Pretty much what the title says. I was reading an article on Bisnow (can't post links but it's talking about CA's new 5%+inflation rent hike cap) and I was wondering what everyone here thinks of the topic of rent control. Do most real estate models rely on >7% annual rent hikes, making this law cause a major change in the way we do business? Or are people overreacting? We've all seen the supply & demand curve with a price ceiling in Econ 101 but I think putting a cap on the growth rate and putting a hard cap on the price itself are two different things.
Interested to hear what more experienced professionals think of the whole thing.
Fuck that commie shit
Liberals and conservatives agree on very little, but nearly every economist agrees that price controls cause shortages. Rent control is a price control and will cause shortages, at least in some markets. The only silver lining is that the legislature didn't put a ridiculously low cap on rent increases. But the law of supply and demand is immutable. If the supply/demand curve pushes rent increases above the rent control increase, supply shortages are a mathematical certainty.
Aside from the price control issues, rent control has its own specific issues. In some particularly tight markets, it will create perverse incentives. For example, people will remain in below-market price-controlled units for longer periods than they otherwise would have; this lack of turnover will create an inorganic supply shortage. In tight markets, property owners will invest less money in maintenance and capital improvements because people paying below-market rent will accept the situation. Builders will build fewer rental units and will in turn build more luxury for-sale condos, thus limiting supply growth of rental units.
Rent control, long-term, will have the exact opposite effect on housing costs as the "housing advocates" desire. The road to hell is paved with good intentions. In this case, however, I'm struggling to give the "housing advocates" the benefit of the doubt given the reality that rent control has been nearly universally discredited by economists of both political persuasions and there is a century of evidence backing the economists.
Let me add that rent control is also patently immoral. Voters who demand it do so that they might benefit while others suffer. It's greed. It's pure greed. And it's no less immoral than the greed of the wealthy. On the other hand, rich NIMBYs are more than happy to support rent control because it gives them the political cover to continue blocking development in their neighborhoods. Any jurisdication that has gotten to the point where rent control is politically palatable has made some serious policy errors, and it stems from the wickedness of the voters who have empowered the lawmakers to make decades of bad and immoral decisions.
Edit: I just read a Dennis Prager article where he gives an equation for life: Good Intentions - Wisdom = Leads to Evil. You can plug the rent control debate into this equation and it spits out the right answer. "In terms of making the world worse, there is little difference between a well-meaning fool and an evil human being."
I agree with the gist of your argument, but anyone citing an argument Dennis Prager makes is almost certain to be undermining their own case. He's a charlatan and a fool and most of the content he spits out is so laughably, obviously wrong (or in many cases, outright lies) that to rely on him is to lessen your own credibility.
1) I completely and totally reject your characterization of Dennis Prager and 2) I'm not relying on his rent control argument. I'm quoting his life advice.
Take a look at Stockholms rental market. We have rent controls in order and the average queue for getting an apartment first hand is between 12 and 25 years depending on if you want to live in the suburbs or the city. It's a system that doesn't work in practice.
No one in this forum should be pro-rent control.
Maybe, but I'll play devil's advocate here. (I work in RE so in general I'm not in favor of most rent controls but...)
City planning has to have some modicum of involvement to guide the development of a city. If you leave it entirely to developers, we will swoop in, build w/e gets us the best yields (either profit or income) and piss off to the next market.
So, rent controls. Imagine we're in a nice part of town, we'll say its low/mid-rise waterfront multifamily buildings. People want to live here. No rent caps means landlords will increase rent until the market can't sustain it any more. What ends up happening is you get very wealthy folks buying these apartments, and using them as vacation spots and/or gifts to kids. What used to be a cool part of town for XYZ reason that people wanted to live in, has been replaced by a ghost town because half the units are owned by folks who don't live there, a quarter are used for AirBNB, and a quarter actually have people living in them. But hey, the owner is still making his yield so everything is good right?
At least with some form of rent controls ($ amt, % increases YoY, etc. (there is room for creativity here)), you can try to preserve parts of a city be it culturally or architecturally.
Ex/ San Diego is expensive. I have been there once or twice so I don't know too much. At the same time, it has a distinct vibe to it that I bet draws a lot of folks to live out there. I saw a lot of low-rise buildings in San Diego. I bet the city could handle more density. I bet folks would make a lot of money off of that increased density, as more people would live there, etc. But seriously, if you densify San Diego like NYC, would it still be San Diego? I am exaggerating the example here, but it gets awfully difficult to decide how "much" more density a city or area should have. Enough for your proforma to pencil? Come on.
We are building cities here folks. It can't all be skyscrapers and density to boost returns.
I think it comes down to a difference in perspective. A: real estate is an investment, vs B: Housing is a social need
Okay wow. Was just saying what I'd heard, wasn't really taking a position (especially a political one) but since your posts on this thread indicate you've got a little class warfare thing going, let me make a few things clear.
The "way off" number you attacked for no reason at all wasn't my number, as I made clear. Unlike you, I admit when I don't know something. No need to attack when I'm just saying what I've heard.
But it turns out - LOL - that my "way off" number was actually spot on. How about that. I googled "percentage of rent controlled apartments in NYC" and the very first link said 50% stabilized. Link is too messy to post but you can google the same term and see for yourself.
I'm sure, based on your styl, you'll be quick to point out that my number is still way off somehow. I'm sure you'll have other sources, or you'll question the validity by saying that a meaningful chunk of the stabilized stock is at market. That's fair. All I ask is, please provide sources this time.
This was a gem when you basically said "think about it, deregulation doesn't change the number of units.". Thanks man. Very respectful. Now think about this: if rent controlled units are loaded with people who would otherwise not live in the city, then raising their rent would cause them to leave the city and free up housing to those who can afford market rates.
Rent/Price control is bad. It IS a taking from/by the US Government Talk about unscrupulous landlords....NYCHA has the most violations of any landlord in NYC, lead paint bad. It is clear that the US/State governments are ill-equipped to create and manage housing of any income level. Instead of stealing from landlords, how about a more section 8 approach, where tenants get subsidized. We already have LIHTC and Affordable NY, where developers with millions of dollars get 30-year tax abatements to build mixed income housing. Why do small landlords get the burden to provide cheap housing with no incentive.
Why do we have an affordablility crisis? Easy it takes 45 minutes to get to midtown from Park Slope and Harlem. People pay a premium to not commute as much and live in better areas with better schools. When you keep or limit zoning by the use of set backs and light and air you get less dense cities. If there was ever a free market we could...ostensibly.....get 50 story giant rectangle apartment buildings, or something like China has.
Politicians are so illogical. There is only one way to keep rents low and rental growth limited...Push for more development. California is so anti-development yet they complain why rents are so high. Its just basic supply and demand. If I was a politician there, Id be making it so easy for multifamily developments to get done. I'd give property tax breaks or whatever to encourage development. I'd streamline a process of getting super quick approvals at local/state levels. 1000 units here, 1000 units there, just build a bazillion units of multifamily. This is the only way to curb the crisis. Stop overthinking a simply supply and demand equation.
Yes, but you only find rent control laws in blue states. Which, to @Surfing Pirate" 's point, is because the Trump Administration is far more concerned with punishing people who didn't vote for Mr Trump, rather than enacting intelligent or positively impactful policy. For the most part, the GOP has no principles except that which allows them to hurt liberals and restrict influence to the smallest number of people (Republicans). It was the same issue with SALT. It's all state's rights and decentralization of gov't until there is a chance to make sure Democratic leaning voters get hurt to the benefit of Republicans.