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.
If they lose this “right”, they insist on becoming pure profit maximizing machines?
It's disingenuous to pretend like the landlord is the only party with any control. Landlords cannot remove a tenant at "the drop of a hat" by any stretch of the imagination, nor can they arbitrarily increase rental prices. Rentals usually involve a lease that protects the tenant from arbitrary removal and price modifications as much as it protects the landlord from unexpected vacancy. If you're renting, you should know when your lease is up and know that the landlord has the option not to renew and/or to modify the price. (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)
On top of conventional lease protections, virtually every state has default tenant protections written into statute that can't be overridden by lease agreements, and that include a default implicit month-to-month tenancy term, providing at least basic protection from out-of-the-blue demands to vacate.
If an eviction must occur, it has to be conducted as prescribed in state law. Tenants overstaying or defaulting on their leases frequently can't be removed without 3-6 months of legal wrangling, which is no fun.
The CA law allows the rental price to reset to market rate for a new tenant, so unless the landlord doing you a solid was planning to stick you specifically with a rent increase down the line to recapture the present solid, they can still keep your rent stable across lease terms.
Before, the tenant was happy because they got below market rent for 4 years, and I was happy because I could defer pricing work without long term penalty or risking a move-out during an already busy year. This new law will likely result in my tenant paying more, and me working more at times I don’t want to work.
It’s not the end of the world, it’s just one more annoying piece of red tape that doesn’t seem to help anyone.
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*x^1*12)+(r*x^2*12)+(r*x^3*12) =~ $38106
I think people that are arguing bigger rent increases that happen less often are bad are assuming tenants are stretching their housing budget to the max and won't be able to afford the large hikes. In which case they wouldn't have been able to afford it with smaller increases either.
It is well known that most people can not afford significant sudden expenses. I think the inability of some folks here to recognize how bad a 4 year rent hike can be have the privilege of not being in that group.
Note this works both ways. If the market goes down, if no one wants to live there anymore, tenants have a lot of room to negotiate. Vacancies are expensive and the hassle of getting a new tenant is not something many people want to handle even in good conditions.
I also contend that not all markets make this easy. I rent a single family home in a town of 4,000. This is not a super liquid market. There are not a lot of good comps - my house is a block from the town’s best park, and walking distance to the small downtown. On the other side, it is a substantially smaller lot than the average house. There are essentially zero houses that are equivalent, and I have to do a lot of digging (including calling up other folks I know that are landlords) to figure it out.
My tenant is not on the verge of financial collapse. They’re a manager at a local business, they probably spend about 20% of their gross pay on rent. They have demonstrated an ability to absorb the bump without issue.
No, the market kicked out most tenants. The tenant should be expected to also monitor market prices for their rental and know automatically when they're getting a deal or when to expect an increase.
"The market" is not an entity with its own volition, and speaking of it as if it were obscures the reality that it's comprised of individuals and collectives making individual or collective choices about what to charge and what to pay.
Two viewpoints, one tree.
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.
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.
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.
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...
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.
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.
 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.)
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.
- 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
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.
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.
Similarly, i tell my tenants that they should expect the minimum increase yearly as i cannot make up for any lost increases nor can i make larger increases if something about the economics of the house changes.
The real issue here is the cost to provide housing, and the limited amount that exists. I wanted to finish a basement in one of my places, to do this legally, i owe the city $140k in fees alone. This is around 5-6years of rent. You can probably imagine why i opted to put this money in a bunch of index funds and do nothing instead...
The core issue is there is not enough good housing for everyone in California.
The real solution is to greatly loosen building regulation and make getting permits much faster and easier statewide. Then entrepreneurs will double or triple the housing supply and drop the costs of renting or buying a home by 80%. You could see rents go from $2500 per month in LA to $1000 a month or less.
And you build more and more housing, you'll wind up with 4-lane highways to and through Yosemite or something - that's not at all desirable is it? How would you handle the traffic and flow of people? Giant hotels, McDonalds, and huge traffic stops? It's just not sustainable.
California's problem is that it's not sustainable for the amount of people that want to live there. I think it's a global problem in general too. Less people, and no cars would be most desirable to me.
Sorry for a bit of a discoherent rant.
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.
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.
(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.
>>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.
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.
 Knittel and Stango (2003), Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards
 DeYoung and Phillips (2009), Payday Loan Pricing
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.
Except in Cal where they go up much lower than inflation...
What would be the positive effects?
Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)
(However, your example would still work, if the reliable tenant turns into a nightmare tenant.)
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.
The estimate is there are 100,000 empty homes in the SF area.
I’ve seen an estimate of 20,000 for SF proper.
This  report to SF Planning states the number of empty units has doubled over time.
Even if that was added to the vacancy rate, that would still leave SF with around the national average (~7%) vacancy rate, and that's without counting the off-the-market housing anywhere else in the average (and not double counting actual on-the-market vacancies everywhere else, either.) Anyway you cut it, SF has a low vacancy rate/rate of empty homes.
Not saying it would solve the housing crisis, but adding another 20,000+ units onto the market would certainly help.
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.)
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.
But you do you.
Your landlord may be able to evict one building’s worth of people, but your goal is to evict many more than that.
Your landlord is harmless by comparison.
But ignoring that absurdity - property taxes are usually 2% of the property value. So you'd need to what... Not pay any property tax at all for 100+ years for that scenario to play out?
But let's say we allowed that to happen, and we're somehow sympathetic to that owner. You still don't evict anyone over property taxes. The next buyer will just have to work it out. See Detroit and its $1 homes with $20k in back taxes.
I guess the problem here is I don't see housing as something anyone should expect a guaranteed profit from. I view it just like anything else - there's real risk, and if you're going to privatize the profit, you damn sure better privatize the risk, too.
Just like any other asset you can pay too much, buy something unsuitable, or mis-predict market forces.
Are you against private ownership of property outright?
Do you favor being taxed on the value of other things you own, how about your laptop, stove, etc?
Edit: just to appeal to authority: every single legitimate economist agrees with me on this as well.
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.
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.
FWIW rent control advocates agree with you. It’s a point in which the “PHIMBY” left 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.
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).
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.
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.
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.
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.
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.
Excluding people from work in productive areas perpetuates poverty.
But that labour productivity (eg measured in salaries the market can bear) differs so much is a fact. Whether we like it or not.
That puzzle is mostly about productivity differences for tech workers. For the baristas in the Bay Area relatively standard explanations like the Baumol effect do most of the explanatory work.
This has nothing to do with people that think they deserve to work there (which I frankly don't get what the big deal is, you're not a teenager scoping out the best colleges anymore) but obviously the marketplace disagrees.
So if the best companies could employ more people in those places and pay them high salaries, those people would also pay high income taxes that could finance public infrastructure for the rest of the country.
Entitlement was never a core tenant (no pun intended) of the American dream.
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.
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.
Imagine two hypothetical cites, each with one million residents. The first one has half a million apartments, while the second one has ten million apartments.
Which city would have cheaper apartments?
Here's a better question: under a realistic model of building, where building slows down when landlords and property owners feel they have maximized the profit they will get out of it, by what date do you think housing prices will be low enough that current residents who rely on rent control to stay in SF will be able to live there again? 2025? 2035? 2050? What is your recommendation for those people in the meantime?
Do rich people to afford that extra housing get created out of thin air?
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.
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.
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)
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.
The only real solution is to get people to live in other places that have more and cheaper housing.
 Not just utility infrastructure like water, sewer, power, gas, (roads, sanitation, what the Romans did for us etc) but natural environment and leisure like sport and recreation areas, parks and bush land, and (particularly in Sydney) beaches. It's really hard making new beaches for the increased population.
The solution is to make other places attractive for living and have hood opportunities for employment.
Look at it this way: your house or apartment or whatever can probably fit double the people in it. They might be on the floor or on the sofa or whatever, we can double the density. The quality of life will be decreased for everybody.
At what point do we say "It's full, go somewhere else."
What needs to happen is effort put in to make other cities and towns attractive. This could mean encouraging commerce and industry to re-locate or set up new factories or offices. It certainly means ensuring city-level standards of health care and education, something that is a good thing to do anyway
Lastly there needs to be a campaign to encourage people to move to these places. Australia already has migration programs that require people to live anywhere other than the main capital cities.
Australia has a scarcity of fresh water, and low rainfall. Our inland rivers are dying because water is diverted to irrigation for farming; Sydney's water supply is pretty stretched and the option to build more dams is neither environmentally desirable nor possible, because all the rivers have already been dammed, and most are less than full due to low rainfall.
So without resorting to calling NIMBY, at what point can we say "we cannot support any more people"?
I suspect induced demand is more of an effect with highways than housing. People can change their driving habits from day to day more easily than they can change their living habits.
Expand a highway, and more people in the area start taking more car trips on it.
Add housing, and more people don't instantly come into existence to occupy it. (Maybe, over a few years, people stop cramming themselves into crowded roommate arrangements as much, and over decades they have more kids.)
But if I granted that induced demand applied to both...
Driving is a means to an end. People stuck in traffic are suffering.
Having a home is an end in itself. People need shelter, and living near your community/job/family is a huge quality of life improvement.
Plus, when you expand a highway, strictly more mileage is created. It's not like the additional car trips in this city are taking the place of car trips in another state. It's a net loss for society and the environment.
Whereas, when you add housing, even if it induces more people to move into that city, they're moving out of some other city, easing the demand in the housing market there.
This is the use-it-or-lose-it budget game, landlord style.
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.
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.
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.
This underscores the view I was promoting - that interest rates play a large part in the difficulties besetting new buyers.
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.
> 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.
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.
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.
.. 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?
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.
It depends on what outcome you wish to achieve. Single family zoning is backwards policy in urban environments.
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.
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.
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.
"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.
> 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?
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.
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.
SF rent control is absolutely onerous and definitely shrinks the pool of potential landlords and thus potential units.
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.
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.
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.
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?
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
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
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
I'd rather have that too! But it's not the result of these patchwork rules. Fix it properly instead.
It seems fair to me that if you’re going to protect landlords (and companies !) you need to protect tenants as well.
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.
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.
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.
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.
Conveniently, SF doesn't allow new construction either.
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. 
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 .
Putting in arbitrary controls on prices to fight cost increases is about as effective as putting arbitrary controls on thermometers to fight global warming.
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.
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.
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.
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!'
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.
 - https://www.nytimes.com/2017/06/26/business/economy/seattle-...
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.
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 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.
Try - for a moment - to imagine you are living close to your maximum expenses and your landlord increases your rent by 20% next year.
And if someone was willing to pay that number, then that's what the place was worth.
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.
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.
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.
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.
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% .
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.
>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.
> 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", 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..
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.
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.
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.
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.)
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.
'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.
If your formula was the one, renting would never make any sense...
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.)
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.