Is Rent Control a Necessary "Evil"?
Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
Is Rent Control a Necessary "Evil"?
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y"The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial.... a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go -- and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out -- what yesterday's article oddly described as ''free-market horror stories'' -- and constantly proliferating regulations designed to block those strategies? Predictable." - Paul Krugman.
Rent control simply does not help anyone but a tiny fraction of renters. It hurts however 100s of times more renters than it helps. Rent control leads to housing shortages. Rent control creates ghettos. Rent control causes rents to skyrocket. Im sure someone will come on here and try to defend it, but as Krugman insinuates, anyone who does does not even lack a year 1 college education in basic economics.
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- Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes6y
What rent control does is mess with the free market economy we've come to expect in the USA. It's a case of taking from xx and giving to yy. In other words, landlords are expected to be a player in social benefit programs involuntarily. I don't think it's a necessary evil. I think it's a poorly thought out solution to a problem of people not being able to afford the housing they've been accustomed to.
- Real Estate Agent · Mukilteo, WA · Member since 2018 · 124 posts · 148 votes6y
Government intervention to make a market no longer free is not a necessary evil. It is an over reach of power to bribe the have not's for their vote.
- 6yKenneth GarrettPro MemberInvestor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
I find it interesting we don’t control value of property. Values have increased way to fast. Property values have an inverse relationship with rental cost with rent control. As the values of properties increase it would make sense rents would increase. The government wants to control capitalism. I find it interesting the law makers had no problem with capitalism when it benefitted them. Rent control is the government creating a negative monopoly. There is no incentive to improve properties. It will in turn create slum landlords and vacant properties. It hurts the local economy.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes6y
"The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial.... a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go -- and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out -- what yesterday's article oddly described as ''free-market horror stories'' -- and constantly proliferating regulations designed to block those strategies? Predictable." - Paul Krugman.
Rent control simply does not help anyone but a tiny fraction of renters. It hurts however 100s of times more renters than it helps. Rent control leads to housing shortages. Rent control creates ghettos. Rent control causes rents to skyrocket. Im sure someone will come on here and try to defend it, but as Krugman insinuates, anyone who does does not even lack a year 1 college education in basic economics.
District Invest Group545 Reviews Originally posted by @Russell Brazil:
"The analysis of rent control is among the best-understood issues in all of economics, and -- among economists, anyway -- one of the least controversial.... a poll of the American Economic Association found 93 percent of its members agreeing that ''a ceiling on rents reduces the quality and quantity of housing.'' Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go -- and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended? Predictable. Bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out -- what yesterday's article oddly described as ''free-market horror stories'' -- and constantly proliferating regulations designed to block those strategies? Predictable." - Paul Krugman.
Rent control simply does not help anyone but a tiny fraction of renters. It hurts however 100s of times more renters than it helps. Rent control leads to housing shortages. Rent control creates ghettos. Rent control causes rents to skyrocket. Im sure someone will come on here and try to defend it, but as Krugman insinuates, anyone who does does not even lack a year 1 college education in basic economics.
Krugman tends to be a "broken clock is right twice a day" type of economist. Contra Krugman is a fun show poking holes in many of his ideas :)
- Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes6y
Rent control restricts the ‘free market’ of real estate. Affordable housing is an issue in CA and the government is making landlords pay the price for it.
The HCDLA 2-5 year inspections in SoCal that happens typically once every 2-3 years in rent controlled areas is just another way for the government to pump money into the city. These ‘inspectors’ typically issue infractions on items that requires a landlord to pull permits for no good reason.
It’s not fair.
- Lititz, PA · Member since 2013 · 595 posts · 272 votes6y
Rent control is a political move for a few to gain power and nothing more. In fact, the politicians who are exploiting rent control are willing to lose tax revenue for the municipalities that they claim to "care so much" about as assessments will be lowered when properties begin to sell for less because their incomes have been reduced and therefore devalued the property.
Rent control is only about votes for slimy and power hungry politicians.
Rent control from a renter's perspective is inefficient at best and stupidly discriminatory at worst. If you are an existing renter in a rent controlled unit, you are happy for a few years as you soak up the below market rent benefit. But then a day comes when you no longer need or desire the current space you live in. But if you move, you lose your rent control unit. Uh oh. So single people and/or empty nest couples stay put in 3-4 bed units rather than downsize to a 1-2 bed unit because their rent would skyrocket.
If you are not living in a rent controlled unit and want to move into one of those markets, tough luck... someone will have to die and meanwhile your name goes on a waiting list.
And I agree with most all the stuff said above. In the end it's not about protecting tenants: it's thinly disguised vote buying that leads ultimately to deterioration of the housing market.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes6y
Worse than the down-sizing couple example is the highly-paid professional who can and often does own a home in the suburbs but maintains the city rental because the rent payment is next to nothing. These laws are unconstitutional forced transfers of ownership rights from landlords to tenants. The current Supreme Court needs a good case before it.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes6y
Most of this is just useless but intellectually stimulating conversation because very few of us are going to do anything about it.
- Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes6y
@Russell Brazil I tend to agree. However, recently I had a discussion with a homeowner in Sedona, AZ, a now very tourist and popular spot for retirees or vacationers. Due to the high amount of short term rental growth opportunity and increased demand from out-of-state immigration, this homeowner explained how many families and long term renters are moving out of the city.
The current rising rents are changing the renter base to out of state landlords renting short-term rentals or vacationing retirees instead of families or standard wage earners. As a previous resident in my high school years, I can confirm a dramatic shift in the population as these changes have occurred. Education establishments such as the middle school and high school have merged even, possibly from a shrinking student base due to changing population type.
This was a argument from this homeowner that if rental control was in place, these residents would be able to stay local and their livelihoods or way of living would be protected.
- Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes6y
@David Avetisyan That doesn't sound very "fair" however interesting wording as rent control is a form of "fair" trade instead of "free" trade in a sense. It is usually the case when government attempts to create a solution, the balance is instead offset and what was supposed to be fair ends up not being so fair.
- Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes6y
@Mike Dymski All it takes is for some interesting conversation to create interest and encourage at least one person to think differently. I think of these Biggerpockets forums resembling something like the ancient "Lyceum" where types such as Aristotle and Socrates debated topics but instead of philosophy, we discuss real estate :)
- Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes6y
It’s quite interesting to study up in this. There’s a grassroots movement here in Burlington, VT to bring rent control. Many studies have proven that a price cap leads to scarcity of units - people won’t leave a multi-bedroom unit even when the extra bedrooms are no longer needed because it will costs them more to move to a smaller unit.
It’s also been proven that only the current tenants benefit from rent control. Those moving into the area face escalated rents outside the rent control area as that’s the only place available.
In the new tenant laws in Oregon and California, there is a carve out for new construction. New construction is exempt from the rent control portion of the legislation for 15 years. So I dont see rent control as affecting new construction. There are other aspects of the new laws that may affect building. But rent control is not one of them.
Where it does affect investors is those folks who have an older building that want to evict and renovate and base sales prices on those pro forma numbers. This is not possible any longer. Will be interesting to see what happens.
One thing Oregon did do is do away with Single Family zoning. Now any Lot that was zoned R1 is able to build 4 units on it. There are some smaller cities where this wont affect zoning, but for the most part you can put a 4 plex anywhere in residential areas now.
I agree that rent control basically helps only those that live in lower priced rentals when the law goes into affect. Everyone else pays for it in one way or another.
Oh and the rent control laws in Ca and OR are hardly restrictive. Right now we cant raise rents more that 9% annually. IMO raising rents that high rarely happens except when someone wants to evict old tenants and renovate. So in that scenario, yes it will affect the market
eta: there is large scale landlord pushback and involvement in the discussiions re these laws... so dont think that there is not LL participation - there is ! This just happens to be the best they could bargain for.
This kind of talk is very useful. As investors, we see ourselves getting demonized in media and political speeches as not caring about anyone or anything and are just out to bilk people without providing them any value in return. So not true! And that gets a little depressing to hear all the time. Call it venting, blowing off steam, or just having a reasonable conversation from our point of view among fellows who can empathize with us. Whatever we call it, it's helpful to know we are not alone and that there are others like us all over the country who share our views and are on the lookout. It helps to know the developments as they spread. Just because it doesn't immediately cause us to grab pitchforks and storm the capital doesn't mean there is no value.
There are some politicians who know very well that rent control doesn't work, but they would like nothing better than to see the private housing market fail so that the Govt could use that as an excuse to take over "for the public good." Their model of politics is the more people you get dependent on Govt gimmies, the more votes you get because the public won't want those gimmies to end. We must strongly reject that worldview with the facts and evidence available to us. We must continue to hold up the examples of the failure of rent control to help the people it was intended for. Anyone who has seen "The Projects" in a large city knows Govt has no business providing housing. Maybe some spectacular failures on the coasts will help people to see it for what it really is: a sham and a scam.
I view this too as a call to consider carefully where you invest. I may not be able to change the California or New York state legislatures, but I can keep in touch with my representatives here in Missouri where there is still strong respect for personal property and real estate rights.
Oregon is is serious turmoil over the new rent control (SB608) laws. This state is out of control with tax measures, permit cost, and anti landlord rhetoric. The problem isnt lack of money or regulation, its a simple supply and demand issue. The are over 2 billion in new tax increases being put forth for this years ballot. One of which is 300 million in new taxes to pay for homeless services. Most small time landlords I know have been selling to owner occupied buyer and getting out of the rental business all together. A real estate transfer/sale tax of 3 percent or more has also been proposed. Any and all commercial or residential real estate will be taxed on the gross sale or value price. I could keep going, but whats the point, we are the country's poster child as to systemic risk.
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- Specialist · Lancaster, PA · Member since 2018 · 152 posts · 66 votes6y
@Chris Levarek where I'm from in Pa, the average tenant is paying 30% of their income on rent. There is a major shortage on supply in the multi family space and limits placed on construction that will together create the perfect storm for this problem to increase. I think as multi family investors a bigger concern is vacancy rather than rental increases. We as active participants in this sector need to speak up and become more active in the troubles facing our industry. So in short, yes I believe it is a necessary evil. Though it may not be so evil after all.
My thoughts are landlords are often being punished for keeping up with inflation and responding as any other business owner would to supply and demand (as others have stated).
In my market there are out of touch expectations for rent raises or lack there of. It’s quite rare to see rent raised each year, say 2%, to adjust for inflation. Rent is typically raised when the tenant moves out, so rent spikes drastically to catch up for the years of not raising it while occupied, plus renovation costs. Simultaneously, the city has raised property taxes on average of 4% each year for 5 or so years (probably longer just an off the top of head recall). To top it off the city is doing a real evaluation of property taxes which will surely double many landlords tax bill.
Supply and demand coupled with entitlement is major factor in my market as well. The city has threatened rent control left and right. Too often it seems renters are demanding to live in the most desirable neighborhoods in the city (Munjoy Hill) at prices they deem fair. Frustratingly, if you drive 25 minutes you can rent for half the price. Drive 40 minutes and you can buy a 3 unit for $100k. Even more frustrating is that the same crowd is entirely anti-development. No new units in the city and no rent hikes. 🤔
Originally posted by @Mary M.:
In the new tenant laws in Oregon and California, there is a carve out for new construction. New construction is exempt from the rent control portion of the legislation for 15 years. So I dont see rent control as affecting new construction. There are other aspects of the new laws that may affect building. But rent control is not one of them.
Where it does affect investors is those folks who have an older building that want to evict and renovate and base sales prices on those pro forma numbers. This is not possible any longer. Will be interesting to see what happens.
One thing Oregon did do is do away with Single Family zoning. Now any Lot that was zoned R1 is able to build 4 units on it. There are some smaller cities where this wont affect zoning, but for the most part you can put a 4 plex anywhere in residential areas now.
CA has in effect done similar. The R1 Zoning still exists but on any lot you can add both an ADU and a JADU anywhere in the state. So all R1 zoned lots (excluding a few criteria such as safety (must have I believe 4' from structure to property line), sewer, and 2 more that I cannot think of) can legally have 3 units (the primary, a JADU, and an ADU). The state has placed minimum definition on each term that a local jurisdiction cannot be more restrictive. Therefore virtually all properties can have a minimum of 3 units. The state rules override local jurisdictions and HOAs.
As an investor, I like the opportunity. However, I believe this should have been a local choice not mandated at the state level. I believe a community should be able to decide its density. Similar to deciding its own STR regulations. The choice is now taken away from the local jurisdiction and so there could be no low density areas in the future. I personally think the high density does not belong in some suburbs and maybe select urban areas.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes6y
Originally posted by @Chris Levarek:
@Russell Brazil I tend to agree. However, recently I had a discussion with a homeowner in Sedona, AZ, a now very tourist and popular spot for retirees or vacationers. Due to the high amount of short term rental growth opportunity and increased demand from out-of-state immigration, this homeowner explained how many families and long term renters are moving out of the city.
The current rising rents are changing the renter base to out of state landlords renting short-term rentals or vacationing retirees instead of families or standard wage earners. As a previous resident in my high school years, I can confirm a dramatic shift in the population as these changes have occurred. Education establishments such as the middle school and high school have merged even, possibly from a shrinking student base due to changing population type.
This was a argument from this homeowner that if rental control was in place, these residents would be able to stay local and their livelihoods or way of living would be protected.
Guess what....I also would like to live places I cant afford too. I think thats a fact for 99% of people in the entire country. You know how we make do.....we live where we can afford. There is no fundamental right to get to live in the neighborhood of your choice.
District Invest Group545 Reviews @Dan H. part of the reason we have a housing shortage is NIMBYism so I understand why the choice has been removed.
I adore my adopted city - I love all the old housing stock, the charm, the lovely neighborhoods etc. I am sad that this landscape is going to change, so I dont necessarily support the new law - i just understand why it was done
As for us LLs being the bad giy in this whole scenario- there is truth in that in that LLs are the ones that buy an older bldg, boot all the tenants renovate and double rents. After this happens enuff times people will fight back.
What we need is sensible legislation that is actually able to address some of the pent up demand.
.- Rental Property Investor · Charlotte NC · Member since 2019 · 306 posts · 183 votes6y
Originally posted by @Chris Levarek:
Three states passed state-wide rent control laws in 2019, California, Oregon and New York. Other cities such as New York, San Francisco and Washington D.C. have had rent control policies in place for decades.
"Over the long term, rent control tends to restrain multifamily housing development, exacerbating local housing shortages and adding upward momentum to owner-occupied home prices." according to Marcus & Millichap Investment Forecast for 2020.
Given the impact rent control can have on new investments and investor interests, is it a necessary "evil" to protect the interests of the current renter base or is it causing more harm then good?
Thoughts?
I think rent control will cause some owners not to fix up the properties and take care of them. This will make unfortunately a bad place to live for tenants.
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