy. California is a very large state and they just made things substantially more complicated for both tenants and landlords throughout.
It’s not a lot of work, but my FT job isn’t being a landlord, and we’re talking about a property that nets maybe $8k/year. It’s been a better rate of return than the stock market, but the alpha is small relative to my SWE salary.
I guess another possible outcome of this is pushing marginal small landlords out, or pushing them to use property management firms since the fees possibly start making more sense. Neither of these seem like good outcomes to me.
You are doing no one any favors except short-term renters who never get an increase. In other words, your so-called benefit is actually a detriment to long-term renters.
Unclear on why doing it all at once is worse than doing it regularly and extracting more rent in the period in between. Is the theory that they will be unable to adjust their budget in 60 days?
Let's say the rent is $1000/month (for simplicity). That's $12000/yr in the first year. If you increase the rent by 12% ever 4 years they'll have 3 years of paying $1000/month, followed by a 4th year of $1120/month and so on.
If you instead raised it yearly by 2.87%, which give-or-take is the same as a 12% one-off increase we can calculate the net rent paid over the period in the two scenarios:
The result is that by deferring rental increases you've given your tenant a benefit of $2106, and we can safely assume the rent is a lot higher than $1000/month. I.e. every month of the rent not keeping with market increases is more money for the piggy bank.I think people that are arguing bigger rent increases that happen less often are bad are assuming tenants are stretching their housing budget to the max and won't be able to afford the large hikes. In which case they wouldn't have been able to afford it with smaller increases either.
It is well known that most people can not afford significant sudden expenses. I think the inability of some folks here to recognize how bad a 4 year rent hike can be have the privilege of not being in that group.
Note this works both ways. If the market goes down, if no one wants to live there anymore, tenants have a lot of room to negotiate. Vacancies are expensive and the hassle of getting a new tenant is not something many people want to handle even in good conditions.
I also contend that not all markets make this easy. I rent a single family home in a town of 4,000. This is not a super liquid market. There are not a lot of good comps - my house is a block from the town’s best park, and walking distance to the small downtown. On the other side, it is a substantially smaller lot than the average house. There are essentially zero houses that are equivalent, and I have to do a lot of digging (including calling up other folks I know that are landlords) to figure it out.
My tenant is not on the verge of financial collapse. They’re a manager at a local business, they probably spend about 20% of their gross pay on rent. They have demonstrated an ability to absorb the bump without issue.
No, the market kicked out most tenants. The tenant should be expected to also monitor market prices for their rental and know automatically when they're getting a deal or when to expect an increase.
"The market" is not an entity with its own volition, and speaking of it as if it were obscures the reality that it's comprised of individuals and collectives making individual or collective choices about what to charge and what to pay.
Two viewpoints, one tree.
Maybe inflation gets crazy, maybe taxes increase, maybe maintenance turns out to be more expensive, maybe they realize they've been underpricing, maybe they sell the property to someone who has the same reasons.
If you tell them that you will limit their freedom to choose the rent price, they will try to retain as much freedom as they can.
It's like a use-it-or-you-lose-it budget game.
https://www.creditdonkey.com/average-stock-market-return.htm...
I'd hazard that the PM charges a percent of the gross rent, but has a minimum irrespective of the rent actually charged, so the landlord will then just tell them that they don't want the PM to rent at a price where the PM's minimum fee is more than the fixed percentage. (or in hard numbers. If the PM requires the greater of 10% or $100, then the landlord will just say "don't rent below $1000")
Sadly, their contracts are pretty slimy - they usually absolve the property manager of any wrongdoing whatsoever. Do they hold up in court? KINDA. Unless you're incredibly rich and have a fantastic lawyer.
- He may be socially responsible and not want to charge through the roof. E.g. likes the tenants, prefers stability etc.
- The whole point of the law is indeed to prevent large raises. But what if expenses suddenly skyrocket, or inflation does, and he has to increase more or go bankrupt? That’s the worry here. No, the law won’t react quickly enough. It’s preventing him from being socially responsible.
- You assume annual 7% would not work eventually because it will raise the price too much in the market. This assumes free market, but you don’t have it anymore, now you’re regulated. In particular, your missing that everybody else will adopt the same rational self-preserving policy. Approximately the entire market is going to grow 7% YoY now.
- nitpicking: 7% before, not after
You need to have some degree of control. I live in a suburb close to a tech hub in WA. They built a lot of housing in the past 3 years. And I mean a lot. At least a couple of hundred of apartments on the market every year, after raising 3-4 buildings at the same time, in a town of 20k people.
One would think that the price would go down based on supply and demand, right? More than half of the apartments were empty while the management companies were not budging on the price. Nobody wanted to go below 2k/month for a one bedroom and they were sitting around with empty apartments. Finally they managed to reel in some suckers by offering 2-3 months free rent but again, no rent was going below 2k so the next year, you pay up or move out.
Right now, people are moving out and the apartment buildings aren't what you'd call full but again, the rent is not going down. It actually increased. Because what happens is that they're owned by large landlord corporations which can take the hit for a year or two to keep the prices up. I know this because I used to live in one. They increased my rent (years ago) from 1.2k to 1.7k and I moved out. The apartment was on the market afterwards for about a year and they didn't try too hard to get new tenants, they just posted it periodically on Craigslist. I tried to negotiate to bring it down to 1.4k and they said no. It was way profitable for anyone to keep the price up, although they lost a year of rent from it.
A big big problem is that we have underbuilt for decades, which has normalized underhousing for younger people.
With regard to the story before it, it sounds like they actually lowered rent to about $1600 (2 months free is a 17% reduction, which is pretty hefty. Sure, you’re betting on them staying after, but it switches to month to month usually after a year so it’s risky).
I see this all the time where a large ownership company will leave apartments or commercial real estate totally unoccupied rather than allow a cheaper rent.
I don't understand what they gain.
So, leaving an apartment empty that could be rented for $X isnt quite a straightforward loss of $X, since you also gain the ability to offset future taxes.
If the unit sits vacant for a while but they do eventually succeed in growing building revenue through rent increases, they don't have to wait out the full breakeven timeline to make money since they can sell it on to the next buyer at the newer higher price indicated by the latest year's financials.
Let's take an example building where the local market has apartments trading at a 3% cap rate. If there are 30 units renting at 1.2k with no vacancy, that's $432k in annual rent. Let's say running this property requires a $80k property manager, $80k in property taxes, $40k in utilities, $40k in insurance, and $25k in miscellaneous expenses for a total of $265k/yr in expenses. The net operating income is $432k - $265k = $167k/yr. The market value of this building to a prospective buyer would be $167k/0.03=~$5.56M
Renting the 30 units at $1.7k (41% rent increase), gross rents would be $612k. Expenses constant at $265k/yr (taxes would go up, but this is napkin math), the NOI is now $347k and the building is worth $347k/0.03=$11.56M .
In this example, a 41% rent increase more than doubled the value of the building. For an investor with deep enough pockets, the $6M of equity created by renting units at the higher price is enough to cover the cost of a long vacancy / rehab process. But they can't get too greedy or the units will never rent and they're just stuck holding the bag on a high-vacancy underperforming property.
These dynamics amount to what is basically a slow-motion flip playing out over 4-10 years. Some REITs do this across their entire portfolio to achieve healthy annualized returns.
When I said there needs to be some level of control (and apparently nobody agrees), I was referring to something like the taxes put in place by local governments against foreigners buying up property, keeping it unoccupied thus creating scarcity and driving prices up.
In this particular case, the local government practically gave away building permits, changed codes, the whole town was at the developer's feet (roads closed, free traffic enforcement, less green space, redesigned roads to deal with the forecasted traffic, etc..) under the promise of building plenty of 'affordable housing'.
But when after you build it (tons of this crap https://www.bloomberg.com/news/features/2019-02-13/why-ameri...) you raise the rent for no reason and practically drive people away (I'm not saying it's gentrification, I'm saying it's well-off young professionals who are now choosing to move to a different city), the local market stops being competitive, you sit around with empty apartments, somebody went wrong somewhere. All new developments are under the ownership of two or three giant entities which have a vested interest of keeping prices very high as opposed to competing among themselves. The management companies who own these also made sure to buy a lot of the existing (crappy) apartment buildings.
The argument I was trying to make is that more housing does not necessarily solve the rent price problem, especially if the new housing is governed by a handful of large corporations. And that is usually the case.
Increasing supply simply ensures tomorrow's rent is lower than it would be otherwise.
Same when a rent control unit opens up in SF, the goal is to push the rent as high as possible since it’s not going up much after that.
7 percent is a pretty high allowed increase. I suspect that it really doesn't do much except stop gouging in the case of someone who had really cheap rent in a place that gentrified suddenly.
(1) Since rent control laws put limits on increases (and not decreases) every landlord understands that he/she should test the upper boundary at all times to avoid renting severly below market rates during boom years. With sufficient landlords undertaking this task, rents should go higher than without this limitation. Moreover, the cost of moving is higher for the tenant (who has to find a home and move his/her property) than the landlord (who has to find a new tenant).
(2) real estate becomes less attractive builders and buyers, given the mandated constraints on charging rent. See https://web.stanford.edu/~diamondr/DMQ.pd. For a counter, see https://www.housinghumanright.org/wp-content/uploads/2018/11... (you'll have to wade through ad hominem attacks).
(3) high-income earners tend to benefit the most on rent control over time. As market rates for rentals increase (i.e., property up for rent), only higher-income individuals can afford to move in. Over time that leads to the displacement of lower-income individuals. Anecdotally, I can attest how some of my high-income earning friends pay very little for housing in SF because they locked in rates before 2011.
Lastly, pro-rent-control reports/papers I read highlighted the need for a comprehensive housing strategy beyond rent control, like increasing rental supply by making it easier to build ("It is also critical to recognize that the need for reforms extends beyond rent control and housing policy more broadly ... This includes developing new funding sources for affordable housing development and addressing exclusionary zoning policies at the root of the displacement crisis, https://haasinstitute.berkeley.edu/opening-door-rent-control). As the article already mentions, Scott Wiener's bill to override local zoning laws was shelved. The CA legislature did not have the stomach to address the underlying cause.
A far more sensible solution (IMO) is: (1) override zoning laws / ordinances that prohibit building more homes (2) tie rent control to income.
Give one moment's thought to the most likely side effect of that...
Funnily enough though, I would say that Montreal has less of a supply problem, despite being on an island with no room to expand into an infinite suburban sprawl like the bay area has. Construction still seems to happen here. People are bitching that too many condos are being built, but I think more supply is good.
Anyway, I think rent control can work pretty well, as exemplified by this Canadian city. At the very least measures to prevent surprise rent tripling while someone is renting an apartment are very much a good thing. Sidenote: I think that rent control can also help prevent property price explosions. It makes no sense to buy an apartment for over a million dollars when its rental value is only 1000/month.
https://www.theglobeandmail.com/news/national/how-does-montr...
>>Montreal is not shrinking, but it is growing slower than other big Canadian cities – driving down rental demand in the process. From 2013 to 2014, despite gaining nearly 43,000 immigrants from other parts of the world, Montreal tallied a net loss of 10,000 residents to other provinces.
If either Vancouver or Toronto had had more stringent rent control in place over the last few decades, the housing situation in these cities would be much worse than it is right now.
The effects of rent control have been heavily studied and are well-known:
https://www.econlib.org/library/Enc/RentControl.html
I'm not saying the contents of the article is wrong, but just be aware of its source/publisher.
[0] https://en.wikipedia.org/wiki/Liberty_Fund#Criticism
Is the property management company collecting an extra commission each time a new tenant moves in? Because all this strategy is going to do is let tenants quit once the rent goes considerably above the market rate.
A much wiser strategy, IMO, would be to watch the market rates and keep the existing tenants' rate constant until the market rate climbs considerably higher (7% sounds like reasonable threshold) and then raising it to be marginally below the market, incentivizing the tenant to stay.
What will probably happen is that you'll have a hard time filling your property after 1-2 years at the latest, and everything goes back to normal.
In other words, it scares all the landlords at once, and they all raise prices a little because of it.
Are average renters getting 7% pay raises every year in perpetuity?
In extreme markets, perhaps.
Normally one landlord's ability to raise rents is constrained by the prices other landlords charge.
I was talking with a real estate agent in SF and he said it’s not unusual for landlords looking to sell their rent controlled building to just let units sit empty.
Why? Because it can increase the value of the building by hundreds of thousands of dollars. Losing out on $24k worth of rent each year is easy if you know it comes with an extra $300k in your pocket when you sell.
What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.
The real problem is we're not taxing these properties at the true value they could provide to society, so a massive market inefficiency exists.
But you do you.
Your landlord may be able to evict one building’s worth of people, but your goal is to evict many more than that.
Your landlord is harmless by comparison.
But ignoring that absurdity - property taxes are usually 2% of the property value. So you'd need to what... Not pay any property tax at all for 100+ years for that scenario to play out?
But let's say we allowed that to happen, and we're somehow sympathetic to that owner. You still don't evict anyone over property taxes. The next buyer will just have to work it out. See Detroit and its $1 homes with $20k in back taxes.
I guess the problem here is I don't see housing as something anyone should expect a guaranteed profit from. I view it just like anything else - there's real risk, and if you're going to privatize the profit, you damn sure better privatize the risk, too.
Just like any other asset you can pay too much, buy something unsuitable, or mis-predict market forces.
Are you against private ownership of property outright?
Do you favor being taxed on the value of other things you own, how about your laptop, stove, etc?
Edit: just to appeal to authority: every single legitimate economist agrees with me on this as well.
Other states may do this, but many other countries do not.
Why shouldn’t you be taxed on the assessed value of your laptop and car each year too? How about your savings account? Shouldn’t that be taxed?
You hint at the easier solution: repeal prop 14 and increase property taxes. A lot. Problem solved.
(If you want to be a bit more sophisticated, look into land value taxes.)
If the fact that allowing landlords race-based leasing won the vote isn't enough to convince you that direct democracy is a stupid idea I don't know what is.
https://en.m.wikipedia.org/wiki/1964_California_Proposition_...
The real issue is that there is no central authority at the CA State or even Bay Area level planning growth holistically.
A company can hire 5,000 people tomorrow and they'll all just move here and look for a place to live, regardless of whether the city their employer is based in has any housing or not. That drives up rent. It creates the absurd traffic that we now get to enjoy every day of the week. It drives up the costs of goods and services.
Bay Area leadership and California leadership need to sit down and have a discussion with employers and cities about how to effectively and responsibly grow, and then move towards developing new infrastructure to support the plan that comes out of those discussions.
If you're putting the place up on AirBnB more often than not, the unit is not your primary residence and shouldn't be afforded benefits as such. If the goal of a vacancy tax is to increase rental supply, AirBnB does pretty much the opposite.
In California, and most of the US, property assessments are done by elected officials on an annual basis. In California the rate of increase is severely capped, but you're free to apply for a reduction if the value of your property decreases. If you're legitimately on vacation (or whatever), apply for an exemption. It's not that complex.
This may or may not be true, but that is the idea.
But I don't think it's fair to say that expensive housing, full stop, is a product of regulation.
There are desirably places to live that have housing that goes up at a good enough rate to be considered an investment. As long as there are people of sufficient means, some of them will add property to their portfolio of assets. A home that sits unused on prime real estate is, frankly, more of a drain on that community than $100,000 in cash sitting under a mattress going unused.
It's not perfect, and it IS a regulation, but penalizing people for hoovering up housing stock and then not using it, can benefit society.
The estimate is there are 100,000 empty homes in the SF area.[1]
I’ve seen an estimate of 20,000 for SF proper.
This [2] report to SF Planning states the number of empty units has doubled over time.
[1]https://www.sfgate.com/realestate/article/An-estimated-100-0... [2]http://ternercenter.berkeley.edu/uploads/CR_Final_2.3.19.pdf
Not saying it would solve the housing crisis, but adding another 20,000+ units onto the market would certainly help.
Even if that was added to the vacancy rate, that would still leave SF with around the national average (~7%) vacancy rate, and that's without counting the off-the-market housing anywhere else in the average (and not double counting actual on-the-market vacancies everywhere else, either.) Anyway you cut it, SF has a low vacancy rate/rate of empty homes.
It also opens it up to people who want to buy the building and move in.
Also, if you take your reasoning to the extreme then an empty apartment building has a negative value.
2. Realize that not everybody in the world needs to or should live in the Bay Area/Hollywood.
3. Don't pass statewide laws catering primarily to the group of people aspiring to do so.
Entitlement was never a core tenant (no pun intended) of the American dream.
Take your "I've got mine so screw everyone else" attitude out of the bay area, we don't have room here for people with so little empathy for their neighbors.
This law is not targeted at SF per-se because SF already has strong rental protections, this law offers the bare minimum of protection for everyone in the state. The bay area should, and must, pass stronger protections than this statewide law.
>>>>>>>>>
If you can't afford to live in a box in San Jose, obviously staying isn't an option either.
>>>>>>>>>>>>>>>>>>>>
"Take your "I've got mine so screw everyone else" attitude out of the bay area, we don't have room here for people with so little empathy for their neighbors."
>>>>>>>>>>>>>>>>>>>>
Oh I don't live in the Bay Area. Theres an entire nation outside of San Francisco, large parts of which are better than the bay area in every objective fashion other than this weird cult obsession with having to live in the poop filled streets of Silicon Valley.
Excluding people from work in productive areas perpetuates poverty.
But that labour productivity (eg measured in salaries the market can bear) differs so much is a fact. Whether we like it or not.
That puzzle is mostly about productivity differences for tech workers. For the baristas in the Bay Area relatively standard explanations like the Baumol effect do most of the explanatory work.
This has nothing to do with people that think they deserve to work there (which I frankly don't get what the big deal is, you're not a teenager scoping out the best colleges anymore) but obviously the marketplace disagrees.
So if the best companies could employ more people in those places and pay them high salaries, those people would also pay high income taxes that could finance public infrastructure for the rest of the country.
When the market will bear an increase less than rent control, it gives landlords something to point at as justification and help mitigate turn over. When the market will bear a greater increase, it is unfair and harmful to communities, etc. etc. etc.
It shouldn't be a surprise that more landlord-friendly rent control measures get less resistance from landlords.
Also, I assume there is some market pressure to consider, if your increases outpace supply and demand, then tenants would simply move, right?
I'm in bumblefudge-nowhere-Midwest USA, and even we've averaged 10% yearly rent increases, for more than 5+ years now. Every top-20 metro area I've looked at, has had it worse than us on rental price increases.
And I strongly suspect these numbers are below real-world ones (they use Zillow-listing advertised price, which like most advertisements, are usually slightly lower than the actual price a real person would have to pay)
Indexes and aggregations may show something, but it's important to remember that they're lossier than many people appreciate. You'd have to dig into the data to learn how representative it may or may not be. Since small-time landlords are hard to collect data from, most of these city rental indexes are probably relying on large-scale apartment landlords who are constantly trying to squeeze maximum price-per-unit. I'd say you'd do well to take it with a grain of salt.
Interestingly, my rent has remained stable ever since moving - guess it's possible to have much better luck with smaller landlords.
I was simply thinking, Unintended Consequences in 5,4,3,2,1...but that's one I hadn't thought of. Of course people will push up against the limit in order to buffer out market values.
You could easily see rents above where they should be from a market standpoint simply because of the inertia in a system of annual increases.
It also makes me wonder if you are allowed to increase rents if you improve a dwelling. If not, nothing gets fixed beyond the bare minimum.
When are "larger adjustments" necessary vs just opportunistically profitable?
The question I always see is "why shouldn't I have the right to make as much money as possible from my investment," but the answer seems pretty clear: because evictions and massive rent hikes have nasty social consequences, as does treating rent-seeking as an investment.
There is a lot of knock on affects that rent control brings that are negative that I don’t have time to go into
FWIW rent control advocates agree with you.[1] It’s a point in which the “PHIMBY” left[2] and the real estate lobby agree.
The reasoning is that it’s not actually a full rent control bill (it just stops the most extreme cases of gouging) which is why the California Apartment Association stopped opposing it. Thus it doesn’t go nearly far enough to stabilize rents.
I know there are a lot of supply siders on HN champing at the bit to dump on rent control, but this particular bill is a bit more nuanced.
[1] https://twitter.com/rcmoya84/status/1171972636294840320?s=21
[2] https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-cou...
This argument comes up here in Australia with regards to Sydney and Melbourne in particular -- the two largest cities.
Building more houses only makes more sprawl. Increasing density causes problems for current residents and puts enormous strain on existing infrastructure[1].
The only real solution is to get people to live in other places that have more and cheaper housing.
[1] Not just utility infrastructure like water, sewer, power, gas, (roads, sanitation, what the Romans did for us etc) but natural environment and leisure like sport and recreation areas, parks and bush land, and (particularly in Sydney) beaches. It's really hard making new beaches for the increased population.
The solution is to make other places attractive for living and have hood opportunities for employment.
Look at it this way: your house or apartment or whatever can probably fit double the people in it. They might be on the floor or on the sofa or whatever, we can double the density. The quality of life will be decreased for everybody.
At what point do we say "It's full, go somewhere else."
What needs to happen is effort put in to make other cities and towns attractive. This could mean encouraging commerce and industry to re-locate or set up new factories or offices. It certainly means ensuring city-level standards of health care and education, something that is a good thing to do anyway
Lastly there needs to be a campaign to encourage people to move to these places. Australia already has migration programs that require people to live anywhere other than the main capital cities.
Australia has a scarcity of fresh water, and low rainfall. Our inland rivers are dying because water is diverted to irrigation for farming; Sydney's water supply is pretty stretched and the option to build more dams is neither environmentally desirable nor possible, because all the rivers have already been dammed, and most are less than full due to low rainfall.
So without resorting to calling NIMBY, at what point can we say "we cannot support any more people"?
I suspect induced demand is more of an effect with highways than housing. People can change their driving habits from day to day more easily than they can change their living habits.
Expand a highway, and more people in the area start taking more car trips on it.
Add housing, and more people don't instantly come into existence to occupy it. (Maybe, over a few years, people stop cramming themselves into crowded roommate arrangements as much, and over decades they have more kids.)
But if I granted that induced demand applied to both...
Driving is a means to an end. People stuck in traffic are suffering.
Having a home is an end in itself. People need shelter, and living near your community/job/family is a huge quality of life improvement.
Plus, when you expand a highway, strictly more mileage is created. It's not like the additional car trips in this city are taking the place of car trips in another state. It's a net loss for society and the environment.
Whereas, when you add housing, even if it induces more people to move into that city, they're moving out of some other city, easing the demand in the housing market there.
I've been tenant in France, with restrained rent increases. Every year my rent was increasing 20 euros or so.
I've been tenant in California without rent control. After one year, my rent went up 500 dollars.
But well, maybe that's because in France the allowed increase is calculated from a rent index in the area, not a fixed number like "7%" (no idea where it comes from).
Also, don't say "necessary due to market conditions" when the reality is just "can get away with it due to market conditions". It's not like the increase of the rent market causes you more fees or increase your mortgage.
Do rich people to afford that extra housing get created out of thin air?
As for "does not translate to affordable housing"--right now landlords and property developers have two ways of extracting money from the system: charge high rents, or pass the property on to other landlords. Maximizing profit on either of these requires rents to keep going up, and for the second there's no particular reason to actually have tenants. Beyond that, "market rate" in SF right now is nowhere close to affordable for most people and will not be for the foreseeable future, even if building greatly increases, which means that the people currently protected by rent control--those who can't afford "market rate", like the vast majority of people in the U.S.--aren't helped one bit by the creation of new housing.
A) Housing becomes affordable, or B) housing stays expensive.
The latter means we added trillions of dollars to the national wealth.
By the way, please go ahead and do tax property a lot. Ideally, you'd only tax the unterlying land with a land value tax. But even a naive property tax is OK.
That way foreigners buying up local real estate for speculation means foreigners paying for local services.
Imagine two hypothetical cites, each with one million residents. The first one has half a million apartments, while the second one has ten million apartments.
Which city would have cheaper apartments?
Here's a better question: under a realistic model of building, where building slows down when landlords and property owners feel they have maximized the profit they will get out of it, by what date do you think housing prices will be low enough that current residents who rely on rent control to stay in SF will be able to live there again? 2025? 2035? 2050? What is your recommendation for those people in the meantime?
Nobody is "kicked" out because nobody has an intrinsic right to live in a particular neighborhood. Arguing such a thing is in complete opposition to a free market.
In other words, it is totally permissible to increase the legal rent by the officially allowed 7%, but increase the effective rent paid by your tenants by only 2% (or whatever you want). There does not appear to be any restrictions about removing such incentives/concessions/discounts in the future.
It also appears that the California law resets as soon as the tenancy changes hands; so as soon as there is a vacancy the landlord is free to increase the rent by as much as they want. This is not the case for NYC rent stabilization; there the increase in the legal rent is a property of the unit, not of the tenancy.
Similarly, i tell my tenants that they should expect the minimum increase yearly as i cannot make up for any lost increases nor can i make larger increases if something about the economics of the house changes.
The real issue here is the cost to provide housing, and the limited amount that exists. I wanted to finish a basement in one of my places, to do this legally, i owe the city $140k in fees alone. This is around 5-6years of rent. You can probably imagine why i opted to put this money in a bunch of index funds and do nothing instead...
The core issue is there is not enough good housing for everyone in California.
The real solution is to greatly loosen building regulation and make getting permits much faster and easier statewide. Then entrepreneurs will double or triple the housing supply and drop the costs of renting or buying a home by 80%. You could see rents go from $2500 per month in LA to $1000 a month or less.
And you build more and more housing, you'll wind up with 4-lane highways to and through Yosemite or something - that's not at all desirable is it? How would you handle the traffic and flow of people? Giant hotels, McDonalds, and huge traffic stops? It's just not sustainable.
California's problem is that it's not sustainable for the amount of people that want to live there. I think it's a global problem in general too. Less people, and no cars would be most desirable to me.
Sorry for a bit of a discoherent rant.
Density does not automatically mean low quality of life, and in fact could just as easily enhance it: what matters is good city planning and design, and I’d very much argue that in e.g. LA (where I live) the vast majority of single family homes in the city are in areas where it makes no sense for them to be, lowering the quality of life for even those that own and live in the home (e.g. single family homes right next to highways and commercial corridors? why?)
In my opinion, the idea that California is “full” is immensely dangerous. Especially considering the fact that SF and LA are losing net population yearly — and yet the rents are still increasing and our suburbs are still sprawling further and further out. Density is the solution, not sprawl and not limiting who can come here.
California is in no danger of being overpopulated... The issue is as you say - single family homes are a brain dead way to live. Every homeowner has to spend hours a day maintaining his house... We stopped running our own internet servers after the first ten years of the web. Why can't we do the same with housing? Convert everything to medium (4 story buildings) or high (10+ story) density housing. You would completely get rid of suburban sprawl and everyone rich and poor could live within a mile of the ocean or mountains, walk or ride a five minute train to work, and solve climate change at the same time.
This is the use-it-or-lose-it budget game, landlord style.
I don’t know who rent-control is supposed to benefit, but it seems broken. Eventually these places end up in the hands of people who know how to game the system. Just build more housing and the incentive will go away.
I don't know the same people that get mad at a corporation for allegedly "cheating the system" in some way don't find this sort of thing offensive, but weirdly they don't seem to at all.
If this is in San Francisco, report them to the landlord or the city so they can be evicted. Tenants who abuse the system worsen the housing market for everyone.
https://news.ycombinator.com/newsguidelines.html
That's generally illegal, unless the subtenant is paying no more than the tenant is in rent. Every tenant who does this in San Francisco can be, and ought to be, immediately evicted. There is zero economic/social justification for abuse of rent control.
Yes, subletting for more than main tenants rent is illegal, but considering how hard it is to find apartments, most subletters just let it be.
Are my numbers just totally off?
> Do people try not to commute?
Spoken like someone who's never tried to commute in SF. Public transportation options are extremely limited, owning a car is extremely expensive.
And I commute in LA, it's not exactly enjoyable or cheap. But it's cheaper than living within walking distance of my office.
Since I moved to Seattle I pay 1/2 as much for groceries, 1/4 as much for the gym, 2/3 as much to eat out. So in the end rent isn’t the only problem. All your costs add up. Add state income tax and the problem compounds further.
Perhaps you don't realize how good you have it out there.
The solution to the housing crises is to build more housing. This discourages building more housing.
Given how slowly SF builds housing, the fact that anything built 2004 and earlier is eligible basically means almost everything except new high rises.
Subsidize home loans Ban new construction Ban rent increases
It is no wonder why housing prices/rents continue to rise in these markets.
In software engineering sometimes conclude that a rewrite is necessary. How can we completely rewrite our regulations?
It's how the market works ffs.
There's no need to swear at people, this is an interesting and complicated topic with many valid points to debate.
Supply and demand is one of the simplest concepts in economics and yet rent control does nothing to increase supply. In fact, it decreases supply by not shifting prices higher to induce more production.
That's what makes it one of the weakest. The housing market does not follow a standard supply-demand curve for a number of reasons.
> Rent control has never been good anywhere.
Citation needed. Rent control has helped a lot of people find stability in a time of need, enabling less trauma, stress and improving chances of class mobility.
> In fact, it decreases supply by not shifting prices higher to induce more production.
Is this a real effect that you can measure in the real world? Has this ever happened in reality before? Or is this a theoretical concept? One that you assume plays out under ideal circumstances and that I assume are never met in real life?
That would make it the first in history. Extraordinary claims require extraordinary evidence.
>Rent control has helped a lot of people find stability in a time of need
So has the lottery. Doesn’t mean it’s not bad overall. The massive portion of people that don’t hit the rent control lottery (I.e. anyone who has to move) get screwed and the whole middle and upper class gets screwed by a poorly incentivized supply.
>Is this a real effect that you can measure in the real world?
Yes. Look at any place where there is rent control and you will find it still has unaffordable prices often far above the national average. It has never been a net good for society. It doesn’t increase housing supply and the pigeon hole principle should be simple enough for you to understand what that means.
You can't have it both ways: saying you should have free reign in determining the value of your property, while also claiming the government can't tax you according to that value.
In fact a land value tax could replace property tax in a revenue neutral fashion, and would incentivize development of property and density, rather than disincentivize those like property tax does.
If you were to tax on the basis of land value the immediate impact would be massive increases in taxes payed in rural areas as a byproduct of the necessary increase in tax rates on land.
Heck, I’ve never heard of non-rent control before moving to the US. No surprise there’s so many homeless people.
PS: look at what your free market did to the US healthcare.
The point still stands that rent control is a terrible way to keep rent down, it causes a ton of problems.
So arbitrary rent is a much better way to keep rent down? Come on...
And yes, if you’re living in a rent controlled place and paying $1000 per month when the same place is going for $3000, it’s virtually a cash transfer from the landlord to you every month.
That’s why you hear about massive ($100k+) buyouts in SF.
It's mind blowing how landlords forget that the reason the vast majority of them can afford to be a landlord is because they don't pay market rate property taxes.
These laws are not reducing rent, only slowing the increase yr/yr
If you do, you couldn't be more wrong. Healthcare is the most regulated, least free market in the US.
Pretty sure rent controls would have no effect on the amount of substance abuse and mental illness that plagues so many homeless.
I live in a city where there are more residential properties than families. Prices are a tiny fraction of what y’all on the coasts cite. Apartments under $1000/month in trendy neighborhoods is common here. I’ve rented small apartments here for $500/month.
Rent controls may slow price increases, but encouraging supply decreases price. You can’t fix the problem until you treat the root cause rather than the symptom.
Don't forget crime and violence. Historically speaking those get laws changed quick. That said, I don't think rent control is going to have a very direct effect on crime and violence.
1. Land is a limited resource. 2. Property improvements last for a very long time, and are incrementally improved. 3. The buy-in price is relatively high, so only very interested parties get involved. 4. It's a home for goodness sake, why would you not call it an investment?
Society's expectation that housing is a good investment results in people taking on significant debt to buy increasingly expensive homes. The consequence is that homeowners have a huge incentive to suppress the construction of additional housing, to inflate the values of their homes. And when housing prices do fall, people's financial lives are ruined. Contrast metros like SF, Portland, and Seattle with places like Tokyo where homes can be bought for < $400,000. A big part of this is that housing is expected to be a depreciating asset: https://www.youtube.com/watch?v=iGbC5j4pG9w
I would not describe my car as an investment, since it's basically guaranteed to depreciate. Housing could be expected to behave in a similar manner (although that would likely require a decrease in population growth).
What contributes most to increased value?
What are economic rents?
What is the perfect tax?
What is the land value tax?
... like Idaho did with its regulatory reset.
A currency collapse or a successful invasion perhaps.
Even 'freezing a moment of time' is kind of a suspicious thing. People don't understand the present time and they sure as heck don't understand previous ones.
While fixing the plane while it's in flight is hard, I'm trusting our upcoming robot overlords to understand tax or criminal law. Accreting everyone's good ideas for a century or two was bound to result in a hairball.
Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year? Who could possibly afford it after several decades of compound growth?
Public housing has failed time and time again in the US, so citation needed.
Unless it’s economically attractive to invest in real estate, the money won’t flow into housing.
Sure you could have the govt do it, but based on their track record I don’t assume it’ll be done very efficiently.
The generous way to read the post above is an arrangement where property ownership can be both public and private - possibly where rental units are majority state owned and private ownership is more concentrated in actual residents.
It’s akin to saying most transit should be gov owned: cars, trucks, trains, planes, ships... they may allow you to own one private vehicle.
You joke but many people here would support just that.
At any rate I don't think personal property ownership should be made illegal, it could just be made to cost - taxi companies are taxed for running a fleet of vehicles and charging people to ride on them, that sort of mass property ownership could be similarly taxed.
If the city builds a trash transfer center right next to my house causing my property value to plummet I might be upset, but nothing has been confiscated from me because I do not own "the character of the neighborhood" except in some small collective part.
By the time I had to move to CA for work in 2009 of course the market had crashed badly and the condo was well underwater, not even counting the $20k I had put into the kitchen and bathroom.
It was a $185k 2BR 1.5BA unit, with a condo fee of $300/mo and a monthly payment (principle + interest) of $980 with a 3/1 ARM at 3.5%. I got lucky because the rate was indexed to the LIBOR and it was being manipulated to ~0% back then, so my rate stayed super low even though it was adjusting every year.
I put the unit on the market for $165k for two months and got zero showings. So I offered it for rent at $1400 on Craigslist and it was rented that weekend.
I just sold the property last year, to the person who was renting it (and had been for 4 years) for $185k. I gave him the last 4 months before closing rent free because we closed without any broker (no commission) and because I didn’t have to do a thing to the unit pre-closing, seeing as how he was already living there.
Not all landlords are scum out to make a buck on the back of tenants they never met and don’t care about. Not all landlords are even in it because they initially set out to be! And very few landlords are being “fed” half of someone’s paycheck, but more like, covering the costs plus a few percentage points, as long as nothing unexpected happens.
I will nitpick and say that paying your mortgage is not a cost. That is equity you're getting.
And only public housing would collapse the entire economy. Plenty of countries tried this, most notably the commies in Russia and in eastern Europe.
However, as someone who's lived in a large urban area with public housing - I can confidently say that the only real benefit public housing has is reducing the price of high end real-estate in close proximity and increasing petty crime in the area.
Source - lived in the South End neighborhood of Boston proper.
In Asia too: https://en.wikipedia.org/wiki/Public_housing_in_Singapore
But your anger is misdirected. The distortion in the housing market is the direct and predictable result of specific government policy, of which TFA is just more of the same.
In this case by “more of the same” what I mean is a policy which will do nothing to solve the problem. This particular law seems to be relatively harmless.
That doesn't make much sense to me. 1/2 of the paycheck is only true for a few places with limited housing supply, which is the root cause of the problem. One could apply the same logic of "x% of the paycheck" to other spending items such as food and conclude that the state should also produce our food.
> Public-owned housing is the future. It works in Europe and it can work here.
Public housing in European countries accounts for less than 10% of the overall market and is mainly aimed at poor people. I do not see how this would be a general solution to the shortage of housing.
> Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year?
True, but here, too, the cause is a lack of supply due to zoning, minimum parking requirements, minimum lot sizes and other restrictions.
Investment requires a return on investment. Return on investment must be commensurate with the risk. Risk adjusted returns are the reason the house/apartment was built in the first place.
I wonder if this was pushed by landlords. It's easier to push a 5% hike in rent every year than random 10-20% hikes. Especially in a nearly tapped out market. The prices are already astronomical and the home prices are fluctuating/faltering. In 10 years, the rent will be 63% higher. And that's after inflation. Your $3,000 1-bedroom will be nearly $4900 after 10 years. Unbelievable. Will FAANG prop up landlords by adding 5-10% TC increases every year? Startups certainly won't. They stopped increasing comp a few years ago.
[1] https://la.curbed.com/2019/9/10/20857225/california-rent-con... [2] https://sfrb.org/topic-no-051-years-annual-allowable-increas...
If actually you want lower home prices, build more homes. Build tall (curb height restriction rules); build everywhere (no more minimum parking rules); build immediately (reduce complex planning permissions for developers). Just build more.
Supply and demand will decide the price of most goods, and housing is no exception. Rent control does not address the underlying issues that cause prices to rise- lack of supply and growing demand.
But even then, even if there are empty homes, building more will still fix the problem. Let those foolish owners leave the homes empty- we can build more anyways.
The land isn’t doing anything just sitting there. I am totally fine with clearing it out so people can actually afford houses.
That said, there is still a ton of "boring" land we can build on first before cannibalizing the scenic drives.
This may be the pivotal pinch point which marks the root of our disagreement. I honestly feel more fellowship with animals and computers than humans.
Also, when it comes to the "needs" of humanity, I think we've surpassed that mark. It's beginning to appear that people are insatiable consumers that will destroy anything for a bit of convenience, all while being unhappy the entire time.
I'm not on team human.
It’s a national problem. If you improve the supply only in CA, more folks will move there and recreate the problem.
The limits to rent increases seem like they are enough to avoid significant short term spikes, while keeping up with market rate rents.
The biggest problem with some existing rent control (like in SF) is that the limit is so low that rents can't keep up with market rates even over decades, which is clearly terrible economic policy. Maybe this limit is high enough that this won't be as much of a problem for the rest of California.
Now, with AirBnb, landlords have a much more viable option. They can put the property on AirBnb and have the flexibility to charge what the market will bear.
I foresee that as a consequence of this law, there are going to be fewer rentals and more AirBnb properties in California.
However, since both NIMBY owners occupying their home and renters hate AirBnB, it's quick to imagine anti-airbnb legislation (like what SF already has) quickly passed if the tide turned.
When a landlord increases rent by X% they are saying that the value of the property has increased by X%. Unfortunately businesses and landlords got together to push (and pass) prop 13 which amended the CA constitution to prevent assessed property value from increasing at more than 2% per year.
That means any time a landlord increases rent by more than 2% they are benefiting from incorrect taxable valuation. Because property taxes cover the infrastructure that supports homes + buildings (the roads, police, firefighters, teachers, etc) they are directly offloading the costs of those services onto people who don't own property: The people who don't own property then have to (in addition to insane rent increases) pay higher income taxes, in order to support those services the are functionally there to benefit the undertaxed properties.