Priced Out: Is Rent Control Coming to Sacramento?
After a long day of looking at some potential properties with some clients of mine, we decided to stop in at Selland's Market Cafe and grab some lunch. While waiting for my mouth-watering french dip to arrive, I decided to pick up this week's edition of Sacramento News & Review and see if there was anything new going on in the real estate market.
And oh boy was there...
Priced Out: Rent Control Becomes Focus of Sacramento Town Hall on Housing
"Popular rent stabilization initiatives in Richmond and Mountain View face legal challenge, force other jurisdictions to consider idea."
As you've probably already heard, San Francisco, Oakland and San Jose have become some of the costliest markets in the nation to live in. And more and more people are looking to Sacramento as a much more affordable alternative. In fact, the percentage of people living in the Bay Area and searching for Sacramento homes on Redfin has nearly doubled since 2011!
I've also written more in-depth about this migration trend here if you're interested:
Anyhoo, Sacramento City Councilman Steve Hansen recently held a town hall meeting to discuss the issue and over 100 people showed up to the event. Sacramento Housing Alliance Executive Director Darryl Rutherford cited statistics showing that 50% of families in Sacramento County meet the federal classification of "low income."
According to Rutherford, this statistic is reinforced by the fact that the county's lowest paid renters are now spending over 62% of their monthly income on rent! Yikes!
"When asked about his position on rent control, Hansen stated it "...would be really popular in the central city, but it might cause a lot of important building and economic activity to just move to other parts of the city where developers didn’t have to deal with it.”
"That prediction didn’t go over well with downtown resident Jonah Paul, one of the speakers who addressed the town hall. Paul has been hearing more and more of his friends talk about the need for a Sacramento ballot initiative aimed at blocking excessive greed from unraveling the fabric of their community."
“Rent stabilization just means that the increases are reasonable, so landlords can still make a profit, but tenants aren’t getting gouged,” Paul told SN&R after the town hall. “There is a complicated dynamic in Sacramento between escalating prices and tenants feeling vulnerable. … What I heard at the town hall was a lot about the problems with NIMBY-ism, but it’s a little more complicated than that. We’re in a serious quagmire here.”
MY THOUGHTS ON SACRAMENTO RENT CONTROL
Rent control is currently a whisper, but with the slated increases of rents projected for 10% this year and 8.5% next year, the conversation will certainly grow much louder in the years to come.
Naturally, there are strong opinions on both sides of the fence. Renters are strongly for it (of course), and landlords are strongly against it (again, of course).
But the thing that separates Sacramento from the Bay Area is that you can move just 10-15 minutes outside the city center and pay DRAMATICALLY less in rent.
So if you don't want to pay high rents, don't live in downtown-midtown. 'Nuff said.
I used to rent a 1 bedroom apartment in Arden inside of a gated complex with low crime, a nice pool & spa, and an on-site gym for only $700 per month. Every time one of my friends said they were looking for a place I'd recommend it to them, and you know what they said?
"Nah... I want to live closer to midtown. I want to be where all the action is!"
Well then, you're going to pay for it. Duh. So don't complain about it.
CURRENT MARKET RENTS AND RENTING VS. BUYING
This isn't like San Francisco where you're forced to pay $3,000+ for a 1 bedroom in the hot part of town... you can find a 1 bedroom apartment in Midtown for less than $1,200. And if you look hard enough you can find them for less than $900 per month.
Still too much? Then move to North Sac and pay only $700 per month. There are PLENTY of affordable options for housing in Sacramento, so what's all the fussing for?
But what if a 1 bedroom place is too small, but the $1,600+ 2 bedroom apartment is too much for you? Hmmm... well then why don't you BUY A HOUSE! What a novel idea!
There are currently 253 two+ bedroom houses for sale in Sacramento for less than $235,000. With only 5% down your mortgage payment would be less than $1,600 and you wouldn't have to worry about your monthly payment going up 18.5% over the next two years.
But what's stopping those people from buying a house?
We just invited some friends over to show them that instead of renting a 2 bedroom house in Land Park for $1,800 they could own a 3/2 on a quarter acre with a pool in a low-crime neighborhood with great school districts like we do. But...
The husband doesn't want to move too far away from downtown. Why? Well frankly, he's an idiot. But it just goes to show you that many people are doing it to themselves.
So in sum, rent control is probably not going to happen anytime soon, but the conversation is already up for discussion, and will certainly grow right along with the rents.
But as long as your rental is outside of the city's core (which I'd recommend because prices are super inflated there anyways) you probably won't ever have to worry about it.
WHAT DO YOU THINK?
I'd love to hear some other opinions on the topic, both from landlords and renters, and other real estate professionals too. Is there something I missed? Do you think rent control would be good for the economy? Or worse? Have anything to add?
If we're talking classic rent control; where rent can't increase beyond a certain percentage for current residents, and can only be raised when the property is turned over; I don't see it happening. There's so much data showing how poorly this model works, and Sacramento is still so young from a development standpoint, there wouldn't be enough support for a plan like that.
Like the article said, NIMBYism is becoming an issue. That problem might fix itself to some degree (at leas in midtown), as land prices continue to go up. Eventually the SFR owners won't be able to resist just selling out, and then they'll be ones arguing why the new condo development on their property is actually a great idea now.
Wes Blackwell thanks for all of your tips regarding Sacramento. You are definitely in running for the mayor!
Just curious - are you also purchasing rental properties in the Sacramento area, or only advising/representing others to purchase there?
Before my investigation into RE investing, I had no idea what the profit margins were on SFH rentals. Now I know they can be way slimmer than I ever imagined. There are so many other products you could lease out or sell with higher margins (but few other with the upsides of owning land etc)!
Rent control doesn't only privilege tenants (who get to use government to counteract market forces). It also privileges long-time-owners. In other words, "to make money on a rental, you should have bought 20 years ago." People who bought a 3/2 or 4/2 45 years ago, probably bought it for $25,000, and it's been paid off for 15 years. Meanwhile the rents and inflation have continued to increase, giving them astronomical ROI (triple digits).
When the rents are frozen, or unable to float to meet demand, its a barrier to entry for new investors. Now an investor would have to pay (some portion of) current market value to purchase, but can only collect a frozen amount from the market value of the past. The longer rent control goes, the worse this spread becomes for new investors. And this works for the old investors: they can keep making money (although a little less than expected) and wait until new investors are priced completely out of the market and the new investors pack up and go somewhere else. Then once they want to sell off the rentals, the only people who are left are people or hedge funds with more money than sense and can buy them out at full retail price.
Example (not RE): I once worked for a long-established, not highly leveraged business that was the only one of its kind in town, like a monopoly, and when a new competing business would open, the established business would lower its prices until it was losing money. The new, leveraged, startup business couldn't keep its prices that low and lose money for any length of time. It would fold in 3-6 months, and the old business would re-establish high prices again. They used their established capital and existing reserves to push out competitors. If it can be done with a single business, it can be done with a coalition of people backed by legislation.
I suspect that advocates for rent control are coalitions of "baptists and bootleggers:" The do-gooders who want cheaper rent for everyone being backup up by the existing owners/landlords who want less competition for their existing goods.
With housing being so critical in Calif, I fear this is becoming an epidemic for major population centers.
@Wes Blackwell Great info! Keep 'em essays coming!
The City of Mountain View has been pro high density housing for decades. They have a high percentage of renters. They've also had an increase in demand by high tech employees with the growth of Google and other companies. There has been little room to build new housing (although it looks like land near the S.F. Bay is going to be developed for new high density housing). Mountain View was positioned for rent control to pass.
The new housing (much to be built by Google & other high tech employers) will probably help affordability but the rent control won't. The rent control will only transfer wealth from property owners to the existing tenants. With the larger units run by corporations with more means to adapt to and reduce the impact, small investors will probably be hurt the most.
The differences between the southwest end of Mountain View which is more suburban and the northeast end near downtown and high tech employers is probably going to become very pronounced.
Similar plans in Denver. There was a segment on the news last night about legislation coming soon. They interviewed guy that lives in a storage unit. He said there are at least 2 other people living in same facility.
Haha I live in downtown at 16th and H and I'm surely paying for it! $1500/month for a 1bed/1bath.
Would be interested to hear ideas of addressing those consumers who cannot afford market rents. Public (i.e. Measure H in LA) or private options (i.e. easing gov't development restrictions that would increase supply). For those of us in Sacramento, we see the homelessness crisis every single day. I think it benefits property owners as much as tenants to have housing remain affordable. Let's get those potential tenants out of motels and into our units! I'm not advocating for rent control in Sacramento, but I think we have to look how our business fits within the larger economic and social landscape of our community.
Originally posted by @Account Closed:
For those of us in Sacramento, we see the homelessness crisis every single day.
The City of Los Angeles has 80,000 on the streets every night. Even affluent suburbs have those pandering and living under the overpasses.
- Bay Area tenant activists move to Sacramento because the anti-landlord & anti-development policies they supported, voted for, and enacted, helped distort Bay Area housing markets, causing rent to be too high in the Bay Area...
- ...Upon arrival in the Promised Land of Sacramento, immediately begin to call for the implementation of those exact same policies that helped cause a housing crisis in the Bay Area, in Sacramento where they now live.
Great job, guys, really. :\
But I can see the silver lining for landlords. If my semi-joking narrative above has any truth to it, landlords buying today up there will be happy campers in 3 or 5 or 10 years when the housing crisis hits.
Originally posted by @Wes Blackwell:
After a long day of looking at some potential properties with some clients of mine, we decided to stop in at Selland's Market Cafe and grab some lunch. While waiting for my mouth-watering french dip to arrive, I decided to pick up this week's edition of Sacramento News & Review and see if there was anything new going on in the real estate market.
And oh boy was there...
Priced Out: Rent Control Becomes Focus of Sacramento Town Hall on Housing
"Popular rent stabilization initiatives in Richmond and Mountain View face legal challenge, force other jurisdictions to consider idea."
As you've probably already heard, San Francisco, Oakland and San Jose have become some of the costliest markets in the nation to live in. And more and more people are looking to Sacramento as a much more affordable alternative. In fact, the percentage of people living in the Bay Area and searching for Sacramento homes on Redfin has nearly doubled since 2011!
I've also written more in-depth about this migration trend here if you're interested:
Anyhoo, Sacramento City Councilman Steve Hansen recently held a town hall meeting to discuss the issue and over 100 people showed up to the event. Sacramento Housing Alliance Executive Director Darryl Rutherford cited statistics showing that 50% of families in Sacramento County meet the federal classification of "low income."
According to Rutherford, this statistic is reinforced by the fact that the county's lowest paid renters are now spending over 62% of their monthly income on rent! Yikes!
"When asked about his position on rent control, Hansen stated it "...would be really popular in the central city, but it might cause a lot of important building and economic activity to just move to other parts of the city where developers didn’t have to deal with it.”
"That prediction didn’t go over well with downtown resident Jonah Paul, one of the speakers who addressed the town hall. Paul has been hearing more and more of his friends talk about the need for a Sacramento ballot initiative aimed at blocking excessive greed from unraveling the fabric of their community."
“Rent stabilization just means that the increases are reasonable, so landlords can still make a profit, but tenants aren’t getting gouged,” Paul told SN&R after the town hall. “There is a complicated dynamic in Sacramento between escalating prices and tenants feeling vulnerable. … What I heard at the town hall was a lot about the problems with NIMBY-ism, but it’s a little more complicated than that. We’re in a serious quagmire here.”
MY THOUGHTS ON SACRAMENTO RENT CONTROL
Rent control is currently a whisper, but with the slated increases of rents projected for 10% this year and 8.5% next year, the conversation will certainly grow much louder in the years to come.
Naturally, there are strong opinions on both sides of the fence. Renters are strongly for it (of course), and landlords are strongly against it (again, of course).
But the thing that separates Sacramento from the Bay Area is that you can move just 10-15 minutes outside the city center and pay DRAMATICALLY less in rent.
So if you don't want to pay high rents, don't live in downtown-midtown. 'Nuff said.
I used to rent a 1 bedroom apartment in Arden inside of a gated complex with low crime, a nice pool & spa, and an on-site gym for only $700 per month. Every time one of my friends said they were looking for a place I'd recommend it to them, and you know what they said?
"Nah... I want to live closer to midtown. I want to be where all the action is!"
Well then, you're going to pay for it. Duh. So don't complain about it.
CURRENT MARKET RENTS AND RENTING VS. BUYING
This isn't like San Francisco where you're forced to pay $3,000+ for a 1 bedroom in the hot part of town... you can find a 1 bedroom apartment in Midtown for less than $1,200. And if you look hard enough you can find them for less than $900 per month.
Still too much? Then move to North Sac and pay only $700 per month. There are PLENTY of affordable options for housing in Sacramento, so what's all the fussing for?
But what if a 1 bedroom place is too small, but the $1,600+ 2 bedroom apartment is too much for you? Hmmm... well then why don't you BUY A HOUSE! What a novel idea!
There are currently 253 two+ bedroom houses for sale in Sacramento for less than $235,000. With only 5% down your mortgage payment would be less than $1,600 and you wouldn't have to worry about your monthly payment going up 18.5% over the next two years.
But what's stopping those people from buying a house?
We just invited some friends over to show them that instead of renting a 2 bedroom house in Land Park for $1,800 they could own a 3/2 on a quarter acre with a pool in a low-crime neighborhood with great school districts like we do. But...
The husband doesn't want to move too far away from downtown. Why? Well frankly, he's an idiot. But it just goes to show you that many people are doing it to themselves.
So in sum, rent control is probably not going to happen anytime soon, but the conversation is already up for discussion, and will certainly grow right along with the rents.
But as long as your rental is outside of the city's core (which I'd recommend because prices are super inflated there anyways) you probably won't ever have to worry about it.
WHAT DO YOU THINK?
I'd love to hear some other opinions on the topic, both from landlords and renters, and other real estate professionals too. Is there something I missed? Do you think rent control would be good for the economy? Or worse? Have anything to add?
Here's some info to share with your local politicians and State assembly:
Contacting Califronia state assemblyman:
http://findyourrep.legislature.ca.gov/
You should also look up your local city council members and contact them.
Almost every Urban Planning and economist organization agrees that rent controls hurt local governments/cities:
This is really an issue with the city. The city should have planned better and created more affordable housing. They have really harsh code enforcement and building inspectors which make it difficult to build. They disincentize investors and landlords to fix up their buildings by putting in rent controls.. If there was no rent control rents would be about 10-15% cheaper because there wouldn't be such a need to raise and price gouge new vacancies.
It also makes cities lose on property taxes which are increased mainly when properties SELL. Rent control hinders sales of properties.
Most economists agree that rent controls mess up big cities and MAKE LESS AFFORDABLE HOUSING in the long run
Almost 95% of economist say it's bad for local communities in the long run. It's a short term bandaid that usually helps middle-upper class long term tenants, not the truly poor/needy. Eventually the cheapest units get taken off market to be used as storage, new development ie tear downs etc.
Here are some articles on Urban development, economists that are bi-partisan. This issue is like global warming. All the experts are in agreement!:
Recent Beacon study on economics. From Urban Institute, to Business Insider Mag, to The Economist all have same result. IN FACT 95% of economists:
This is one by "The Economist" which is a popular economy magazine:
A housing/planning and urban development website:
Foundation for Economic Education:
Business Insider:
CEI:
Loved the post. Thanks for keeping us in the know!
http://tenantstogether.org/campaigns
This is one of the groups that is trying to socialize private property rights. They're anti home owner and anti landlord
http://tenantstogether.org/updates/biggest-renter-... Biggest organization of renters will happen in fall in LA some of the groups are national too so it applies to all states
Here's what they claim:
This strategic statewide convening represents the historic growth of the power of renters to push for broad economic, racial and gender justice and advance a vision of an economy that works for families, communities and the environment, not billionaire real-estate tycoons, corporate landlords and Wall Street bankers.