What Are Your Thoughts on Rent Control?

rebrand's picture
Rank: Monkey | 33

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.

Comments (91)

Funniest
Sep 16, 2019

Fuck that commie shit

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Most Helpful
Sep 16, 2019

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."

Sep 16, 2019
real_Skankhunt42:

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.

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Sep 16, 2019
Ozymandia:
real_Skankhunt42:

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.

Sep 16, 2019

Thanks for the well thought-out response. Interesting to consider the perverse incentives and how it plays out in the long run. Insight like this is exactly why I posted this thread.

In response to Prager's equation, I would cite Hanlon's razor. The average person with minimal financial understanding probably doesn't think much beyond "rent is high -> let's do rent control." Less out of malevolent NIMBYism and more out of ignorance.

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Sep 25, 2019

Well in California's case it might be to cover up for falling official population counts. The state due to various reasons including gross mismanagement has been bleeding population for over a decade now. By limiting the rent growth they could well be trying to cap real estate prices and even further reduce development. It's an idiotic move in my opinion but there at least is a negative trend in something that could put some lens of sanity on this idea.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Oct 2, 2019

https://www.statista.com/statistics/206097/residen...
It's not though. Plenty to complain about as far as CA goes but let's avoid making stuff up.

Sep 16, 2019

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.

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Sep 16, 2019

The national tenant union thing really blows my mind too. How are individual landlords even supposed to compete with that?

Sep 17, 2019

Yeah, it's actually causing major problems. I'm majoring RE and currently working part time in CRE and the problems are very clear from within the industry. With rental controls, the tenant union and our government are all a part of the shitshow.

Sep 16, 2019
rebrand:

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.

Rent control is stupid in theory but occasionally not awful in practice. That being said, anyone underwriting 7% rent increases in their model is an idiot and deserves to lose their shirt, no one should have any pity for those people. On the contrary, those are the idiots who should fail. If any idiots could underwrite anything they wanted and succeed, this wouldn't be a very interesting business to be in.

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Sep 16, 2019

The conversation alone regarding rent control drove the primary markets of San Diego through the roof the last couple of years. Landlords who rarely raised rents felt that they could no use their old system soon. These older landlords only raised rents ever few years, but by a large %. These landlords are always under market even after a large bump in year 4, as an example. Now what they are doing is prematurely running up the rent to get a baseline or median that can now be raised with certainty every year at 5-7%.

Other than the 1mo rent relocation assistance, the entire 10 pages of the new rent control here in CA does almost nothing for the tenant.

Edit - You can still add value to a building even though there is an eviction for "just cause" in the legislation, but that just cause can be to pull permits, lol. For a non-violating tenant, there is just cause to move them out if you want your baby mama to live in that unit. No joke, the bill says you can evict to move in your domestic partner, family member, etc.

Very weak rent control bill that drove the average rent up quite rapidly the last few years just by the threat of it's existence.

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Sep 17, 2019

@PacNumber - We live in the same city. I know quite a bit of landlords who own various multi-unit properties. I haven't had the chance to talk to them in regards to rent control, but I am sure it was in good intention to help the people who kept saying how high the rent is currently. I know parts of Kensington/North Park, where rent prices drastically increased out of nowhere and tenants were forced to move out (the owner of the building had not upkeep the pricing of the units and kept it the same for at least awhile, until the property management company stepped in and fixed it).

There was a news story regarding Encinitas and other cities protesting against building more apartment units, despite the developers adding in affordable units. Thoughts on this?

No pain no game.

Sep 16, 2019

No one in this forum should be pro-rent control.

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Sep 16, 2019

Completely agree.

Sep 17, 2019
CRE:

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

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Sep 17, 2019

I appreciate the argument you're making here, but it's pretty baseless because the same issues can simply be resolved (more effectively) with the zoning and permitting process. No rent control needed.

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Sep 17, 2019

I do not disagree with anything you said except the part where you act like rent control achieves your desired outcome.

City planning can use tools that don't actively discourage development such as form based codes, upzoning, historic preservation, and density bonuses to effectively guide the development of a city. All rent control does is encourage slumlord activity and discourage investment.

Sep 25, 2019

Well it all depends on what your goals are. If you have a large holding and just want to be a rent collector, it is great.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

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Sep 16, 2019

Sure by capping growth instead of a hard rentcap, you're doing something marginally less harmful.

But it won't fix the fact that the current price is well below market and that apartment is effectively taken off the market because of it.

I don't know what % of apartments in NYC are meaningfully below market via either rent control or rent stabilization but it's a high number. I've heard its somewhere around 50%. So its fair to say the supply has been cut in half by these policies.

Sep 16, 2019
PteroGonzalez:

Sure by capping growth instead of a hard rentcap, you're doing something marginally less harmful.

But it won't fix the fact that the current price is well below market and that apartment is effectively taken off the market because of it.

I don't know what % of apartments in NYC are meaningfully below market via either rent control or rent stabilization but it's a high number. I've heard its somewhere around 50%. So its fair to say the supply has been cut in half by these policies.

About a third of housing stock in NYC was in rent stabilization (an extremely tiny percentage of that was in rent control). Of that, a substantial number of apartments are being rented at market rates, despite being "rent stabilized". Your number is off, way off, so it isn't fair to say that supply has been cut in half, not at all.

Moreover, the issue in NYC and SF and other high COL cities isn't rent stabilization driving up prices but the exact opposite - wealthy owners and renters don't want new development impinging on their current standard of living and local services.

Think about it. If every regulated unit in NYC was suddenly deregulated, there wouldn't be one single unit of housing created. Yes, there would be some change in pricing (a minor one, because you you don't see wealthy people moving to Brownsville or Soundview right now for a reason), but no additional supply. You need an easier development process to create denser communities, preferably mixed income communities to prevent ghetto-ization, and that doesn't exist. Again, poor folks should want more supply, it's only in the face of wealthy NIMBYs that rent restrictions become politically necessary.

Sep 16, 2019

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
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Sep 17, 2019

Aren't the local municipalities to blame in regards to licensing and building fees that causes the price of construction to become expensive?

I remember you mentioned this in one of your previous posts, @Ozymandia .

No pain no game.

Sep 16, 2019

I'm against it. It's anti capitalist and will ultimately hurt the renters more than the landlords.

Sep 16, 2019

I do not believe in universal rent control (it's anti-capitalist and philosophically I'm not for it)...

However, wouldn't this bring acquisition costs down? Since there is less demand to build/purchase multifamily?

And if there is less demand to build multifamily, wouldn't labor costs go down, because there is less demand for labor?

...So if acquisition and labor costs go down, wouldn't that allow for rents to become more affordable and benefit the working class?

Only luxury units are being built in California due to frothy development costs; and no matter how many more luxury units are built, it doesn't impact the low-to-middle income housing gap. I'm not buying the "more luxury units is good" argument, but I'm happy to hear the logic behind differing opinions

Sep 17, 2019

News story mentioned that they wanted to utilized city-owned land to build low-income housing developments next to massive transit (to also reduce utilization of vehicles, reduce pollution, etc.) while making it affordable for the lower-middle income people to live.

No pain no game.

Sep 16, 2019

KILL IT WITH FIRE!

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Sep 17, 2019

SFG. Read any Tom Sowell book. Pretty amazing how people ignore basics economics

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Sep 17, 2019

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.

Sep 19, 2019

Why would schemes such as LIHTC be a better approach?

Sep 17, 2019

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.

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Sep 17, 2019

Most rent control has outlived the need for it.

That said, most of the economy is subsidized either directly or indirectly, so it's fitting that rent is not a fully free market item.

The shape of things to come is still somewhat foggy to me but looking at the vital signs of regional, US, and global economics, all I know is that there's a lot of change coming.

Sep 17, 2019

In other news, google this article for a laugh: "Treasury Plans To Restrict Multifamily Lending In Areas With Rent Control"

Straight up the Trump admin is trying to do everything to punish blue states... JFC

Sep 17, 2019
Surfing Pirate:

In other news, google this article for a laugh: "Treasury Plans To Restrict Multifamily Lending In Areas With Rent Control"

Straight up the Trump admin is trying to do everything to punish blue states... JFC

Democrats/blue states don't support rent control. The vast, vast majority of Dems are opposed to rent control..

Sep 18, 2019
real_Skankhunt42:

Democrats/blue states don't support rent control. The vast, vast majority of Dems are opposed to rent control..

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.

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Sep 19, 2019

I feel that the real issue at play is the widening wealth inequality gap. How many average Americans are seeing their wage growth matching the actual increases in cost of living?

All of these debates about rent control and such are just bandaids and gum trying to alleviate the impact from the elephant in the room.

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Sep 21, 2019

Now that the New York multifamily market is all fucked up, and California likely will be soon if not already, where are all of these large NY multifamily owners deploying capital? Are they staying in NY but moving into a different property type? Are they investing out of state? If so, where?

Will be interested to hear feedback from ppl active in the NYC multifamily market...

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Sep 22, 2019

Seeing significant movement from CA & NY investors into markets where there are two things: corporate investment and rent growth. Texas, Florida, Colorado, Georgia, Nevada, Washington, Arizona are all examples where investors are deploying capital to chase yields as we see more cap rate compression in primary markets. Granted, within CA, there are submarkets that investors can still achieve their desired returns but these will be value-add reposition plays (ex: Inglewood, West Adams, South LA markets where multi investors use tenant buyouts and move around Section 8 tenants to reset units to market after they have been rehabbed). Unfortunately, institutional investors aren't really able to play in this space because it's deals in the $2.5-10M size, unless they are partnered with a GP that is picking up portfolios of distressed properties.

Just given where we are this late in the cycle, investors are having to get creative...seeing a lot of repositioning of assets into creative office and Life Science campuses. If you look at aging demographic trends, Senior Housing is an interesting asset class (especially in the markets in the South...FL, GA, SC, etc) but the real estate only makes sense if you have the right operator. There's also a lot of activity in the debt fund space where development shops are starting credit arms or have been in recent years.

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Sep 21, 2019

Sucks for us, but there's a pretty bad housing crisis (and homeless problem - although a lot of that is drug / health related) in a lot of cities and the bottom 50% are getting pushed further and further out.

Oct 8, 2019

that's a zoning and land use issue, not a price issue.

Oct 8, 2019

It would be great if state and municipal governments got everything perfect up front when they're zoning and entitling land initially, but that's not how things work. Know the risks of what you're buying into because motherfuckers are homeless shitting on the streets and something's going to be done.

  • Prospect in RE - Comm
Sep 25, 2019

Sure CA's rent control is a bad thing, but why is there hardly any public anger over the atrocious zoning laws? Of course landlords will always be the target of outcry, but you think people would eventually get suspect of the zoning from a state currently in the process of killing single-family zoning outright.

Sep 25, 2019
Prospective Monkey in Real Estate - Commercial :

Sure CA's rent control is a bad thing, but why is there hardly any public anger over the atrocious zoning laws? Of course landlords will always be the target of outcry, but you think people would eventually get suspect of the zoning from a state currently in the process of killing single-family zoning outright.

Because these things are complicated. I mean they aren't rocket science ideas, but unless you work with it regularly you don't really "get it." It's hard to expect the general public to grasp nuance--of, like, any topic.

Sep 26, 2019

This but even more so because it is "government" and like man, government is looking out for me man. People understand corruption in the big sense, but don't understand the subtle levels at which real corruption happens.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Sep 29, 2019

I had a civil conversation with a guy with a petition to get rent control on the ballot at a BART station. Told him I don't support rent control because I'm in real estate and what's needed is more supply to meet demand.

His argument is "is your rent too high, sign this petition".

Rent control is coming to the ballot again and again. In a presidential election year, might get more votes.

Sep 30, 2019

Rent control is just a less obvious way to slowly nationalize the real estate market.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Oct 1, 2019

That price controls have never worked and that rent control has already failed spectacularly wherever it's been tried.

I come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

Oct 2, 2019
BBA18:

That price controls have never worked and that rent control has already failed spectacularly wherever it's been tried.

There have been various forms of rent control in NYC for the better part of a century. Care to try again?

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Oct 2, 2019

Fill in (iii) for me if you can:

(i) Heavy-handed rent control in NYC
(ii) Significant housing shortage in NYC
(iii) ???
(iv) Snide comment about the efficacy of rent control in NYC

I come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

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Oct 4, 2019
Comment

I come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

Oct 8, 2019
Oct 11, 2019