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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- Property Manager · Raleigh, NC · Member since 2014 · 729 posts · 596 votes6y
@Chris Levarek
not necessary anywhere, only where government wants to try and control the population.
- Here in the rust belt, where we are *lucky* when the market permits a rent increase, I think that I might be quicker to pull the trigger if there were a yearly cap. I think too that in markets like mine, rent control might actually create upward pressure on rents.
- Investor · New York & TN · Member since 2019 · 325 posts · 219 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?
It is evil, and it is not necessary.There are all kinds of gov't programs for housing and food expenses. Our gov't's should focus on those and NOT implement systems where private individuals are responsible to house the general population. This just muddies the water.
Why should landlords have to deal with social programs. That's what we have gov't's for. It further causes problems because landlords are forced to increase other tenants rents to the limit to make up for forced low rents.
Private individuals should never be forced to subsidize anyone's housing. That's what we have govts for.
Originally posted by @Mary M.:
@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.
.>we have a housing shortage is NIMBYism so I understand why the choice has been removed.
What you refer to as NIMBYism I refer to people having the ability to make decisions that impact the area they live. I believe in choice. I believe local jurisdiction choice is typically better than choice at larger jurisdictions. I do not want all areas to have high density. I want there to be high density areas, medium density areas, and low density areas so that there is a density option to appease everyone. For myself, I prefer the medium density. I do not want the boonies nor do I want the density of downtown. Others have a different preference. My Mom loved city life. My Dad loves rural life (his lot is 8 acres).
>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.
You call that being a bad guy but why is it bad to renovate old and dilapidated areas? Note when a city does a redevelopment effort it is great for the city. Redevelopment money well spent. But when LLs do this they are the bad guy? Without the necessary renovations (and renovations are financially only beneficial when they are necessary), the area becomes old and dilapidated. The city then can condemnate the land via eminent domain and plan its own redevelopment that results in large payouts only to the biggest developers.
I do not see landlords rehabbing properties in need of rehab as wrong. I fear the current rent control will result in blighted areas where the tenant base is large. I believe in a free market, but if the government does not believe in a free market, the government should be the one paying the associated costs.
I believe the reason for rent control is not because the politicians believe it results in positive long term benefits but because the mass of constituents who are reacting to sometimes large rent increases believe it is a good thing. I could say nothing wrong with politicians doing what their constituents desire, but I do not believe that. The politician should do what is best for their constituents even if it may not be what the constituents believe that they want.
The experts virtually all believe rent control is bad in the long term. The masses believe rent control is necessary. The politicians, even though they know of the flaws in rent control, pass rent control regulations to appease their constituents. Similar, they pass statewide initiatives that allow 3 units to be placed on properties that the infrastructure was only designed for single residence because the same mass of voters want more and cheaper housing. They do not care if you have to spend 20 minutes to look for parking to find one 5 blocks from where you live (one of our properties is at least this bad - fortunately it has 6 spots for 4 units (3 BR)). They do not care that the commute that use to take 15 minutes, now takes 30 minutes (same property, this it the case for maybe 7:30 to 9 AM).
The constituents do not understand the consequences.
As an investor, I like the opportunity of ADUs. But I am definitely a NIMBY on my own neighborhood. My next home purchased as my residence will definitely be such that without taking my land, they will not be able to affect my local density.
- Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes6y
Originally posted by @Mike Dymski:
Most of this is just useless but intellectually stimulating conversation because very few of us are going to do anything about it.
I dunno. I sold off all my properties in Seattle and moved to Arizona. That's what over reaching did in my case. I voted with my feet.
Of course someone else bought those properties from me and now live in them. I'm okay with that, I'm a free market kind of guy and if they want to live there it's fine with me.
- Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes6y
I’m a landlord in a rent control city and I am actually a fan of it. Our rents are among the highest in the nation because supply is limited - the below market tenants don’t move keeping overall supply low.
It also ensures we have rent growth which makes any so-so investment a great one eventually. I haven’t even mentioned the appreciation that we get as a by-product of keeping supply low.
- Rental Property Investor · Saint Louis, MO · Member since 2014 · 313 posts · 326 votes6y
Rent control is a typically short-sighted political solution to a largely government-created problem. "Everything in life is a tradeoff" is something my dad said often when we were growing up and I wish more people understood this. High rents are generally a consequence of low supply and high demand. Supply constraints are generally due to 1) lack of available land suitable for development and 2) regulation of development including typical building codes, zoning laws, HOAs etc. but up to the point of height restrictions, historical districts, banned materials, requiring solar, and even outright bans on development.
If you look at where high rents often beget the desire for rent control, it's usually coastal cities (the ocean is a huge land constraint). These areas are highly desirable and tend to attract wealthy residents who can afford to overpay to live in a prime location. Once you have a relatively wealthy core population, IMO you tend to get over-regulation as they want to keep things the way they are, preserve historical buildings, push progressive agendas (solar, green materials, etc.). None of these things are bad on their own, but they COME WITH TRADE-OFFS.
A big trade-off to restricted supply is that this is GREAT for the existing residents who were first-movers to the area because their property goes way, way up in value and landlords can extract higher rents. This is terrible for young, less-wealthy people who want to live in the same area who have a massive financial barrier to entry and it's why you see people paying 50% of their income in rent in some of these cities. I would imagine they're making the trade-off that the job prospects must be so good that if they eat the high rents for a couple years and move up in career, then they can afford to buy into the high value market there. These issues are all exacerbated by rent control which tends to create a price floor rather than a ceiling because the only way the limit amount of new development can make the numbers work is to develop super high end properties that can set the initial bar on rents very high knowing that future growth will be controlled/capped.
IMO, the problem of high rents will solve itself if you let it. Either 1) get out of the way and let the market work, relatively free from restriction or 2) suppress market forces for so long that eventually the city decays as the original base of wealth is siphoned off by high taxes or those people choose to leave. You're already seeing this with people fleeing high taxes in California, New Jersey, New York, Chicago and moving to more affordable places in the sun belt or midwest. Same with large companies moving HQ to places like Atlanta, Dallas, Houston, Charlotte, St. Louis, Nashville where there is a large pool of young talent that can afford to live and work there.
Lastly, one thing that's rarely mentioned is interest rates. Interest rates in the US have been a one-way trip down since the 1980s which helps keep property values elevated because as rates go down, more people can afford to take on the high debt load needed to purchase expensive properties in high-value markets or afford the debt on a large development or redevelopment project. IMO, the foundation of BP (BRRRR, house-hacking, value-add multifamily) is based on a world of ever-falling interest rates, so if that paradigm ever changes, be sure you're ready for a re-think. That's not to say that real estate doesn't work in a high-interest rate climate, but it's a much different world than what's worked for 40 years. Anyways, I digress.
If the Federal Reserve allowed rates to rise it would cut off funding for the continued rise in property values and over time reset the market. Now, this would create a ton of other problems, basically cratering an over-indebted financial system, BUT it would also transfer wealth/buying power from boomers who own property in these cities to younger generations. The boomers at the Fed and in gov. won't allow this, but like my point above, if you suppress market forces long enough, eventually you unleash a crash and the problem gets solved chaotically.
Conclusion: rent control is dumb, there are way bigger forces at play when "the rent is too damn high!"
My $0.02
Originally posted by @Max Householder:
Rent control is a typically short-sighted political solution to a largely government-created problem. "Everything in life is a tradeoff" is something my dad said often when we were growing up and I wish more people understood this. High rents are generally a consequence of low supply and high demand. Supply constraints are generally due to 1) lack of available land suitable for development and 2) regulation of development including typical building codes, zoning laws, HOAs etc. but up to the point of height restrictions, historical districts, banned materials, requiring solar, and even outright bans on development.
If you look at where high rents often beget the desire for rent control, it's usually coastal cities (the ocean is a huge land constraint). These areas are highly desirable and tend to attract wealthy residents who can afford to overpay to live in a prime location. Once you have a relatively wealthy core population, IMO you tend to get over-regulation as they want to keep things the way they are, preserve historical buildings, push progressive agendas (solar, green materials, etc.). None of these things are bad on their own, but they COME WITH TRADE-OFFS.
A big trade-off to restricted supply is that this is GREAT for the existing residents who were first-movers to the area because their property goes way, way up in value and landlords can extract higher rents. This is terrible for young, less-wealthy people who want to live in the same area who have a massive financial barrier to entry and it's why you see people paying 50% of their income in rent in some of these cities. I would imagine they're making the trade-off that the job prospects must be so good that if they eat the high rents for a couple years and move up in career, then they can afford to buy into the high value market there. These issues are all exacerbated by rent control which tends to create a price floor rather than a ceiling because the only way the limit amount of new development can make the numbers work is to develop super high end properties that can set the initial bar on rents very high knowing that future growth will be controlled/capped.
IMO, the problem of high rents will solve itself if you let it. Either 1) get out of the way and let the market work, relatively free from restriction or 2) suppress market forces for so long that eventually the city decays as the original base of wealth is siphoned off by high taxes or those people choose to leave. You're already seeing this with people fleeing high taxes in California, New Jersey, New York, Chicago and moving to more affordable places in the sun belt or midwest. Same with large companies moving HQ to places like Atlanta, Dallas, Houston, Charlotte, St. Louis, Nashville where there is a large pool of young talent that can afford to live and work there.
Lastly, one thing that's rarely mentioned is interest rates. Interest rates in the US have been a one-way trip down since the 1980s which helps keep property values elevated because as rates go down, more people can afford to take on the high debt load needed to purchase expensive properties in high-value markets or afford the debt on a large development or redevelopment project. IMO, the foundation of BP (BRRRR, house-hacking, value-add multifamily) is based on a world of ever-falling interest rates, so if that paradigm ever changes, be sure you're ready for a re-think. That's not to say that real estate doesn't work in a high-interest rate climate, but it's a much different world than what's worked for 40 years. Anyways, I digress.
If the Federal Reserve allowed rates to rise it would cut off funding for the continued rise in property values and over time reset the market. Now, this would create a ton of other problems, basically cratering an over-indebted financial system, BUT it would also transfer wealth/buying power from boomers who own property in these cities to younger generations. The boomers at the Fed and in gov. won't allow this, but like my point above, if you suppress market forces long enough, eventually you unleash a crash and the problem gets solved chaotically.
Conclusion: rent control is dumb, there are way bigger forces at play when "the rent is too damn high!"
My $0.02
>You're already seeing this with people fleeing high taxes in California,
For the just ended decade CA had the second largest state population increase and most of the individual years had the second highest population increase. CA has a huge housing shortage. CA is expected to have a shortage of 3.5m units by 2025.
CA could benefit by more people leaving the state. It would help address the housing shortage and the over crowding.
- Rental Property Investor · Saint Louis, MO · Member since 2014 · 313 posts · 326 votes6y
Originally posted by @Dan H.:
For the just ended decade CA had the second largest state population increase and most of the individual years had the second highest population increase.
I should have been more specific, I meant California's domestic net migration deficit. Much of CA population increase has been from international migration and births. They already have a large population so just through births/deaths you'd expect the total number to rise every year more than most other states. Ditto for having several large international hubs (SF, SD, LA) that attract residents from other countries with better demographics (Asia, Mexico/S. America). However, as far as domestic moves into/out of California, it's been a net move OUT for most of the last decade.
- Rental Property Investor · Milwaukee, WI · Member since 2016 · 62 posts · 28 votes6y
No it is not a “necessary” evil. From an economic standpoint it leads to deadweight loss (DWL), so market inefficiencies. In addition, there’s no guarantee that the people who actually need it will get it.
- Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes6y
Going to California 30 years ago and investing in real estate at a time everyone believed prices were insanely high was the smartest decision I ever made. If I were in my twenties I would be headed to Buffalo, Columbus and other spots where you can buy a house, find cheap commercial properties and make a mark fast. It's about going to the opportunity and not waiting for it to come to you. Is California played out? Who knows. Are there numerous opportunities out there. You bet.
- Member since 2020 · 9 posts · 1 vote6y
I look at it this way, in Hollywood area you have many people living long-term in very expensive properties very cheap, while we the owners see fees, and taxes going up. We have no way of covering these expenses unless we raise rents, but of course these controls prevent us from doing so. Sensible legislation? I have to say it will never happen without term limits.
- Flipper/Rehabber · Seattle, WA · Member since 2015 · 333 posts · 459 votes6y
@Chris Levarek
I’ll be all for it as soon as our communist government also regulates my expenses such as property taxes, maintenance, and management fees.
Of course they have to stop treating landlords like evil, money grubbing rubbish and tenants like victims.
They also have to put price controls on gas and steak.
If all the rentals are full of folks that can only afford the lower rung of housing the people with higher incomes will end up homeless!
- Member since 2020 · 122 posts · 11 votes6y
Just to confirm ‘rent control’ is when governments fix rents in a market at certain prices so housing is affordable and landlords don’t take advantage.
For example, a tenant on rent control may have rent for $500 and the landlord cannot raise it etc?
Originally posted by @Ron Greenfield:
I look at it this way, in Hollywood area you have many people living long-term in very expensive properties very cheap, while we the owners see fees, and taxes going up. We have no way of covering these expenses unless we raise rents, but of course these controls prevent us from doing so. Sensible legislation? I have to say it will never happen without term limits.
I believe rent control in CA as a state started in 2019. With a rent cap of 5% over inflation. So theoretically rents should keep up with increasing prices. But! Even if the properties barely cash flow (is that with or without a mortgage?) the appreciation will more than amply reward the investor.
As for the thread in general - I am not pro rent control, but some of these doom and gloom comments are not born out by the realities on the ground
- 6yMatthew PerimianBusiness MemberReal Estate Agent · Lowell, MA · Member since 2018 · 18 posts · 48 votes
How do we make sure to protect our livelihoods? There must be efficient ways to fight this. We have all the support of BP members here to back us. We can come up with much more Economically viable solutions to the problems many of these cities are facing and make this a win win for all parties involved. I’m not Politically leveraged but there must be members here who have a solution to help stop this and in some cases reverse this.
- Member since 2020 · 9 posts · 1 vote6y
Originally posted by @Mary M.:
Originally posted by @Ron Greenfield:
I look at it this way, in Hollywood area you have many people living long-term in very expensive properties very cheap, while we the owners see fees, and taxes going up. We have no way of covering these expenses unless we raise rents, but of course these controls prevent us from doing so. Sensible legislation? I have to say it will never happen without term limits.
I believe rent control in CA as a state started in 2019. With a rent cap of 5% over inflation. So theoretically rents should keep up with increasing prices. But! Even if the properties barely cash flow (is that with or without a mortgage?) the appreciation will more than amply reward the investor.
As for the thread in general - I am not pro rent control, but some of these doom and gloom comments are not born out by the realities on the ground
I guess as an investor, and property owner, who just got his property re-evaul, and tax doubled is not living the realities on the ground. As I worked very hard to rehab the unit, and then got hit with this tax bill at the beginning of 2019 after paying 7k, and was told I need to fork over 14k to cover re-eval over the past 3 years, and now the most I can raise a rent to recover is actually 7.9% is stifling. Sorry, I mean not offense, but this is realities on the ground.
Originally posted by @Ron Greenfield:
I guess as an investor, and property owner, who just got his property re-evaul, and tax doubled is not living the realities on the ground. As I worked very hard to rehab the unit, and then got hit with this tax bill at the beginning of 2019 after paying 7k, and was told I need to fork over 14k to cover re-eval over the past 3 years, and now the most I can raise a rent to recover is actually 7.9% is stifling. Sorry, I mean not offense, but this is realities on the ground.
well, honestly, the increase in taxes should of been predicted and accounted for when you set your rent after the renovation. I dont know how much your rents are, and I feel for you that you got hit with a tax increase. Hopefully your market will bear the increase you need to do to get back on track.
- Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes6y
@Chris Levarek I am for single payer healthcare, but I am not for rent control. Rent control is now playing business in others privately owned property. I do not think it should exist.
- Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes6y
@Account Closed Correct. There are varying forms of rent control depending on the state laws passed but as an example, in 2019 Oregon passed SB 608 which among other things, "caps rent hikes at 7 percent plus inflation during any given 12 month-period."
The argument is that although this offers protection to renters as far as how much their rent can increase in a 12 month span, it has some negative affects with regards to prospective investors and landlords.
If an investor can not buy a property, add value(renovations) and then raise rents to market norms because that would indicate a too large of a rental increase from previous rents(7%+), said investor is more likely to not invest in said property or state. This usually leads to investors or capital heading elsewhere. Again, multiple state laws vary so this is just an example possible scenario and doesn't necessarily apply across the board.
Slippery slope with rent control because by protecting existing renter interests, there is an economic impact in the location affecting multiple industries usually to their detriment.
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?
Not a "necessary evil", just an evil.
If I buy some land with the proceeds of my labor. And use my labor to build housing in order to rent it out and get a return, the government has NO MORAL RIGHT to dictate how much me and another free human decide what the rent for housing exchange will be.
It's a disgusting immoral activity by a bunch of authoritarian pigs who think we're slaves to the government. Rent control means I'm not a free person. My labor (mind and body) are only tools of the government and I should just be happy to have whatever they decide I can have. F that.
BTW, this dem debate made me ill. I swear if any of these clowns win, I'll NOT buy another property during their term. You can save this comment and rub it in my face if I go against it.Originally posted by @Mike Dymski:
Most of this is just useless but intellectually stimulating conversation because very few of us are going to do anything about it.
"very few of us are going to do anything about it."
It may not be much, but what I do about it is vote.Originally posted by @Mary M.:
@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.
LL buys a crappy property, fixes it up, raises rents = landlord is greedy
LL buys a crappy property, does only basic maintenance to keep it affordable = landlord is greedyOriginally posted by @Eric Johnson:
@Chris Levarek I am for single payer healthcare, but I am not for rent control. Rent control is now playing business in others privately owned property. I do not think it should exist.
So I shouldn't be able to trade the result of my labor, to a doctor in exchange for his services, without the government getting in the way
But I should be able to trade the result of my labor, to someone looking for housing, without the government getting in the way
You could make the same argument that they're both "necessary" for life. If you let the government into one, you let them into more and more.
Even as a libertarian I see the argument for shared resources used to pay for things that are not practical to pay for on your own. Like roads, bridges, police, defense, judges to determine contracts between people, etc.
The reason American became the richest country on earth is free people doing their own thing.
- Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes6y
@Cody L. No, access to preventative medicine for the sake of being healthy and having access to affordable procedures so I don’t have to file a BK or have a go fund me is a necessary justice. In modern society you absolutely should not have people in crippling medical debt unable to dig themselves out, no matter your income and background.
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