Rent Control: Two Sides of a Coin
If you life in Los Angeles or New York then chances are you have an opinion on rent control. If you live almost anywhere else in the country – no one cares (because it doesn't exist). At Ali Safavi Real Estate we’re well aquainted with the law and its effect on both tenants and building owners. There are two sides to the issue and both are digging there heals in deep.
Why write about control now?
New laws are expected to be on the ballot in 2018, which would expand rent control laws across Los Angeles. Interest groups on both sides are already gearing up for the fight. At Ali Safavi Real Estate we’re interested in providing you with thoughts from both sides so that you can make up your own mind.
First, let’s all get on the same page about what rent control actually is. Any building in a rent controlled area that was built before 1995 cannot raise rent on tenants over a certain percentage – often around 5%. The one caveat is when a tenant moves out, the owner can then increase rent to current market value.
The most common response we hear at Ali Safavi Real Estate from tenants is, “why would anyone not want rent control?” The answer is simple - it keeps prices artificially low. Think of it this way: Say Ali Safavi Real Estate invested in an apartment building in a seedy part of Los Angeles. We got the building for relatively cheap given the area, however we’re investing with the long-term hope that the neighborhood will get better over time. Ten years goes by and the former bad neighborhood is now the trendy new hot spot. Does Ali Safavi Real Estate get to benefit from investing early? No, because of rent control we’re unable to raise prices to reflect the new boom. Our tenants are paying the least even though we were one of the first to break ground. Thus, there is less incentive to make changes and improvements to the building, causing this once promising property to turn into the dilapidated building on the block.
Related: Investing In Shrinking Cities
Another potential downside is the length of lease. People in rent controlled buildings have a tendency to stay in their apartment for decades longer than a typical tenant. This perpetuates the housing shortage due to the fact there’s no motivation for tenants to upgrade or invest in a home because their rent is so artificially low compared to the rest of the city.
From the tenant's prospective it seems like a pretty good deal. Why not find a cheap deal and ride it out? Who cares if the paint is chipping a little when your rent is a thousand dollars less than the guy across the street.
Additionally, rising prices are disproportionally affect people of color. So not all rent increases are created equal. Low income housing must continue to be part of the conversation when it comes to developing metropolitan areas. In the meantime, rent control serves to equal the playing field (in theory) for those who may otherwise be priced out of the city all together.