California Approves Statewide Rent Control(nytimes.com) |
California Approves Statewide Rent Control(nytimes.com) |
I think the pricing mechanism plays a useful role in encouraging people with valuable land to give it to others who will use it more productively. At the same time, I think there's a risk that people who just own land could capture an unreasonable fraction of the generated wealth.
Would it really be right for San Francisco homeowners to capture over 50% of the wealth from Silicon Valley's success?
This does nothing to fix the problem. They need to build more housing. A lot more housing.
But, no, we can't do that. That makes too much sense or something.
For people looking for solutions, here is a link to a supposedly suppressed Housing Development Toolkit put out by the White House in 2016:
https://www.whitehouse.gov/sites/whitehouse.gov/files/images...
After looking at the details, this law looks OK for the present but if we enter a period of hyper inflation then it is not so good. The 5% plus inflation might not be enough since the government jumps through hoops to underestimate the rate of inflation. If we have 75% inflation and the government admits to only 20% inflation (for a hypothetical argument), then landlords will be damaged financially. I believe that sometime the government will inflate its way out of debt.
My uncle has just been evicted so that the owner can fix the place up and raise the rent. Under this law, that would be illegal, but this protection only comes into effect starting January first.
I expect to see thousands of similar last-minute evictions as anyone contemplating this course of action tries to get their tenant out before the end of the year.
Indeed, they work against supply while increasing demand. This does not help people looking for a home.
Nonetheless while it doesn't fix the underlying economics, I can see how it could be good to have a damper on the volatility of real estate prices, so that prices swing over the course of many years rather than violently.
The rest of this is just distortion on the economy that will lead to all sorts of bad outcomes
“Notwithstanding any other law, an after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property, in which the tenant has occupied the residential real property for 12 months or more, with or without a written lease, property shall not terminate the lease tenancy without just cause”
From what I've heard, rent in a lot of Californian cities is extremely expensive, so I assume people are complaining about the price of their rent... probably statewide to some extent.
Hence the new bill. It's just a reaction to a temporary problem.
Which will probably stay in place long past the problem is solved!
Rental housing quality will bifurcate further, with poor and lower middle class people living in worse housing.
This is bad policy. It's not replicating the absolutely insane policies of SF, but it's still bad.
Did the California laws include anything to encourage additional housing to be built?
It's effectively a option on future rent prices... it shouldn't be particularly hard to value numerically.
Chiu is being misleading, to put it mildly.
The median home value in Texas is under $200,000; in Dallas it's only $213,000. In Florida it's $235,000; in Tampa it's $219,000. In Illinois it's $182,000; in Chicago it's $226,000. In Pennsylvania it's $174,000; in Pittsburgh it's $146,000. In Ohio it's $140,000; in Cincinnati it's $144,000. And so on. So much for every corner of America.
In California it's $548,000; in San Francisco it's $1.3 million. California's housing problems are in fact not a national problem.
It passed in the assembly, but must also pass in the senate and be signed by the governor before it actually is law!
It's hardly unfeasible for the bid area to have a rent of <$500, but after gentrification could easily pull $1500. At a 5% cap a year, it would take considerably longer to reach this price, which will likely slowly down the conversion of these areas, as the demographics would change much more slowly.
Where else is it being done? Is it a success in these places? There must be some places it is viewed as working or why else would California do this.
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.
>The landlords, like all other men, love to reap where they never sowed, and demand a rent even for the natural produce of the earth.
-Adam Smith
> “I’ve been renting in Seattle since 2014, and this is the first time where I felt like I have negotiating power,” said Kjerstin Wood, who went apartment hunting with her partner last weekend and got bombarded with offers like free parking that she plans to use to play landlords off one another. “For the most part, everyone we’ve met with has been very eager to get us to apply right then and there.”
> The trend is likely to continue: The apartment-construction surge that began earlier this decade is continuing at the same brisk pace, outpacing demand for rentals even as the city’s population booms.
And a 2017(!) article talking about vacancy rate in Downtown LA that has seen a huge building boom (no not nearly enough to really depress prices, but enough to stave off the meteoric rise): https://www.scpr.org/news/2017/09/15/75615/in-high-vacancy-d...
Please travel from Sunnyvale Saratoga starting at 101 at the north end to 85/DeAnza at the south end at 5-6 PM every day and see how long it takes to travel 6 miles. Unless you live here and know it already, you will be surprised.
But when it comes to selling housing, the developers, one example being of the vallco mall owner, somehow gets their way without any indication that their project will benefit the city, and thus rightly gets overturned at the ballot. [ And this is from someone (me) who failed to buy a house in Cupertino and now lives elsewhere.]
Anyways the way to build 6 story buildings can not be by making the living worse for everyone who already lives there. Much worse.
Here are all the reasons you can't buy a commoditized "cheaply made" house in Nowhere Minnesota:
A. There is finite land in the world. Burying it in sprawl housing is an American tradition that has wrought disastrous environmental, health, time consuming, wasteful, and systemic consequences across the nation. B. Housing does not exist in a vacuum, not in a way close to what true commodities - things you buy off a shelf for a purpose but otherwise are non-interactive - operate. Housing requires infrastructure in myriad forms from electrical to transit. These structural requirements are systematized and cannot be commoditized meaningfully and thus housing itself is limited by them. C. Housing is limited by your means to sustain it. This means you need a job, and work is going in the opposite direction of commoditization because any repetitious work is being automated. The availability of meaningful employment is shrinking and thus the viable domains of legitimate housing likewise shrink, which is why the flood to California is a thing, why there is so much demand for density, and why a half century of gentrified urban planning has ruined the states housing market. D. Housing is already commoditized. You can buy a manufactured house made at scale for an inflation adjusted cost half of what manually built houses were costing a century ago with more square footage, modern amenities, and the ability to have it installed on a lot over a weekend. If you price out the physical goods cost of manufacturing some of the highest density vertical condo buildings in the world the per-square footage of livable space costs are often below stick built houses. The limiting factor is land - so back to A through C, thats the limiter.
The construction of buildings should be done in a free market that invites competition of builders but with the regulation to recognize those purchasing said structures are rarely educated on quality or safe construction. The distribution of land needs to be radically rethought because the established paradigm of treating it like a segregated consumer good is bankrupting the working class as the aristocracy pours money into property as their Scrooge McDuck money pit of choice.
genuinely curious what would that entail, in practical steps
Make it undesirable to sit on large amounts or expensive property, reduce the propensity to resell for gain and put a stop the home ownership casino which in some ways looks like bitcoin speculation over the past two decades.
Give credit for primary residence (and or legit Ag or industrial use, but maybe collecting land taxes from industry is preferable to capital gains even.).
After these deductions tax like crazy for the privilege of squatting on what I think truly is, by nature, communal social property (land). That should dampen down the speculation and return prices to earth while encouraging primary single residence ownership.
Oh, and stop inflating financial bubbles that distort the price of a basic human need. For starters.
A 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.
San Francisco prices go up => only tech bros can afford rent
San Francisco rent prices get capped => tech bros still need place to live and win rental application lotto
Artists can't afford rent, but want to live in city full of tech bros and glass condos?
It doesn't make a lot of sense to me why you'd want to stay in SF if you're genuinely an artist. Is it a romanticization of the city's past rather than the reality of the present - a stark line between rich and poor with tent cities all around? An elementary school system not friendly to families making community ties (random geographic assignment)?
SF doesn't have a thriving liberal arts school - the art academy is a profit pit meant to create student debt. Aren't places like Berkeley, Pacifica, and Santa Cruz much more attractive locations? Even farther south like San Luis Obispo?
Lastly I am just going to ask this more fundamental question: should anyone be allowed to live anywhere they want, and is that the right people are striving for? Or is it simply they should be able to stay in the place they are once they're able to `get int`?
https://sf.curbed.com/2019/5/17/18629809/sb-50-housing-trans...
Yep. Because communities shouldn’t be able to decide for themselves. Make it a state law. I’m just glad that (for now) these central planners are limited to a state economy and are not in Washington.
Great news for property owners in CA. Studies show over and over rent control legislation further restricts supply[1], so the existing housing will become even more valuable!
[1] https://la.curbed.com/2019/9/10/20857225/california-rent-con... [2] https://sfrb.org/topic-no-051-years-annual-allowable-increas...
As though California is at all symptomatic of the problem of providing affordable housing in the rest of the nation. They might as well say it's the biggest step taken in an affordable-housing crunch globally.
A whole article about California's housing problem without a single mention of Prop 13, though? That's some impressive willful ignorance.
It's insane how many of these there are. I even know someone who recently bought a townhouse who didn't even know what prop 13 was.
If your rent increase gets capped by rent control, your ability to stay at a limited scale of operation and just add to the price gets squeezed, and that motivates making more capital investments in property(and specifically in vertical upgrades, since horizontal expansion puts them in a land bidding war). It hits investment properties run by large companies the most, and challenges them to use land more effectively to stay competitive, in the same way that higher minimum wage challenges companies to use labor more effectively.
However, we still need an SB50 or successor bill to deal with the build restrictions. The landlords and developers can demand building big(and they do already in many cases) but they're held back by zoning laws put in place by NIMBY residents. The trick is that instituting rent control does something change the outlook of the NIMBYs too, since their property value has a relationship to the value of rentals. Rental rates and turnover slow down = property values slow down = their house becomes less of an investment.
So it's a good first step either way.
Given how slowly SF builds housing, the fact that anything built 2004 and earlier is eligible basically means almost everything except new high rises.
It limits the price of housing to an arbitrary price which is below the demand price of housing.
It fails to communicate the housing shortage with higher prices, and therefore it does not incentivize the building of additional housing to relieve the shortage.
Nor does it incentivize the finding of lower-cost alternatives, because all prices are capped at the limit, and so there is no information communicated about their relative differences.
Startup idea anyone. The demand would be high.
This is why I'd rather do business with big megacorps than with small businesses; mom & pops are straight-up allowed to hurt their customers and their employees in ways megacorps aren't legally allowed to. See also: exemptions mom & pops have from mandatory sick leave laws, anti-discrimination laws, mandatory health insurance, etc.
If your new law is such a good idea, why do you have to lie so blatantly to promote it?
Before, a pretty apartment was typically more expensive than a similar apartment (same size, same zone) which was ugly and Now, it’s same price.
This seems like a bad solution to a problem (housing shortage @ current market prices) with an obvious solution (allow more housing to be built).
It’s almost like the politicians pushing for this policy don’t value the input of experts and the application of research, but instead are only interested in solutions that sound good at the most superficial level. Golly!
Don't you think that policymakers KNOW that the best way out of a housing crisis is to build your way out? California has put out bills in recent years to try to remedy this (ie. the bill that would require housing near transit lines) that FAILED, breaking down all the local neighborhood associations and powerful interests is not something that can be done in a single legislative cycle.
Rent control is about making it easier for everyday folks to survive day to day, its not meant to be a permanent solution, and if in 20 years this bill is still needed it won't be for lack of effort, it will because the NIMBYs were able to win out.
Queues are over 10 years in many cities and there is no real way of getting a rental apartment in any larger city. This means people are pushed into buying a housing apartment which cost a lot of money and drives up prices a lot.
It's not viable or logical that an apartment in central Stockholm should cost as much as an apartment in a small village in northen Sweden.
Norway, Finland and Denmark all have more free market and it's much easier to find a rental in all those countries. I would advice against having rent control.
The landlord's would be much more afraid of this kind of market based solution.
Any legislation that makes renting less profitable will make BUILDING RENTAL PROPERTY less profitable.
This sort of thing, on the whole, makes rents increase by decreasing housing supply.
If car production was outlawed existing car owners would get a windfall. But that's not due to some intrinsic feature of being a car owner. Land is definitely more limited than cars. But it seems to me that land scarcity explains only a portion of the increase in prices in San Francisco.
This article has more on tokyo housing starts relative to sf and nyc: https://www.google.com/amp/s/www.wsj.com/amp/articles/what-h...
The difference from ag land is that the builders in tokyo are doing real activity to provide the housing. Lots of businesses benefit from externalities, not just landlords.
Only 43% of SF residents are homeowners, and many fewer are landlords, yet it is very rare for rezoning or higher density legislation to get passed. There are plenty of developers that want to develop in SF and create some competition for the existing landlords, forcing everyone to offer better services. Instead, we get laws like statewide rent control which reduce the potential long term value of new development, further reducing both supply and competition.
Companies capture external value all the time, that isn't the core problem. Improved infrastructure and more wealth in a city would normally attract more competition reducing the total amount of that value that each landlord could capture.
The same way people who own shares in a company that pays dividends profit from work other people do. Those landlords either built the apartment buildings themselves, or spent the capital investment to buy the building from a previous owner.
(to your comment below, HN isn't letting me respond)
So in the end, this isn't about the business model of landlords this is about fundamentally different views on the legitimacy of private property. That's a topic much broader than rent and real estate.
The supermajority was irrelevant.
Building more housing in desirable places to accomodate shifting demand and growing population is just as important under social housing, but even less likely, since the demand is totally disconnected from the incentives and capital required to do it.
This is under the assumption that demand often outstrips supply. That's actually less likely to be true with an effective social housing policy in place.
>Building more housing in desirable places to accomodate shifting demand and growing population is just as important under social housing, but even less likely, since the demand is totally disconnected from the incentives and capital required to do it.
Lol. And you think a "free" market will improve the connection between demand and the incentives required to do it? Far from it. With a social housing policy, at least more housing will be built, because it's part of the plan.
Here's another place where a social housing policy has worked very well:
https://en.wikipedia.org/wiki/Public_housing_in_Singapore
Structurally, Singapore has a Georgist tax policy (it's effectively a tax haven where the majority of the population pay no income tax) that funds a very active building program. So no, the demand is actually more connected to the incentives and capital required to do it than under a so-called "free" market.
If San Francisco's incumbents were okay with their city looking like Singapore, we wouldn't be having this conversation.
The solution to the housing crises is to build more housing. This discourages building more housing.
Also HN: These rent controls are just going to make the housing problem in this state even worse.
I don't get it. If the situation were really as simple as the first statement implies, then if this particular law was really going to have a catastrophic effect on housing, that would just mean people would leave and demand would go down and prices would fall, right?
Is it possible that California's housing problems are maybe a little more complex than a few out-of-context pull-quotes from Wealth of Nations would suggest?
Of course the million dollar question is how many less units will be built if they're less profitable, and how many people will be enticed to move or stay in CA because of rent controls.
There were two other comments in this same subthread pointing out that people are in fact moving out of California. (One of them has been deleted.)
It's almost as if f(california_net_migration) is multivariate.
> Less houses will be built, as less profit is being made.
Residential construction in California has been approximately steadily climbing since 2008 [1]. Even if I believed your premise -- which I don't -- reality disagrees with it. The conditions surrounding new residential construction are so much more complex than merely "omg rent control".
A San Jose Mercury News article published last year discussed some of the influences in new residential construction: https://extras.mercurynews.com/blame/
Strangely absent from that article though is that people don't want to just "live in California"; they want to live in the same places where everyone else is already living. There is plenty of affordable land in the central valley, in Kern County, and lots of other places with stagnant economies and depressing downtowns. But if you want to live in San Francisco, expect to pay a stupid amount of money for a vacant lot [2]. Again: this is not a situation that rent control is going to have any effect on whatsoever.
> Therefore, prices will be lower for those already housed, yet more people will be unable to purchase a home.
Funny, this sounds quite a bit like the situation that Proposition 13 created back in 1978 [3].
And yet, proposition 13 is rarely cited as a significant contributor to California's housing issues, especially by the "this is simple supply and demand" crowd. Personally, while I suspect proposition 13 has contributed, there are lots of other factors, including foreign investment [4].
But maybe we'll soon see just how much of an effect that particular factor has had in housing costs [5].
Sure though, rent control is gonna have a huge impact on California's housing prices. Totally.
[1]: https://journal.firsttuesday.us/the-rising-trend-in-californ...
[2]: https://sanfrancisco.cbslocal.com/2016/10/21/san-francisco-v...
[3]: https://en.wikipedia.org/wiki/1978_California_Proposition_13
[4]: https://calmatters.org/housing/2018/03/data-dig-are-foreign-...
[5]: https://www.cnbc.com/2019/07/17/foreign-purchases-of-america...
The inequality gap must be lessened for there to be sustainable growth in the housing construction market; this rent control is part of that.
Yes, which is why a rent-control law is too simplistic to be a solution.
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?
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.
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.
Public housing has failed time and time again in the US, so citation needed.
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.
In Asia too: https://en.wikipedia.org/wiki/Public_housing_in_Singapore
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.
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.
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.
Really? Because I am vehemently anti prop 13, and I don't think you have to go far to find people that hate it too. So I'm not sure you can use that criticism against me. That's essentially a straw man.
> Less houses will be built, as less profit is being made.
This is more or less a factual statement, that if less profit is to be made by renting houses at least some portion of people will choose to invest in other things. Whether that portion is even noticeable, I don't know
>There were two other comments in this same subthread pointing out that people are in fact moving out of California. (One of them has been deleted.)
>It's almost as if f(california_net_migration) is multivariate.
If you want to have a serious conversation, being snarky isn't going to help. Regardless of net migration statistic, California is still growing in population. SF is still growing, and the state overall sees positive growth.
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.
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.
There's a literature on this; there's no need to speculate.
Another thing worth checking is the IGM Economic Experts Panel, which covered rent control in 2012: http://www.igmchicago.org/surveys/rent-control
Is there any evidence to suggest that rent prices are actually "strong incentives" to not move? I think this isn't true.
I think people are much more motivated by their social circles, their job prospects, upward social mobility by working hard, or starting a business, etc. There are so many factors that go into choosing where to live that I find it difficult to believe that simple rent control like this would "strongly incentivize" people at large to not move. Especially in California.
Anecdotally, I have voluntarily left 5+ rent-controlled apartments without even a thought to them being rent controlled and my next place being unknown. It simply has not mattered, because the amount saved by rent is often far less important than the other aspects of life.
Also anecdotally, I don’t know anyone in SF living in a tent controlled apartment whose name is actually on the lease, they’re all illegally subletting from the actual named tenant to keep the rate locked in.
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.
Not everyone who is renting has tight money situation. Your complement states that everyone who is renting will have a tight money situation and then follow the 'strong incentives' that you have prescribed to them without knowing who they are.
You don't know what incentivizes those people. It sure as heck isn't primarily saving on rent, especially in SF.
> Also anecdotally, I don’t know anyone in SF living in a tent controlled apartment whose name is actually on the lease, they’re all illegally subletting from the actual named tenant to keep the rate locked in.
Well that seems like an entirely separate issue. Go after the people doing illegal things that are hurting your rental market. Stop that activity from happening if it's illegal, don't use some existent, illegal activity to then set into stone why passing new laws is bad. That doesn't make any sense.
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.
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.
- 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
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.
(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.
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.
Give one moment's thought to the most likely side effect of that...
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.
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...
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.
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.
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.
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...
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.
Increasing supply simply ensures tomorrow's rent is lower than it would be otherwise.
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).
It shouldn't be a surprise that more landlord-friendly rent control measures get less resistance from landlords.
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.
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.
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.
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.
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.
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?
Do rich people to afford that extra housing get created out of thin air?
Also, I assume there is some market pressure to consider, if your increases outpace supply and demand, then tenants would simply move, right?
Interestingly, my rent has remained stable ever since moving - guess it's possible to have much better luck with smaller landlords.
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.
The difference with this law is that a 20% rent hike will take 3-4 years to be implemented instead of 30 or 60 days. That difference, while not enough to allow all families to remain in place, will allow families time to adjust or move within a reasonable time frame.
This law is different. If you want to complain about rent control in SF or NYC or elsewhere, have at it, but know that most of your complaints do not apply to this law.
Turnabout is fair play. If owners organize politically to control supply, tenants can organize politically to control prices.
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?
But rent control in the absence of housing supply increases will undoubtedly exacerbate the problem, and at a steady 7% inflation would also slowly price out existing tenants.
Many parts of California already had rent control that was based on building age. Theoretically this could have been the best of both worlds--improved housing security for the majority of existing tenants, but an incentive for new construction, which would be excluded from rent control. Of course, the price of housing security would be marginally higher rent prices up front, but in the real world that's a reasonable tradeoff. Security and predictability are at the top of most people's hierarchy of needs, whether they admit that or not, and regardless of whether they'd willing pay for it. (Healthcare being a great of example of people predictably making irrational decisions, requiring government intervention to mitigate the consequences.)
Unfortunately, new construction in California is extremely costly for entirely unrelated reasons. I think most developers in California would have bargained statewide rent control for development as-of-right. That California permitted rent control again without doing anything substantive about lowering the costs of development is inexcusable. I'm sure lawmakers told themselves that they were buying the acquiescence of NIMBYs and local control advocates regarding future development as-of-right legislation, but they're just lying to themselves.
In fact, that was more or less the deal—until Anthony Portantino torpedoed it.
You can virtually guarantee that rent control and NIMBYism go hand in hand.
I feel like an amount of the general public just wants Big Daddy government to come in and authoritatively force everyone into an unnatural framework, which is pure ignorance.
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.
Are my numbers just totally off?
Perhaps you don't realize how good you have it out there.
Rent control works for those already renting - and that is about it!
Everyone else suffers: those moving to the area, the landlords and those wanting to build more.
Actually, existing property owners benefit. So really is populism--the only people it hurts are landlords and people who don't live there yet.
It’s the same concept as free healthcare or free education. It’s here to ensure people can still find affordable places to live.
You can’t make everything an investment if you want a healthy society.
Rent control does the opposite. It radically reduces choices and increase on price on people looking for a place to live.
Rent control chooses a small handful of existing renters to be winners. And it makes everyone else a loser. Except it's also shitty renters, because it traps them in place. Sure it gives them a home somewhere. But it denies them opportunity to move to another city, or even the other side of time, to pursue opportunity.
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.
It’s a national problem. If you improve the supply only in CA, more folks will move there and recreate the problem.
Rent stabilized apartments have a limit to how much can be charged for them (called the "legal regulated rent"). That amount can only be adjusted (on a percentage basis city-wide) by a government board every year and by a handful of other exceptions (historically: improvements to the building/apartment, major repairs, new tenant in the unit---however some of these exceptions were recently eliminated). The legal regulated rent is sometimes hilariously more than what any sane person would pay for a particular apartment and landlords would never be able to get a tenant at that price (for reference, as an NYC renter, my preferential rent is ~26% less than the regulated rent).
So in comes the concept of "preferential rent": a price below what the landlord is legally entitled to charge. That preferential rent is in effect for the duration of the lease signed. With the recent rent stabilization reforms in New York state, renewal leases on rent stabilized units will only be able to charge the preferential rent plus that year's percentage increase (as decided by the government board). Previously, landlords were allowed to raise the rent all the way up to the legal regulated rent plus that year's percentage.
In other words, before the recent reforms, landlords had a strong incentive to keep the legal regulated rent as high as possible since they can always raise rents upon renewal to that value. Previously, preferential rents were truly temporary and the landlords had no obligation to maintain them upon renewal. Now the only way to raise the preferential rent to the regulated rent is if the current tenant vacates the apartment and the landlord finds a new tenant, on whom they may charge any value up to the regulated rent.
It's difficult for landlords to kick out rent stabilized renters since those renters are generally entitled to renewal leases, but one simple tactic before was to just raise the rent from the preferential value to the regulated value. With the recent reforms, this is no longer a viable tactic.
On a philosophical level, why should my landlord be subsidizing our housing costs? If we want to make housing more affordable for low-income families, surely there's a more equitable way to finance it.
None of them are suffering.
The problem with rent control is that it allows many well-off individuals to collect ever-growing rent subsidies, to the point where after 10 or 15 years their rent is a joke compared to what their (often less-fortunate) neighbors are paying.
This bill does not have that flaw. Crucially, it sets the maximum allowable rent increase to be well above, not below, the historic long-term rent curve. Over time, in the long run, rents will approach market-rate. And that makes all the difference.
Yet, despite the majority of voters saying no, the legislature felt it necessary to push forward with legislation anyways.
Above all else, the government ignoring a direct vote from the people is most disgusting of all and reason enough for why this should be vetoed.
https://www.sfchronicle.com/politics/article/Prop-10-Califor....
It's not the perfect solution, but what do you propose as something better that still helps normal people not get pushed out?
* Fewer rentals on the market
* More instances of landlords "re-occupying" a place (eg, ACTUALLY kicking out the residents) in order to fix it up (or not) and then re-rent to someone else at a much higher base rent, later.
When rents go up, tenants push themselves out (or, the market pushes them out). When we devise tenant protection laws, we invent 'better' landlords who find clever ways to PUSH out people who are paying below market.
If there was a way to artificially hold ALL rents down, it might be less obvious -- but under a rent control scheme, everyone knows when you're paying below market; you look at the classified ads (okay, craigslist) and see that you could never afford to find a 'new' place like yours at the same price. The tenants know it, the landlords know it. The tenants have protection. For awhile. Until they don't.
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. ”
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.
1) Rent cap landlords. The landlords will cry Big Government.
2) Abolish single family-only zoning and legalize backyard cottages, townhomes and small apartments. The homeowners will cry Big Government.
3) Do nothing. Watch as more people start living in tents or endure super-commutes that snarl your traffic and worsen climate change.
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.
Will never cease to amaze me just now inept politicians are.
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.
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.
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.
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.
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.
If you like better rates, negotiate, fix zoning, or buy. If you can’t do any of those, you should leave. The rest of the country is really not that bad.
There is a lot of knock on affects that rent control brings that are negative that I don’t have time to go into
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.
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.
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.
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.
This is the use-it-or-lose-it budget game, landlord style.
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.
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.
Excluding people from work in productive areas perpetuates poverty.
Entitlement was never a core tenant (no pun intended) of the American dream.
Homes that are built for renting (mainly apartments and condos, but some houses, too) are built for profit. If you make it less profitable to build, fewer will be built. If fewer homes are built, the problem is compounded, not rectified.
If you want to make housing more affordable, make it as cheap and profitable as possible to build new homes. Get rid of the fees that can push over $100,000 for a single family home in some counties, before the builder even buys a nail or 2x4. In most states you can build a home for less than the price of permission to build a home in some California counties.
Our current environment of low interest rates means that borrowing is cheap - which has pushed up prices, as now people can now afford larger mortgages. This has come at the same time as a withdrawal of mortgage finance from first-time-buyers, so effectively people who have bought before can buy another house, while those who haven't can't get on 'the housing ladder'. This is according to economist Ian Mulheirn, and is very much based on the UK (although similar arguments might apply elsewhere). Supply is part of the problem, but according to him, the smallest part.
https://housingevidence.ac.uk/wp-content/uploads/2019/08/201...
Yes, but in the expensive parts of California the limiting supply factor isn't how much people want to build but how much they are allowed to build because of zoning and other constraints, so there is a fairly large range where reducing the incentive to build will have no effect on actual results.
But, anyway, does this really reduce incentives for new construction? It seems to me rent control and eviction restrictions of this type increases the expected profits for new construction, because it doesn't limit existing rents, and doesn't allow high-end demand to be met by bouncing tenants out of lower-end units and renovating them and raising the prices. So, it reduces the competition new units face from existing ones at the top of the market while leaving the rents that can be charged initially for those new units unrestricted. (And, by limiting the ability to bounce unprofitable tenants in favor of new ones, if it doesn't spur new rental-focussed unit construction and housing demand remains the same it creates a greater incentive to build for sale as owner-occupied housing where, again, prices are unrestricted.)
The real danger isn't lack of incentive to build, it's lack of incentive to maintain existing units instead of milking what remaining profits can be made in the short term, then letting them fail in isolated, judgement proof, limited liability business enterprises by not reinvesting because you can't recover reinvestment with rent increases, while reinvesting the extracted profits elsewhere.
.. and fewer will be speculated on, driving up the underlying price, which is then translated into rent.
this is my problem with simple smithian models of real estate - they ignore the wider capital market impacts.
not a fan of rent control, but also not a fan of fund fueled real estate bubbles, and both influence the cost of rent.
Also, AFAIK, these two areas (and surroundings) are very, very stressed in terms of traffic, and more housing means more people, and more cars. Can those cities deal with more traffic?
It depends on what outcome you wish to achieve. Single family zoning is backwards policy in urban environments.
https://www.citylab.com/equity/2018/11/single-family-zoning-...
Infrastructure around the builds also matter, which means just building denser isn’t a solution.
Complimentary services like schools, stores, pubs, churches, skate parks, parks etc change the value of a location as well, and change it differently for different demographics.
So making it cheap and profitable only makes it profitable to build - it does not solve the problem of affordable housing.
Arguments like this continue to be made for more and more aspects of our market: pharmaceuticals, heathcare services, elder care services, and now housing. Everywhere you look the markets seem ill equipped to handle the needs of people.
Maybe the problem is markets then? Maybe the problem is expecting our entire society to work based on profit motive? I don't deny it's served us fairly well for awhile, but it seems like we're hitting the wall a lot lately.
In NYC units that might be _actually cheap_, as in rent controlled and not stabilized, number roughly 17k units _in total_. And only about 1/3 of those are significantly below market or in desirable neighborhoods. It's almost insignificant and the number of rent controlled units has gone down by roughly HALF in the last 5 years, because the tenants in them are dying and income limits on any descendants usually kick the units out of being controlled into stabilized.
NYC has a much larger number of rent stabilized units, which is somewhere near 1/3 of all available units that are renting at or below $2700 (twice the national average, btw). The overwhelming majority of these are within a few hundred dollars of market rate.
There are about 4.2M housing units in NYC with roughly 30k being added every year. The "cheap" rent-controlled units are a rounding error.
That is not anything like the situation folks in SF are rightfully railing against.
Rent control doesn’t apply to new construction in SF. It also allows a regulated annual increase, and rent automatically jumps back up to market upon a number of different conditions - not the least of which is that the owner can push you out to renovate the building!
HN commenters are usually just repeating stuff they heard somewhere, and have no idea what the laws actually say.
Moreover, while there are indeed lots of publications on the theoretical impacts of rent control, few of those publications consider laws as they actually exist, or if they do, the scope of the impacts is rarely communicated when translated into HN talking points. Every study I’m aware of has shown, at worst, diffuse, long-term negative impacts to housing costs. Meanwhile, many of them do exactly what they set out to do: stabilize short-term prices for vulnerable populations.
These laws are simply not the boogeymen that comments here make them seem.
In fact, the CA, especially in bay area, the rent is already top among this country. 7% on top of that is still a quite sizable increase. And it is hilarious to see those (aspiring) landlords playing the blame-the-game-not-the-player rhetoric here to blame the government not allowing more houses to be built, while themselves being one of the biggest opponents to such initiative.
> Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them. [0]
The negative effects of price controls, especially when it comes to rents is the most unifying issue in economics. Rent control isn't a new idea, but there is agreement that it's a bad idea. It's not the landlords who say this, its the people who study this stuff. Paul Krugman wrote about this in 2000 [1].
Putting in arbitrary controls on prices to fight cost increases is about as effective as putting arbitrary controls on thermometers to fight global warming.
[0] http://www.igmchicago.org/surveys/rent-control
[1] https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...
Then you make an ad-hominem argument about landlords being hypocrites which isn't relevant. Landlords act in the best interest of landlords.
I don't yet know what I think about the bill so I'm reading the HN comments to form an opinion. The points you're making aren't very convincing.
My experience with SF rent control is that it's really only valuable if you've got limited resources. I lived there for 5 years, saw market rent double, and my landlady politely asked me to pay a "generous discount from market", which was about a 50% increase and I declined - it would have busted my budget.
Then eviction proceedings started: completely made up, and I lawyered up. I was threatened with OMI (there's no defense if they actually do move in), and I negotiated a settlement. Because if I'd won I'd have a super hostile situation ending in OMI, and if I'd lost I'd have killed a substantial portion of my savings.
If I'd had nothing to lose, I'd have hung on for dear life.
And of course only a fool would cling to certainty on issues this complex. It's very possible my views are wrong. And if they are then that's a great outcome. If they're not? Well the cost of this experiment is not going to be that big, and it can be reversed relatively easily.
The one thing I think both sides often fail to do though is to set falsifiable metrics before running such an experiment. Take a group of qualified individuals against the program, and those for the program. And have them sit down and work out their expectations of the program. So for instance homelessness. The pro side probably expects this will cause it to decline, the neg side probably does not expect it to have much of an effect. Why not convert those views to numbers collected in a mutually agreed upon fashion, which can then be regularly published - alongside results? And let's see who's right, with accurate data. Of course there are confounders. If we hit a major recession, homelessness will increase regardless. These factors could be mentioned alongside such data.
Instead without doing things beforehand both sides are simply going to spin arguments entirely in their favor, such as with the case of minimum wage increases. Did minimum wage increases collapse the economies? No. Did they cause some economic damage? Yes. Did they bring about a great life for low earners? No. Did they improve the quality of life of some low earners? Yes. And so both sides just create disingenuous arguments painting themselves as 100% correct, which informs nobody and divides everybody, since both sides come back with 'told ya so!'
It's not entirely unreasonable to think landlords somewhere in the state will take this "5% + inflation" as automatically what's called-for. Conceivably a few landlords who otherwise would have held the line will do this. But given this was more or less already standard for the large landlords and given the landlords who have been really, really gouging, this sad collateral.
As it is, they are using force to limit income while expecting the landlord to offer the same product and services and foot the bill on unlimited expenses.
How about legally limiting salary increases while requiring the same or more work? And, when you change jobs, you are only allowed to make 10% more. Oh, yes, but you have to spend thousands to renew your credentials.
And how about truly severe penalties for tenants who destroy or damage property?
Anyone who has been a landlord for with more than a handful of properties knows how much of a nightmare it can often be.
Try running 10, 20 or 100 units and see how quickly you are going to bug out once even this mild form of rent control rears it’s ugly head. Because you know, with almost absolute certainty, that this is the proverbial slippery slope. And nobody wants to be the guy waiting for the last seat out of the Titanic.
Oh, yeah, unintended consequences: If Airbnb is more profitable than conventional renting...
When people finally realize that, there will be hell to pay.
The example given is of a 500% increase in rent, by definition no rent control law should make such an increase possible in a short time frame.
Try - for a moment - to imagine you are living close to your maximum expenses and your landlord increases your rent by 20% next year.
Shortage is pain and rent control simply distributes that pain in a different way than the market would and does so in a way that reduces the ability of the market to gradually alleviate that pain.
The more the government intervenes in rental contracts to mandate that they be like a lifetime lease agreement, the less incentives and sustenance there is to build a rental property overall. Society is better off having more rental units that have prices that are not legislatively stabilized than have a smaller supply of rental units with mandatorily stabilize prices.
If someone wants stabilized rental prices and they should sign a lease agreement with the landlord that gives them that at the price of a slightly higher per month rental rate. These kinds of things should arranged by actors in the market rather than having the government ban all alternatives in order to force people into stabalized rent contracts.
Really? This is pretty common on HN. This is IMO one of its weaknesses.
There are certain topics that bring out political rants. One is regulation and another is housing prices in the bay area. This story brings out both.
HN is heavily focused on the Bay Area. This fervor seems like a persistent feature of that region's culture and not HN in particular.
New state law: 5% + inflation
SF: 60% of inflation. This has has never been over 2.9% a year since the law changed in 1992 from a fixed 4% [0].
I think one could sanely argue that allowing increases of up to 5% plus inflation is a suitable restriction, while limiting increases to significantly below inflation is not.
[0] https://sfrb.org/sites/default/files/Document/Form/571%20All...
The biggest myth is that this kind of stuff actually helps the less-powerful. In reality, it just means they are hurt twice: government artificially suppressing supply, and government manipulating prices which has bad side effects for mamy even if its good for a few.
Also, in reality, the powerful often don't get hurt, and arbitrary market manipulations just introduce new ways for them to get an advantage somehow.
There are way more renters than owners. Prices have been going up more than 5%. Owners are most definitely not the "less-powerful" here.
So in reality the gov't might be artificially surpressing supply (though it's mostly due to owner pushback), but the "manipulating prices" (trying to keep rent growth from getting out of control) is helping less-powerful.
I get the point about how this can default owners to just increase prices. Well they were going to be doing that anyways! Especially with surpressed supply!
Arguing that "overall price increases with this law" > "overall prices increase without this law" is non-intuitive and probably just not true.
(thought experiment: if raising 5% every year with the law made sense, why would it not make sense to raise it 5% every year without the law? This law doesn't prevent other owners from offering _lower_ rents, if the market calls for it)
It doesn't solve anything directly, but it's an attack on the prosperity of the people who are maintaining artificial restrictions on new construction.
A laissez-faire approach to both construction and rent would probably be a better option. But that's already not happening, and it's not going to happen without pressuring homeowners and landlords to stop opposing construction.
AKA ignore the entire foundation of the previous poster's point?
Edit: upon re-reading your comment I think maybe you don't know what the phrase 'Turnabout is fair play.' means.
Now, if we're talking about planned cities built in the 80s in orange county, maybe we have a point! Maybe.
SF has a similar story of sorts. Building code regulations were heavily relaxed after the 1906 earthquake in fear that people wouldn't rebuild otherwise.
Businesses will build whatever is most profitable. If it's more profitable to de-regulate and unzone everything, then they would be lobbying like hell to get that.
That's fine for existing renters, but think about people who would like to move there to pursue a job, or live in a state friendlier to gay people or for whatever reason. They're going to find it harder to find a place to live, in all likelihood.
Sometimes the system has to break down before progress happens.
So when over-regulation drives up prices, the appropriate response is to introduce new regulations to fight the other regulations? Because that’s exactly what this is. It won’t even improve the problem. The problem is that there are more people who want to live in California than there is housing. The reason for that is because regulations prohibit the market from increasing supply at a rate that comes anywhere near keeping up with demand.
Yes. The effort to reduce regulations on construction has failed. As such, retaliating against the beneficiaries of those regulations with counter-regulations is appropriate.
It's not pretty or efficient, this is a fight between different interests, not a group problem-solving effort.
supply is not rising to meet demand
Lack of profit incentives is NOT what is blocking housing construction in CA right now.
This very minor, way above inflation, rent cap will not affect housing supply.
In California, 25% of a new SFR is land. Another 25% easy goes to permits and municipal utility connections. 40% construction costs (including paying the boss a salary), and if you are lucky, 10% profit. Simply reducing permitting costs and streamlining the process to reduce holding costs (without even easing restrictions, just being more efficient/faster at the municipal level) could shave 20% off a new home price. That would drive down all home prices to some extent and open up a large number of people to get out of the renters pool.
So CA government is the major player to blame for housing costs, and these laws are in place of just doing their jobs well. This might drive prices down too, eventually, but not nearly as quickly or fairly as bureaucratic reform would.
It's frequently renters talking about gentrification that oppose new housing around me.
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.
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?
... like Idaho did with its regulatory reset.
It's how the market works ffs.
IMHO, there is nothing "natural" about land ownership. Land ownership in the USA isn't actually what most people think it is. It's not an inalienable right and is largely at the pleasure of the public by way of legislation that can be changed.
This is basically everyone. On today of all days, we see what the PATRIOT ACT USA has done to this country decades later, and people are quick to point that out but not consider it for laws that have not yet passed.
You know I was neutral on this stuff, studied economics and some business law, have actually read Adam Smith rather than just little excerpts. When I was younger most of the 90s working as a tech in and around the financial sector, so while I don't consider myself an expert I do think I'm quite well informed. I spent about 25 years giving market economics and the investor class the benefit of the doubt.
I've changed my mind.
In this specific case, perhaps you are right, I can't say.
But your wide-sweeping declarations and general tone reveal your own harmful ignorance.
Yeah, fixed at ~164 thousand square miles (~400,000 km^2). Are you for real? Los Angeles and New York City proper (not the metropolitan areas) are interestingly nearly identical in official area at around 468 square miles each. But LA has a density of around 8000/mi^2 while NYC is well over 27000/mi^2. If LA merely matched NYC that'd cover another 10 million or so population by itself. The size of freaking California is not remotely a limiting factor, the limiting factor is not enough high density buildings.
Otherwise, there is a natural equilibrium. Many people want to live here, housing scarcity goes up. Prices go up, less people want to live here (this is already happening). What you're left with is the price reflecting precisely the degree to which people are willing to pay to live here.
To be clear, the population is growing faster than the housing stock.
> Rent control or low income housing are essential tools to make ordinary Americans’ lives better.
How exactly does this address the problem that there are more people than housing? It addresses it for some (the select few low-income residents who were lucky enough to get a below-market rate unit and people already renting), but squeezes everyone else into even fewer units. It doesn't even help "ordinary" people; it helps two specific groups.
Bingo. And why not?
A strong counter here would include a counter-argument, and ideally even some support for that counter-argument.
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.
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.
We could also consider building more, and better, mass transit.
What if something crazy happens to the economy, say the dollar gets devalued, and all you have is rental property for income? Realistically you would raise your rental price.... But wait, there's a cap, and you can't.
2) "legalizing backyard cottages" is actually against Big Government, and I'm with you there.
You're forgetting another option: deregulate and let the market compete.
In San Francisco rent control is indexed to inflation. If the dollar is devalued, inflation increases, and you get to increase your rent more. The same is true for Oregon's new law, which permits 7% increases in addition to inflation.
> You're forgetting another option: deregulate and let the market compete.
Rent control is about providing housing security and controlling volatility. Over the long-term unfettered markets may produce optimal supply, but in the short-term people can easily be pushed onto the street. As Keynes said, "economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again". (The more famous bit is, "in the long term we're all dead.")
In fact, they're not selling because of market dynamics. Their property is becoming more valuable over time because no one else is selling, which means any property that does sell does so at an extreme premium. If you were an investor: Would you sell off your stock when your stock is performing strongly and continually growing?
Make no mistake. There is no free market happening here.
The criticism is that big government (state level) is blocking smaller governments (cities) from making policies that fit the smaller community.
- Laws can change in this case, as they have here. laws are a dynamic system
- If you are making money from rental properties only, that means you own properties (as well as your own house in theory). Not only are you more well off than almost all the population, but you have goods that are worth a lot of money that you can sell (maybe at a loss but you still have a roof over your own head).
"deregulate and let the market compete" is the right answer. It's the owners that don't allow for it.
Also, if you take your reasoning to the extreme then an empty apartment building has a negative value.
It also opens it up to people who want to buy the building and move in.
(However, your example would still work, if the reliable tenant turns into a nightmare tenant.)
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.
More housing in SF requires design that supports fewer cars. That's not as true in LA, perhaps, but it would still be the best way to do it.
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.
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.
That is the point. Landlords will gather information or their side of evidence to push for their arguments, as well as ones that called for rent control.
All players are just playing our own shares in the game here. Is rent control necessarily good or bad in this particular case? Only future number can verify that. But because the landlord-just-be-landlord arguments, it is probably not good for the renters to take the other side of stories for granted.
Let the bullet fly for a moment.
Eg a law could allow any increase up to some benchmark, and up to 5% per year when above the benchmark.
(No clue whether that would be a good idea or not.)
If you don't raise it now then you can no longer do it later in the event that taxes or mortgage interest rates or some other cost increases. That creates a major risk for the landlord, which most of them would prefer to mitigate by raising rents even if it means apartments going vacant longer. And when they're all similarly situated, they all do the same thing, which means the tenants can't avoid the rent increases by moving to another apartment, which allows for more of the landlords to get in on the rent increase without incurring vacancies.
> I feel like an amount of the general public just wants Big Daddy government ...
He's just stating how he feels personally. I would think most humans are for the most part qualified to analyze and describe their own feelings.
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"?
> It seems to me rent control and eviction restrictions of this type increases the expected profits for new construction
Zoning and high fees will still be a problem, new units can be rented/sold at a premium but then we have the issue of it being affordable in rent or credit. My guess is that the new rule protects(temporarily) whoever is already in the game, any new comer will still get screwed.
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:
I'm not saying the contents of the article is wrong, but just be aware of its source/publisher.
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 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.
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.
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.
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.
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.
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.
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.
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.
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?
Except in Cal where they go up much lower than inflation...
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.
Sure, but they go up by the amount of money you saved on the mortgage, the net price is the same. The amount homebuyers can afford to pay doesn't change with interest rates.
The amount people can afford to pay doesn't change, but the cost of the house does change.
Assume a 30 year mortgage. If the interest rate is 2%, and I spend 1.5k a month on my mortgage, I can afford a mortgage of 406,000 and own the home at the end. However, if interest rates are 10%, even if I'm still earning 1.5k a month, I can only afford a mortgage of 171000 in order to pay it off by the end. You can double check my figures using this calculator - https://www.bankrate.com/uk/mortgages/mortgage-repayment-cal...
Given that deposits are usually at a minimum 10% of the house price, it's very hard for first-time buyers to gather that amount of money - while people who have purchased before can sell their existing home.
The issue the paper describes is that interest rates have gone down, so house prices have gone up, _and at the same time_ it's harder to get your first mortgage (i.e. you need a larger deposit) - which most new buyers cannot afford.
When a currency is devalued, the price of things denominated in that currency increases.
> Laws can change in this case, as they have here. laws are a dynamic system
If you're going to pass a law allowing a rent increase every time the market would cause there to be a rent increase, I can suggest a much simpler alternative.
> If you are making money from rental properties only, that means you own properties (as well as your own house in theory). Not only are you more well off than almost all the population, but you have goods that are worth a lot of money that you can sell (maybe at a loss but you still have a roof over your own head).
That is not a valid assumption. Many small time landlords "own" the apartment building that they live in, but really the bank owns most of it and the rent is only enough to pay the mortgage and their own salary for managing the building. Require the rent to be capped at a level that causes the building to be worth less than the amount that you owe on the mortgage and there isn't anything for you to sell while you "still having a roof over your own head" -- you're just going to file for bankruptcy and have nothing.
Tax them. Inefficient use of land is a good sign that the property tax is too low. If the government charged a property tax rate that roughly matched the property value increase, there would be no gain just by sitting on the property. You'd have to put the land to productive use to actually make a profit.
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.
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)
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.
The law is supposed to give families enough time to adjust or move away and find affordable housing elsewhere, without becoming bankrupt in the meantime.
A completely different goal. Quoting opinions on something that is at best tangentially related does nothing.
The intention of the law is what's irrelevant. What matters is what the law will actually do. Economists broadly agree that rent control will drive down supply. Are they right? Is this law different? Time will tell. But there's every reason to be skeptical.
> Is this law different?
Yes, it is, both in intention (i.e., to give people time to move vs. enabling them to stay where they live) and in details. I think this will certainly reduce investment groups buying properties though, which I personally think is a great thing overall. I think that clearly something needs to be done, I'm glad California is trying to find a middle-ground here. Not to say they shouldn't also find ways to increase supply as well, but to me the two are not mutually exclusive.
But hey, maybe I'm wrong and totally off-base. I think it's a worthwhile bill though, and look forward to seeing the impact one way or the other.
Citation needed. My admittedly cursory review of the latest results suggest no damage at all.
The reason I mention the Berkeley study at all is because this now led to arguments based on after-the-fact retrofitting. In particular increase supporters have now tried to argue that Seattle was in a unique boom phase and so the study was comparing against a local max, and thus there was actually no damage - but just Seattle 'regressing to the mean' if you will. But the Washington study also considered this possibility and contrasted it against other control cities within Washington that did not increase wages, and found that they did not experience the negative effects. And so on back and forth it goes.
And so who do you believe? Probably whoever you want to be right. This is why I'd suggest laying out metrics beforehand. If Seattle was in a unique boom phase before the minimum wage increases then this is something everybody could agree on beforehand. When you do after-the-fact analysis, you risk peoples biases getting in the way of things. And because of the complexity of systems such as these, it's always going to be pretty easy to prove X and also prove not X after the fact.
[1] - https://www.nytimes.com/2017/06/26/business/economy/seattle-...
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.
> 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.
Rent control chooses certain people to be winners and other people to be losers. It does exactly nothing to increase the number of winners. Furthermore it creates disincentives to the creation of new housing, which means fewer winners in the future. Even worse, for the winners it does select it puts them at a long term disadvantage by trapping them into a non-optimal location.
The only solution to “not enough housing” is “more housing”. Rent control is actively harmful to this goal.
The GP's point is that it gives equal chances to tenants to stay. New tenants do not benefit from rent control, they instead are hurt by the higher prices due to lower supply.
The reason mature European economies do not come close to entrepreneurship and the rate of innovation in the US economy is because widespread govt regulation and taxes across the board stifles economic options for investors.
It is simply not true that housing and employment laws in other places "works great", it's a tradeoff, and if the US follows that path the world will become a less good place for everybody because Europe and Asia will no longer have an innovative capitalist petri dish to follow and leverage from.
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.
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.
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 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.
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.
There's other housing programs like Mitchell-Lama, some that are like what you mentioned, but that's a completely separate thing and a small amount of units. "Rent controlled" and "Rent stabilized" are technical terms in NY.
https://www1.nyc.gov/site/rentguidelinesboard/resources/rent...
Specifically:
"Also, some newly constructed buildings may be stabilized due to a 421-a or J-51 tax exemption even if the rent is $2,000 or more."
A program that a significant number of developers have taken advantage of.
Because that's what rent regulation's detractors are arguing, even though your empirical evidence (and mine) suggest the opposite. That's the context we're discussing this in.
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
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.
Not saying it would solve the housing crisis, but adding another 20,000+ units onto the market would certainly help.
SF rent control is absolutely onerous and definitely shrinks the pool of potential landlords and thus potential units.
This underscores the view I was promoting - that interest rates play a large part in the difficulties besetting new buyers.
"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...
And who decides these zoning laws? Typically cities and counties. Unfortunately Prop 13 has incentivized building out retail properties (sales tax revenue) over all else. So let's start by doing away with Prop. 13 protections for everything but primary residences. Then, change the statewide zoning laws to encourage/require available housing before non-residential property can be built. Want 2,500 office units? Fine, but if you don't have 2,500 residences available those need to be built first. Or maybe have the state keep 75% of the property tax revenue of new developments until the housing requirements are met. That money can then be used to subsidize affordable housing.
https://www.bls.gov/regions/west/news-release/consumerpricei...
Reductionist statements like yours never really reflect any real-world policy environment. The real world is messy and complicated.
[0]: https://arstechnica.com/science/2019/09/crops-under-solar-pa...
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.)
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.
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.
In Paris there is a similar impact of bad regulation. It has become so hard to expel a tenant that has stopped paying that landlords will demand extraordinary guaranties: bank credit lines, guaranties from relatives, sometimes even medical exam, etc and will be super picky. I knew of a foreign investment banker, high salary, not allowed to get in financial dispute because of his profession, who just couldn't find a place to rent in Paris because he couldn't provide some of those.
I personally know two people who are renting rent-controlled apartments in SF and don't live in them. Their lives have moved elsewhere and they don't need the place anymore. One uses it as a weekend getaway and the other one visits rarely.
Thanks to rent control their rent is so cheap that it's worth hanging on to it even though they don't live there.
So these two units are off the rental market effectively forever, sitting empty most of the time.
Landlords are not social security. It's probably better for the city to forcefully buy them out and create a new management model of the buildings than to impose strangling limits on prices.
If a renter can't find a landlord to rent from, then what?
"Why should I care about the woes of water treatment plants as opposed to water drinkers?" Do you want drinkable water, or not?
If you lease out your house and you want to take back ownership, yeah, you need to pay out the tenant and that's completely fair. You're upending another family's lives, and they may not be able to afford to stay. You're paying them moving costs and covering a period of time of adjustment for them. If you think this is unfair, you have poor morals.
Also, for good measure: fuck the landlords.
The rent increase law is 60% of CPI. Look it up.
SF introduced a new law a couple years ago that additional people can live in a unit even if they are not on the lease. They only instituted caps on how many. Google search it.
Plenty of apartments have not only water, but also heating included in the rent. If that goes up drastically, the rent board will likely tell the landlord “tough”.
And I’m not against buying out tenants. I am against them having to pay $100,000 or more.
----
Sources:
This amount is based on 60% of the increase in the Consumer Price Index for All Urban Consumers in the Bay Area, which was 4.4% as posted in November 2018 by the Bureau of Labor Statistics.[1]
Legislation that went into effect November 9, 2015 allows tenants covered under rent control to add occupants, if reasonable, despite restrictions in the rental agreement.
[1]https://sfrb.org/sites/default/files/Document/Form/571%20All... [2]https://www.sftu.org/roommates/
It seems fair to me that if you’re going to protect landlords (and companies !) you need to protect tenants as well.
Conveniently, SF doesn't allow new construction either.
If they lose this “right”, they insist on becoming pure profit maximizing machines?
https://www.creditdonkey.com/average-stock-market-return.htm...
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.
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.
And D.C. is only doing that because it's just one city. Cities are the winners in the current economy. They happen to be liberal. Cities in Texas and Tenesee happen to be conservative, and they're doing swimmingly also.
Despite how much people get worked up, policy doesn't have a huge macroeconomic effect.
I don't know anything about Tennessee, but cities in Texas are not conservative. See these maps of 2012 and 2016 election results by county:
https://www.chron.com/politics/election/local/article/Map-co...
Even most southern cities like Atlanta, Jacksonville, Tampa, Orlando, and Miami are well into the 60s.
Even if Dallas, Houston, and San Antonio are like ~52% for the last 8 years, they're a bit of an outlier as far as major cities go.
It's a bit fatalistic but if we're going down anyway, we're going down together!
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?
The land isn’t doing anything just sitting there. I am totally fine with clearing it out so people can actually afford houses.
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.
A lot of people don’t want to because once you’ve rented it out, the tenant can never be kicked out unless they break the law.
Do you want to sign up for someone living in your backyard for the next 20 years?
An ADU should be like renting a room in your house. Exempt from fair housing laws, and at worst a non-guaranteed lease renewal, if not a simple 30 day notice.
To me it feels like the sensible thing to do here is to either actually abolish the fair housing laws if tenants don't really need those protections, or have them apply to these new constructions as well since tenants do need them.
A stance in the middle makes no sense considering the intention of these laws.
If you tell everyone that you cannot increase more than 5% a year, this is used as a signal to all landlords to increase 5% a year. It's a coordination mechanism. And it helps hedge for years in which the market rent has increased by more than 5% and the landlord is unable to adjust. A commenter who is a landlord confirmed this as well.
And this will increase the incentive to build new homes. This could be good but new homes tend to be more expensive and serve the high end. Much like the median price of a new car is significantly higher than the median price of all cars on the market.
There are entire industries in New York that focus on buying units and converting them from rent stabilized/controlled to market rents through any means (direct payment, intimidation, legal, etc). To think this will somehow lower what people actually pay for housing is naive.
Landlords already charge as much as the market can bear. Coordination isn't really necessary.
This statement doesn't mean anything.
Consider a game where you try to maximize revenue. You play along with other players with the same goal. If you set your rent too high, other players undercut you. You set the price too low, you leave money on the table. Now consider a rule that says you can at most raise the prices x% a year and the same is true for all players. Now you're anchored to this increase and an equilibrium is more likely to emerge such that every participant increases prices by that amount every year. Much like a minimum wage gives a signal to employers who rely on low cost labor to pay the minimum wage allowed. If you look at distribution of wages, you'll see a huge spike at the minimum as employers essentially use that value to coordinate among themselves.
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.
"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.
SF Bay Area is creating 3+ jobs per new unit built (any unit). So the gap is growing rather rapidly, resulting in demand far outpacing supply.
Most of the peninsula cities/towns do not want any growth and want to remain single family home neighborhoods. However, based on demand, they should probably evolve more into either denser row houses or apartment/townhome type.
The way to restrict this from happening is to require more land per sq.ft. of housing and require more parking per bedroom and guest parking for Multifamily housing. All this makes land use less efficient and therefore more expensive, deterring development.
In the SF/Bay Area (and possibly CA as a whole) there is more space allocated for businesses than there are for houses. Likewise, zoning is spread out so people have to commute to work. This is why, eg, the greater Los Angeles area has some of the worst traffic in the US, only beaten by Texas and DC.
The history behind these bad regulations comes from racism. In the 50s suburbia was created in such a way to isolate residence selling safety. I don't want to go into the details here, but it's a fascinating piece of US history.
When businesses and commercial are interwoven with residential people stop fighting for the few places close to work, which stops spiking up the price of those areas. Likewise, when the ratio is right there stops being a supply problem, even if it is the same amount of houses. In CA's situation it could mean less business buildings or more urban housing.
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 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_...
Hopefully this move leads relaxed zoning laws and regulations, allowing new development... People who want such things will gain political clout because capital will want return on investment, and rent control shifts the calculus for good ROI in the real estate market toward new development (marginally).
I'm sure hundreds of economists have written thousands of papers about this subject, each going its own idiosyncratic way, so maybe I've actually been proven wrong in this particular case, I don't know, but I have to say that the idea that regulation only ever increases costs is silly.
It does precisely the opposite. It reduces the value of rental properties, which makes investing in constructing them less competitive against investment in constructing new housing in some other state or country, or constructing commercial properties rather than residential ones, or any other competing investment securities.
EDIT: to be clear, not suffering for its own sake, but to pressure owners to stop supporting the current regulations.
This law in California allows for 5% annual increases after inflation. It’s hard to see how this will even hurt landlords. Creating a pretty clear incentive to perform a maximum increase ever year doesn’t seem great for renters though.
In the spirit of furious agreement, yes the best option would obviously be not to suppress construction.
Just because one interest group wants stupid things to happen that benefit them in the short term doesn't make it a good idea to go open season on stupid things. The goal should always be to improve the state of affairs; not to spread the pain around.
Everyone bar no-one needs institutions stuffed with people who make sensible long-term decisions. The best way to get that is to always pressure them in that direction. Bending to political expedience encourages people who make bad decisions; not a good strategy.
source?
Previously: "Rent control policies generally lead to higher rents in the uncontrolled market, with rents some-times substantially higher than would be expected without rent control (i.e., between 10 to 25 percent higher). Over time, if rent control does not apply to new construction, there is some evidence that the impact on uncontrolled rents diminishes." https://www.nmhc.org/globalassets/knowledge-library/rent-con...
It also follows from supply and demand. Owners are more likely to sell rather than rent out their places, and tenants are more likely to stay in their below-market rent units, both of which reduces supply for new (i.e. market-rate) tenants.
Visible benefits; invisible costs. Great politics.
Who you don't see are the people outside looking in that want an apartment but can't find one, or can't afford one, or need to sign a new lease at a very high rent.
Rent control doesn't unequivocally help current renters. It also keeps them stuck in one place for a long time, even when it's not a great fit for them.
And pretty much every economist says rent control raises rents and lowers quality overall, hurting those trying to move in.
I'm not sure if I wish they'd go away.
If housing were more affordable, we could easily have 10B people on the planet right now. Most people truly want to have families. They want homes to raise those families. People can't go own reproducing forever. Could we have had 2% population increase over the last 30 years in the US instead of 1%?
Yes, but we'd already be over 10B people. In another 30 years, we'd be at close to 20B. It's not sustainable.
And even if it was, it's not necessarily a better situation. Who's to say that education, health care, food and other basic necessities wouldn't be more scarce and cause the overall cost of living to be even higher? Inequality would almost certainly be much worse.
The Malthusian trap plagued the world since the beginning of mankind. Until the industrial revolution, life for the average person was getting substantially worse over time. Then suddenly, productivity growth outpaced population growth, and we went through -- objectively the best time in human history. This is a time that includes monstrosities like the world wars and the threat of nuclear winter, and it it's BY FAR the best time humanity has ever seen.
Productivity growth is starting to decline. Do I think that making housing more affordable and jump-starting population growth to keep GDP numbers increasing at a steady clip is a good trade off? No.
Cheap housing sounds great. But I don't think it's a miracle pill. There are unintended consequences to everything. I wish we lived in a fantasy Utopia where everyone could be hold hands and be happy all day, but we don't.
a) renting out a room in your house (where fair housing laws already don't apply) and,
b) renting out a fully distinct dwelling unit, where fair house laws definitely apply and serve an important function.
ADUs are always going to be a small percentage of the overall housing market, so lessening housing regulations around ADUs specifically is definitely not the same as abolishing fair housing laws entirely.
And if someone was willing to pay that number, then that's what the place was worth.
Tenants could ask for contract terms that forbid such raises.
Or, if landlords are not forthcoming, they could take out insurance.
And yes, such insurance would need to have its terms written carefully. And it probably doesn't exist as a product at the moment. But eg sponsoring the development of such insurance would be an easier to justify action by the government than a law. Also less likely to backfire.
In any case, the underlying problem is lots of pent up demand for building, and permits only being given out in a trickle. If there was more building, landlords couldn't pull those tricks, at least not profitably.
While what you're saying isn't false it's not going to solve anything. Unless you don't think there is a housing issue.
- 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.
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.
Because California property owners don't want it to. The artificial scarcity drives up property values. Take a look at Brisbane, they fought residential development tooth and nail claiming that people should just work in Brisbane but live in San Francisco.
The Bay Area's population has grown by 8.5% in the last 10 years. [0] Please, that's not "Manhattan". That's one person on your block converting their garage into a rentable unit.
Those "existing homeowners" are really messing things up for everyone because they don't want Bob to turn his garage into a rental? Somehow I think there's more to it than that.
[0]: https://www.kqed.org/news/11741275/map-the-bay-area-leads-ca...
600k people is about as much as Seattle proper. Which happens to span 83.94 sq mi. In less than 10 years. That's _a lot_ of construction.
Of course I wouldn't mind becoming more like Manhattan in some ways. Compared to how pedestrian hostile the Bay Area is, Manhattan is heaven.
This has already been proposed by Scott Wiener as SB50. It was opposed by local councils and never put to an actual vote, and it never will be, unless political pressure is applied in the form of counter-regulation.
There's obviously money to be had in leveling a block of houses and increasing the population density by 10-30 times the amount. The market demand is extremely high. Real estate developers would jump at the chance to do so if they thought they could get through all the red tape. The landlords owning those houses would certainly sell for the right price.
The entire society is abandoning free market principles in favor of social engineering. If they're not careful, they'll kill the goose that lays the golden egg.
Ruthless capitalism and fundamental human needs do not mix well.
I dunno. I don't have much trouble finding reasonably priced, nutritious, and tasty food (cooked or as ingredients) anywhere I've visited in the world. Yet food is governed by ruthless capitalism, no? Surely we wouldn't argue that farm subsidies are all that's standing in the way between people getting a decent meal and chaos?
What about...petroleum? Like it or not, it's necessary for survival today. Absolutely ruthless capitalism at play, and at the hands of a lot of people we don't like. And yet...the system works pretty ok, I think? The last major oil shock we had was in the '70s -- not bad, considering how many financial crises we've had since then.
I don't get what is your proposed alternative to "ruthless capitalism" for housing. Are you proposing "single payer housing"? Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market, where the means of production^W^W^Whousing stock is owned by The People but decisions about how to employ the housing stock is made by the government?
It's regulations and NYMBYs that prevents any new building with higher occupancy.
Rent control reduces development revenue.
They both play a part in making building development less attractive, just from different sides.
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...
95% of the work can be done in overseas factories and is subject to the same globally competitive downward price pressure as every other manufactured good. Build them in Shenzen at a wholesale cost of $30,000 per pod, ship them to San Franciso for $2000, stack and install them at a cost of $8000. At 320 square feet, that's $120 per square foot. The same cost as new homes in rural Texas.
All the California legislature needs to do is pass a law zoning everywhere in the state for multi-story shipping container apartments. Then watch prices plummet. Even for single family regular construction homes, because the shipping container apartments will suck so much demand out of the market.
Modular apartment buildings also exist and can be thrown together quickly and affordably.
Not to be rude, but the problem is likely going to take a bit more to solve than throwing shipping containers at it..
If you play that dynamic forward you end up in a situation where everyone is overpaying compared to a more fluid market, even those longer term tenants.
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.
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.
> is the scourge of housing markets, forcing rents up for everyone and preventing new construction.
The tax abatements obviously fuel new construction and bring in a new class of rent control to NYC. Is that a good thing? Or a bad thing?
I don't claim to know, but this type of apartment definitely filled a need for myself and others who want decently managed apartments without worrying about spontaneous jumps in rent (i.e. if Amazon had moved out here). And obviously, we're not the crowd of people totting around kids, barely making ends meet but at the end of the day, I still have to go to work to pay rent or I'm screwed with the rest of them...so it's nice to at least know that my taxes (tax breaks) bought me some stability.
PS: these buildings are also required to set aside a number of units for lower income residents, which again, I'm happy to pay taxes towards.
Anyway, what was your point?
No residential neighborhood in the Bay Area needs to turn into "Manhattan" to house 600,000 extra people. If every block added a house we'd have extra housing to spare. Zoning prevents a ton of development, and everyone pretends they're fighting "Manhattan".
At Manhattan densities, the Bay Area would house 468 million people. That's not what's happening, and no one is advocating for that.
We don't need to build Seattle in the Bay to house everyone. We just need cities to stop dragging permits out years and every planning committee to stop saying "no" to any small increases in density.
How much construction it is isn't super relevant -- if it's profitable, it will happen!
The maximum rent increase rate is 60% of the trailing twelve months CPI in the bay area. But landlords’ costs do not scale with the CPI. Mortgage rates are fixed (if a landlord has a mortgage at all), taxes are independent of CPI, and principal+interest+taxes are the vast majority of a landlord’s expenses. Maintenance is typically a small fraction of that number.
Landlords are not obligated to pay your heat or water under rent control. Mine certainly never did.
The roommate law changes you mention are not rent control, but tenant protections applicable to all rentals in SF. The 2015 change brought rent controlled units up to par, because landlords were evicting people for doing things like getting married or switching roommates (horrors!) Basically: preventing predatory landlords from being scumbags.
I’m going to go with the GP on this and say that if you think people should have their rent hiked for getting married or changing roommates or having a kid, you have poor morals.
In essence, you don’t like being told what you can do, you have a theory that it hurts the housing market, and you’re inventing reasons to justify your theory of reality.
No, landlords are not obligated to pay heat or water (I never said that!), but many buildings (all the ones I lived in) do not have separate meters for water and sometimes heating, the landlord just pays the bill. Rent to a single person and they have two other people move in and use 200% more water? Tough shit says the rent board!
And the other problem with allowing additional people to live there is that if those additional people can demonstrate that they were an "established tenant", then they get full rent control and tenancy even after the original tenant (only name on the lease!) leaves. Show the rent board the lease they signed? Tough shit says the rent board.
It sounds like you aren't that familiar with the tenant laws in SF, so I'm not surprised you don't think it's a problem. Suffice to say being a landlord in SF is not a very attractive proposition, so it shouldn't surprise anyone that we have a housing shortage.
Math lesson: If my mortgage is $X (which I more than cover with my rents, since to do otherwise would indicate that I am a phenomenally stupid real estate investor), and I pay .05X per year in maintenance, the total annual increase in costs is currently CPI x .05 x X.
I don’t know if you noticed this while you were becoming an expert on SF landlord tenant laws, but 0.6 x CPI x X is bigger than that number. The annual increase in rent is literally 12x larger than the thing you’re complaining about. Room left over for taxes and evil, deadbeat babies, even.
In other words: as long as maintenance, water, taxes remain a small percentage of the mortgage+principal, the allowable rent increases more than cover the inflated costs. It’s almost like they designed the law that way!
Again: you’re just trying to find reasons to justify your opinion, and you’ve done a bang-up job of demonstrating what I originally wrote: people irrationally demonize rent control in SF.
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.
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.
Well, “Nothing” is an unusual way of referring to the Sherman Anti-Trust Act.
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.
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.)
If I were a landlord, this just means that rather than charging a higher rent following renovations, I'd have to front load my raising of rent while they were being planned / ongoing. It might become more standard practice to raise rent closer to that limit proactively in the state.
Proponents might argue that's fine--at least it gives a family more time to adjust or move out. In practice, though, it may just make it easier for that family to weather through the first bump and be in an even worse situation when they absolutely can't afford it next time around. They might have been better off moving with more money available when a bigger hike comes later.
But hey, we've never known California to shy away from band-aid legislation.
The law is not automatically the best fix for all kinds of bad behaviour, and in many cases it clearly isn't, but I think this is one of those cases where it really is. Dramatically raising rent prices on someone who is already living there, is taking of a situation where the other party cannot simply refuse the offer, because moving every year gets really expensive quick. With many other kind of subscriptions, if the vendor suddenly doubles the price, they're easy to cancel. But not when it's the place where you live. It's taking advantage of a kind of vendor lock-in. A kind of monopolistic abuse.
And it's exactly the kind of thing that many countries do try to protect tenants from.
And no, the problem here is not pent up demand for building. That would be a likely cause when it's the initial rent for a new tenant that's too high. That's a sign there are simply not enough houses and too many potential tenants. But when the initial price is low, the landlord clearly does want to rent it to you. And when they then dramatically raise the rent, they're taking advantage of the power they have over your living situation. Preventing that by law is entirely reasonable.
"700 USD per week" vs "800 USD per week and rent increases limited to 7% a year" are relatively straight forward things to compare.
You are right that landlords have a limited monopoly power when people have moved in. (And depending on market conditions tenants also have limited monopsony powers, because it's a bit of a hassle to find a new tenant.)
But those kind of longer term engagements are pretty common in the commercial world. And they are often solved with contracts.
What's keeping people from coming up with those terms themselves?
Note: I am not suggesting that landlords agree to those terms out of the goodness of their heart. They would offer such a ceiling on the increase eg in return for a higher starting rent. They are essentially selling a call option.
If they price the option premium right, they would make money. Just like any other kind of extended waranty you can buy.
>I think one could sanely argue that allowing increases of up to 5% plus inflation is a suitable restrictio
Based on what data?
And no, it's not a 'sane' argument:
1) if 5% + inflation is above market rates then this rent control is either a no-op or detrimental because it may incentivize landlords to hike rent to maximum because they won't have have the flexibility to do that in the future if the market changes.
2) if it is below market rates, then it's just rent control and it comes with all the same baggage and detrimental effects we always see.
Rent control does not work. I don't understand the appeal to continue experimenting.
It incentivizes landlords to even out their rent increases over time, and to avoid sudden jumps. Especially for lower-income people, price shocks are devastating; having warning of an expected rise in prices, so that you can move or downsize with a year or two of notice, is a boon, and this kind of measure forces landlords to do that work.
No. It doesn't 'incentivize', it mandates.
Also, I have no idea why you're arguing this point, this is rent-control. This is how rent-control works. It sets a cap on what you can charge for rent.
>Especially for lower-income people, price shocks are devastating;
Rent-control is devastating for lower-income people.
Price shocks are a result of spirling supply in face of rising demand. THIS DOES NOT FIX THAT. Rent control does not fix this problem and you can't just wish it away. Rent control makes it worse. In a normal market, prices stabilize. Landlords don't just spike prices over a month because either a) there's a lease agreement which sets these terms out, b) they won't be able to rent the unit out at the higher prices, or c) Good tenants are hard to find and finding tenants takes time and is expensive while your apartment sits there not generating income.
Relatively unlikely to have a big impact. Even without such a law they already have an incentive to raise rents as how as possible: profit.
Mostly the law should be a no-op.
I'm not sure what the argument is for why freedom of contract can't provide the "increase < inflation + 5%" provision voluntarily?
Mostly? Uh huh.
Sorry - then why are we wasting time with this law in then? Because OP and supporters certainly don't think it's a no-op. California doesn't think it's a no-op.
>Even without such a law they already have an incentive to raise rents as how as possible: profit.
That is such a shallow, nonsensical argument. By your logic explain why Starbucks isn't charging $5000 for a coffee ... because after all: profit.
I'm sure landlords would love to raise prices to astronomical levels. I'm sure tenants would love to live in the apartment for free. So tell me, why doesn't that happen? Why is it that prices in a market will tend to stable point?
>I'm not sure what the argument is for why freedom of contract can't provide the "increase < inflation + 5%" provision voluntarily?
They can. That's called a 'lease'. It's common.
This isn’t a free lunch, the tradeoff of a price cap is under provision of a good.
This under provision is not because building new homes isn't profitable, it is because realtors, landlords and homeowners are actively blocking new supply in order to extract above market rents from desperate people.
Adding a rent cap of MORE THAN DOUBLE inflation will have no affect on supply, it is ridiculously profitable to rent out your property right now.
CA would have to do something like cap rents at less than $500 per bedroom before profit margins would affect supply.
I'd be curious if you can share specific numbers on where this is true?
Where in CA can I buy a house/apt and rent it out for more than the mortgage+insurance+taxes+maintenance? A link to the MLS listing would be appreciated.
Every now and then I look at housing costs vs. rental income to consider buying some investment property. But the numbers never work out, I'd always end up loosing money to rent it out.
This forces landlords to do two things:
* When there is a sustained rise in fair market rent, they will need to implement that increase over time instead of falling behind, and then raising it all at once 5 years later when they realize they're leaving 20% on the table. This allows people being priced out advance warning.
* When there is a spike in fair market rent, like the 8-10% spikes of '14-'15 in the Bay, they will need to spread that rise over multiple years. Since this doesn't affect the profits of new units brought onto the market in response to the demand spike, it should have minimal if any effect on supplier behavior.
(And what happens when market clearing price does increase at 5%+inflation for years on end? Then housing will come to dominate the CPI, and the "inflation" term will more and more closely track housing prices.)
But it doesn't work on the houses on top of the land. Because we can build more or less of them. Or higher.
Your flippant argument can be flipped around too. If there is a housing shortage, by what mechanism does rent control conjure new housing units?
my point is, vanishing landlord or no, the units remain
Perhaps the people can again seize the means of production (part of that being stable housing).
I’d far rather know another 100,000 units are owned by the people that live in them than 100 landlords owning and profiteering from those units.
If this “disrupts” the entire rental industry, that’s fine with me. Didn’t bring much value anyway
[0] https://www.sfchronicle.com/realestate/article/An-estimated-...
If cheap, abundant, shipping containers pull 25% of the demand out of the low-end multi-family segment, that's a 50% drop in prices. Low-end housing is a substitute good with mid-end housing for at least some of the demand.
The prime example are people who live with roommates in mid-end housing, who with cheap enough low-end prices, would get their own place. A 50% price shock to low-end multi-family at the very least would pull 10% of the demand out of the mid-end. That would lead to a 20% drop in mid-end multi-family prices.
Just the same there's at least some substitutability between mid-end multi-family and mid-to-high-end single family. A prime example are empty-nesters looking to downsize. With a 20% price shock to multi-family, that would suck at least 5% of the demand out of the single-family segment. That's a minimum of a 10% price reduction.
Hence a positive supply shock in the form of cheap, abundant shipping container homes would reduce the price of mid-high-end single family homes by at least 10%. This is all micro-econ 101.
> 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.
Well now they can’t. Good. We’ve made it slightly hard to be a major cunt.
...sort of. What actually happened was that lords meddled with the size of units. The dues for a plot of land may be fixed at 3 bushels of grain, but if you can make the bushel bigger you can pass a rent increase anyway. So a major concern of European peasant movements was stable and uniform units.
I'm not sure we are disagreeing?
> They can. That's called a 'lease'. It's common.
Indeed. And I'm saying that if people want what the law is providing, they can negotiate it voluntarily. So there's no good orthodox economic argument for the law. (Basically, no argument from market failure.)
(And, if you have a sufficiently clever financial derivative structurer, you could probably get around the law as well, if you really want to. Basically, you'd construct a swap between a fixed rent and a variable rent. Similar to an interest rate swap.
One big problem with such an insane scheme would of course be transaction costs---ie too much hassle to set up complicated derivatives or repo agreements etc for a private tenancy. Especially since a court might not allow a normal unsophisticated person to be bound by such a complicated contract, even if they wanted to. Tenants are treated like children.)
I'd rather have that too! But it's not the result of these patchwork rules. Fix it properly instead.
There's no need to swear at people, this is an interesting and complicated topic with many valid points to debate.
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...
These laws are not reducing rent, only slowing the increase yr/yr
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.
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.
No sane investor forecasts an increase in rent of over 5% over a decade.
> if all units aren’t filled right away and you miss a year of increases
If a unit isn't filled, then you don't miss out; when it is filled you can immediately charge market rates.
'Maybe' in the case of buying a new property now to rent. But it's clearly the case for many or there wouldn't be places to rent.
Anecdata for sure, but I know of more than a handful of landlords in SF that charge more rent (and get more rental income) than mortgage+insurance+taxes+maintenance. Moreover, that equation ignores the increase in value of the property. You are confusing cashflow with making money, which are two very different things.
My current landlord just bought our entirely rent-controlled building three years ago. As part of the sale/marketing, gross income from the building was made available at a very granular level. It is certain that our landlord is losing money in terms of income-(mortgage+insurance+taxes+maintenance). However, it is equally certain that the landlord has profited greatly. First you have the fact that the building itself has increased in value by about 20% over the last three years. Accordingly, the landlord has made a profit in the low seven figures. Second, you have the straightline depreciation, which is a massive tax benefit if you have other appreciable income.
interest_on_mortgage+insurance+taxes+maintenance-raise_in_house_valuation no?
If your formula was the one, renting would never make any sense...
$1000 a month for a brand new 740 square foot apartment in the middle of San Francisco. Plus with modern finishes that are frankly much nicer than anything you'll find in the low-end SF rental market. I'd imagine quite a lot of people would sign up.
This is mostly from an NYT article, so perhaps it's just one school if thought among many, but I found it convincing on the merits. https://www.nytimes.com/2019/08/14/opinion/shipping-containe...
I'm in a high-demand city in Canada. The house I'm in right now is worth about $70k. The land it sits on is worth $900k. Shipping containers aren't going to help with that.
Don't know where you live, but I doubt it's more expensive land than San Francisco, where the average acre of land costs $3.2 million[1]. Taking that acre of land, save half the area for green-space and courtyard. Use half the footprint for shipping containers. Stack the containers 8 high.
You now have 242 double-pod units. The amortized land cost per unit is $13,000. Assuming a generous rental yield of 12%, the land cost only adds $130 a month to the rent. That's hardly anything for a 720 square foot apartment.
The lesson is that even San Francisco land costs are no match for the power of high-rise high-density housing.
[1] https://www.6sqft.com/study-shows-huge-disparity-in-u-s-urba...
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?
I didn't care about your specific opinion on rent control because you didn't express one, I'm saying that your comments to give counter-evidence to what I was saying didn't even have any context in the discussion and will be used as fuel for the anti-regulation people that I said don't know what they're talking about.
You basically injected a non-sequitur into the discussion and are using it to start an argument, which is silly, because I believe rent regulation is a necessary evil.
Lotta contempt for the poor on here, but this thread has actually been a rare exception. Might be the only set of posts that don't have 30 downvotes attached to them.
Your point seems to be that food and oil are beneficiaries of subsidies in the US, therefore are not "ruthless capitalism".
The US government pays $20B/yr in farm subsidies. HUD has a budget of $40B, and the mortgage interest deduction is a $110B/yr subsidy to homeowners.
If food in the US is subsidized such that it is not "ruthless capitalism", then on this basis it would seem to me that housing has been subsidized well beyond the point of "ruthless capitalism" as well. Yet OP (and you) seem to think that food is subsidized to a far greater degree than housing. I challenge you to make a concrete case that this is true, either in the US or globally in general.
Yet food is governed by ruthless capitalism, no? Surely we wouldn't argue that farm subsidies are all that's standing in the way between people getting a decent meal and chaos?
Are you in fact arguing that US farm subsidies are all that's standing in the way between people getting a decent meal and chaos?
> Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market, where the means of production^W^W^Whousing stock is owned by The People but decisions about how to employ the housing stock is made by the government?
Basically yes. The “progressive” position on affordable housing generally calls for major government investment in housing. This is not a new idea; in the U.S., much of the big buildout of middle class housing last century was heavily subsidized by HUD.
This does not seem like much of an argument against a capitalist system! I would call this a win for capitalism then, and a loss for governments sidestepping their obligations to, you know, govern.
I am the first person to agree that oil companies have used their money and influence to buy favorable regulations, putting the whole world in danger. On the other hand, this again seems like a failure of government rather than a failure of capitalism. Indeed, the powerful using their influence to protect their interests is something that has happened under every economic system ever tried, no?
>> Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market [...] > Basically yes.
Are you familiar with the notion of "the projects"? I wouldn't say this turned out well for anyone...
The good news is that the major driver of cost in places like SF isn't actually the cost of building per se but instead is the cost of absurd regulations, causing it to take many years of fighting with NIMBYs just to get a permit to build anything. Solving this morass would be a huge effective subsidy to developers and would cost the public literally nothing. If you're in favor of subsidizing housing development, I hope you're in favor of starting with this?
When you have a 3 unit building and everyone is paying less than 1/3 the market rate, it’s not worthwhile in the least for a landlord to fix up the building beyond the absolute minimum. Contractor rates have skyrocketed in SF, so even just repainting the building might cost $15k, which might represent several years of profit.
big bills (mortgages, property taxes) and bills that move [upwards] dynamically (gas, electricity, water, repairmen).
So no, I'm not assuming anything of the sort. Beyond that, landlords are extremely notorious for spending much less money on repairs than they should and saddling their tenants with the bills.
> No. It doesn't 'incentivize', it mandates.
Well, they always have the option of not keeping up with market-rate increases. Not that I think anyone will take that option.
> Price shocks are a result of spirling supply in face of rising demand. THIS DOES NOT FIX THAT.
The point isn't to "fix" the increase in price. It's to give renters a year or two to adapt to the change, either by moving out, finding new sources of income, or getting roommates.
> Landlords don't just spike prices over a month
#NotAllLandlords. But enough do to create a serious public policy problem
Says who? You're just making things up now.
>they always have the option of not keeping up with market-rate increases. Not that I think anyone will take that option.
No you're just distorting words. Rent-control is a mandate. Saying it isn't a mandate because you can just drop the rent is dishonest. Why are you playing these word-games?
>The point isn't to "fix" the increase in price.
But that's what it does. You're capping what rent can be and your only argument that somehow it isn't rent-control and won't suffer the same consequence as every rent-control policy is that isn't as disastrous as something that San Francisco did.
>But enough do to create a serious public policy problem
Serious public policy problem? What are you even talking about? Housing shortage and homelessness is a serious public policy problem. This is a non-problem that if solved through this measure actually magnifies those real issues.
You're also making up the reason why this policy was put in place. It was put in place "to deal with housing crunch"[1], and not deal with the 'serious public policy problem' of some fictional landlord spiking rent for fictional renters. We know from hundreds of studies that rent-control does not actually solve either problem..
[1]https://www.reuters.com/article/us-california-rent/californi...
The "housing crunch" is a very general term; the specific symptom addressed by this bill is drastic increases of rent on, for example, a change of ownership of a building. See https://www.latimes.com/california/story/2019-09-05/how-cali..., which has actual references to advocates of the bill.
> Supporters of the measure have pitched it as a way to prevent sudden increases in rents at levels that could drive people from their homes as the state experiences a surge in housing costs.
Assembly members in favor of the bill talked about "providing certainty", not about keeping prices low.
Also "some fictional landlord spiking rent for fictional renters"? The article I linked describes sudden increases to rents during changes in local housing markets:
> In Boyle Heights, apartments without rent controls saw rents increase from a median $1,200 a month to $1,700 between 2016 and 2017.
The OP references this area:
> Sandra Zamora, a 27-year-old preschool teacher, lives in a one-bedroom apartment in Menlo Park, Calif., a short drive from Facebook’s expanding headquarters. A year ago, Ms. Zamora’s building got a new owner, and the rent jumped to $1,900 from $1,100, a rise of over 70 percent. Most of her neighbors left. Ms. Zamora stayed, adding a roommate to the 600-square-foot space and taking a weekend job as a barista.
This rent control bill would force the new owner to spread that increase over several years.
Still wrong:
1) Apartments get converted to condos, or re-purposed because the property has value, but renting doesn't.
2) The population keeps growing meaning that your same number of units don't meet the needs.
3) Rental supply also drops as people opt not to move and sit on their rent-controlled apartments, limiting the supply for those looking.
This is why rent-control has the effect of making housing worse, even if the rental supply is maintained.
ah, ok, they eat them. thanks for clearing that up
Demand for petroleum is not explained by capitalism, but rather by humanity's collective laziness
The reason is that landlords know exactly what rent control does.
Landlords know that the tenants with the strongest interest in local housing costs are the people who already live there and plan to continue to do so indefinitely. Rent control is a method of buying them off without actually solving the problem in general, so that overall rents and housing costs remain high but the subset of people most likely to be politically active in doing something to correct that gets a bribe to stop objecting while overall housing costs continue to rise faster than inflation.
What it is, then, is not a step on the road to a real solution, it's a roadblock preventing that from happening by weakening opposition to the status quo by just enough that no actually effective reforms can be enacted.
It's the sort of false compromise that happens in politics all the time. Instead of solving the problem, you enact some alleged solution that really does nothing or makes the problem worse, but then politicians get to go tell the voters that they've done something. Then, when it doesn't work, they get to go back and pass another ineffective bill to "solve" it again in the next election cycle, meanwhile we get another four years of young people not being able to afford housing.
If you're asking how to get that passed, well, that's an education problem. You need people to understand why rent control is not a solution so that they are not willing to accept it over something that actually works.
Right ... except the bill aggravates the "housing crunch". Again, you're trying to solve a small problem by magnifying the major cause of the problem you're trying to solve.
Your linked articled quotes an economists who says this will hurt people who "are upwardly mobile, striving families who are middle-income or lower-income in Irvine, who can’t afford to buy a house but where renting might be in their reach,", because:
1) "landlords who might have held rents for existing tenants at below-market rates with the knowledge they could increase them at any time might decide to hike rents every year."
2) "restrictions on rent hikes encourage owners to convert their apartments into condominiums, which removes properties from rental stock"
So, this policy makes rent broadly more expensive, and it lowers housing supply - which makes rent more expensive. Come on man.
What if you California introduced legislation that targeted the underlying cause of the rent spike ... i.e. the 'housing crunch'. This way, you can solve both problems, the housing crunch and rental spikes.
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.
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?
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.
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:
$1000*12*3 = 36000
r=1000;x=1.0287;
(r*x^1*12)+(r*x^2*12)+(r*x^3*12) =~ $38106
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.
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.
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.
$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.
According to https://www.curbed.com/2018/12/17/18144657/construction-home..., San Francisco's high construction cost is mainly driven by the high cost of construction labor. It is disproportionately driven by labor cost when compared to all other cities.
So we have some data now, rather than just pithy statements, and I don't think it agrees with what you want.
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.
Two viewpoints, one tree.
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.