The real solution to a housing problem is to incentivize and facilitate the building of more housing. ADUs, relaxed zoning, reduced building regulations, reduced fees for permitting, etc. I fear rent control is actually going to do more damage to the housing market than good.
How often do you replace tenants? And what's your occupancy rate? If you're in a situation where you can reliably raise rent 7% YoY indefinitely without decreasing your occupancy rate, then you were severely underpriced for the market (and you should probably fire that management company for pricing you that absurdly low). 7% YoY after inflation is a big increase that outstrips average wage increases.
If you aren't severely underpriced, then what's going to happen is that when you increase by 7%, the tenants will choose to end the lease because they can find something cheaper (or they emmigrate from the city because nothing is affordable), and you'll struggle to replace them with wealthier tenants willing to pay what you think is market price, so you'll have to lower rent to attract a tenant. Once you get to the point where your price is roughly in line with what the market will bear, you'll only be able to squeeze one or two years of rent increases out of a tenant before the non-monetary costs of moving are outweighed by the cheaper rent, so constantly trying for 7% YoY post inflation will just mean a decrease in your occupancy rate, both because you'll be replacing tenants more frequently and because finding new ones will take longer.
- He may be socially responsible and not want to charge through the roof. E.g. likes the tenants, prefers stability etc.
- The whole point of the law is indeed to prevent large raises. But what if expenses suddenly skyrocket, or inflation does, and he has to increase more or go bankrupt? That’s the worry here. No, the law won’t react quickly enough. It’s preventing him from being socially responsible.
- You assume annual 7% would not work eventually because it will raise the price too much in the market. This assumes free market, but you don’t have it anymore, now you’re regulated. In particular, your missing that everybody else will adopt the same rational self-preserving policy. Approximately the entire market is going to grow 7% YoY now.
- nitpicking: 7% before, not after
Similarly, i tell my tenants that they should expect the minimum increase yearly as i cannot make up for any lost increases nor can i make larger increases if something about the economics of the house changes.
The real issue here is the cost to provide housing, and the limited amount that exists. I wanted to finish a basement in one of my places, to do this legally, i owe the city $140k in fees alone. This is around 5-6years of rent. You can probably imagine why i opted to put this money in a bunch of index funds and do nothing instead...
(1) Since rent control laws put limits on increases (and not decreases) every landlord understands that he/she should test the upper boundary at all times to avoid renting severly below market rates during boom years. With sufficient landlords undertaking this task, rents should go higher than without this limitation. Moreover, the cost of moving is higher for the tenant (who has to find a home and move his/her property) than the landlord (who has to find a new tenant).
(2) real estate becomes less attractive builders and buyers, given the mandated constraints on charging rent. See https://web.stanford.edu/~diamondr/DMQ.pd. For a counter, see https://www.housinghumanright.org/wp-content/uploads/2018/11... (you'll have to wade through ad hominem attacks).
(3) high-income earners tend to benefit the most on rent control over time. As market rates for rentals increase (i.e., property up for rent), only higher-income individuals can afford to move in. Over time that leads to the displacement of lower-income individuals. Anecdotally, I can attest how some of my high-income earning friends pay very little for housing in SF because they locked in rates before 2011.
Lastly, pro-rent-control reports/papers I read highlighted the need for a comprehensive housing strategy beyond rent control, like increasing rental supply by making it easier to build ("It is also critical to recognize that the need for reforms extends beyond rent control and housing policy more broadly ... This includes developing new funding sources for affordable housing development and addressing exclusionary zoning policies at the root of the displacement crisis, https://haasinstitute.berkeley.edu/opening-door-rent-control). As the article already mentions, Scott Wiener's bill to override local zoning laws was shelved. The CA legislature did not have the stomach to address the underlying cause.
A far more sensible solution (IMO) is: (1) override zoning laws / ordinances that prohibit building more homes (2) tie rent control to income.
Funnily enough though, I would say that Montreal has less of a supply problem, despite being on an island with no room to expand into an infinite suburban sprawl like the bay area has. Construction still seems to happen here. People are bitching that too many condos are being built, but I think more supply is good.
Anyway, I think rent control can work pretty well, as exemplified by this Canadian city. At the very least measures to prevent surprise rent tripling while someone is renting an apartment are very much a good thing. Sidenote: I think that rent control can also help prevent property price explosions. It makes no sense to buy an apartment for over a million dollars when its rental value is only 1000/month.
Give one moment's thought to the most likely side effect of that...
Most landlords already increase rents at the maximum rate that the market will bear. Capping annual increases at 7% just ensures that in a year when the market would allow landlords to get away with increasing rents by over 7%, they won't be able to do so.
I do not follow when you say that the strategy of increasing rents by the maximum amount permissible is necessary "because larger adjustments cannot be made if and when necessary due to market conditions". In what scenario would larger adjustments be necessary? If you made a viable investment in a property and are currently renting it out, wouldn't rent increases just need to equal inflation in order for you to maintain the same level of profitability? Sure, increasing by more than inflation allows you to increase profits, but I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.
Price ceilings (even non-binding ones) can create market power for suppliers by providing a focal point for tacit collusion.
[0] Knittel and Stango (2003), Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards https://pdfs.semanticscholar.org/3848/b5c04ae02c17c0b5135841...
[1] DeYoung and Phillips (2009), Payday Loan Pricing https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77a...
If the market can support it, these laws guarantee the maximum increase. If the market cannot, well you are already at the top of the market aren’t you? So no benefit here.
Not necessarily - taxes on property owners don't follow inflation. They may go up greatly compared with inflation.
>>> I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.
Because if don't allow it to be profitable people won't do it. Particularly in California it can be quite risky the rent out a property. It's an extremely tenant friendly location, so much so that evictions for major infractions can take several months, or in some cases years.
I was talking with a real estate agent in SF and he said it’s not unusual for landlords looking to sell their rent controlled building to just let units sit empty.
Why? Because it can increase the value of the building by hundreds of thousands of dollars. Losing out on $24k worth of rent each year is easy if you know it comes with an extra $300k in your pocket when you sell.
FWIW rent control advocates agree with you.[1] It’s a point in which the “PHIMBY” left[2] and the real estate lobby agree.
The reasoning is that it’s not actually a full rent control bill (it just stops the most extreme cases of gouging) which is why the California Apartment Association stopped opposing it. Thus it doesn’t go nearly far enough to stabilize rents.
I know there are a lot of supply siders on HN champing at the bit to dump on rent control, but this particular bill is a bit more nuanced.
[1] https://twitter.com/rcmoya84/status/1171972636294840320?s=21
[2] https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-cou...
You need to have some degree of control. I live in a suburb close to a tech hub in WA. They built a lot of housing in the past 3 years. And I mean a lot. At least a couple of hundred of apartments on the market every year, after raising 3-4 buildings at the same time, in a town of 20k people.
One would think that the price would go down based on supply and demand, right? More than half of the apartments were empty while the management companies were not budging on the price. Nobody wanted to go below 2k/month for a one bedroom and they were sitting around with empty apartments. Finally they managed to reel in some suckers by offering 2-3 months free rent but again, no rent was going below 2k so the next year, you pay up or move out.
Right now, people are moving out and the apartment buildings aren't what you'd call full but again, the rent is not going down. It actually increased. Because what happens is that they're owned by large landlord corporations which can take the hit for a year or two to keep the prices up. I know this because I used to live in one. They increased my rent (years ago) from 1.2k to 1.7k and I moved out. The apartment was on the market afterwards for about a year and they didn't try too hard to get new tenants, they just posted it periodically on Craigslist. I tried to negotiate to bring it down to 1.4k and they said no. It was way profitable for anyone to keep the price up, although they lost a year of rent from it.
A big big problem is that we have underbuilt for decades, which has normalized underhousing for younger people.
Increasing supply simply ensures tomorrow's rent is lower than it would be otherwise.
With regard to the story before it, it sounds like they actually lowered rent to about $1600 (2 months free is a 17% reduction, which is pretty hefty. Sure, you’re betting on them staying after, but it switches to month to month usually after a year so it’s risky).
It shouldn't be a surprise that more landlord-friendly rent control measures get less resistance from landlords.
When the market will bear an increase less than rent control, it gives landlords something to point at as justification and help mitigate turn over. When the market will bear a greater increase, it is unfair and harmful to communities, etc. etc. etc.
Is the property management company collecting an extra commission each time a new tenant moves in? Because all this strategy is going to do is let tenants quit once the rent goes considerably above the market rate.
A much wiser strategy, IMO, would be to watch the market rates and keep the existing tenants' rate constant until the market rate climbs considerably higher (7% sounds like reasonable threshold) and then raising it to be marginally below the market, incentivizing the tenant to stay.
I've been tenant in France, with restrained rent increases. Every year my rent was increasing 20 euros or so.
I've been tenant in California without rent control. After one year, my rent went up 500 dollars.
But well, maybe that's because in France the allowed increase is calculated from a rent index in the area, not a fixed number like "7%" (no idea where it comes from).
Also, don't say "necessary due to market conditions" when the reality is just "can get away with it due to market conditions". It's not like the increase of the rent market causes you more fees or increase your mortgage.
When are "larger adjustments" necessary vs just opportunistically profitable?
The question I always see is "why shouldn't I have the right to make as much money as possible from my investment," but the answer seems pretty clear: because evictions and massive rent hikes have nasty social consequences, as does treating rent-seeking as an investment.
What will probably happen is that you'll have a hard time filling your property after 1-2 years at the latest, and everything goes back to normal.
In other words, it scares all the landlords at once, and they all raise prices a little because of it.
Also, I assume there is some market pressure to consider, if your increases outpace supply and demand, then tenants would simply move, right?
Interestingly, my rent has remained stable ever since moving - guess it's possible to have much better luck with smaller landlords.
I'm in bumblefudge-nowhere-Midwest USA, and even we've averaged 10% yearly rent increases, for more than 5+ years now. Every top-20 metro area I've looked at, has had it worse than us on rental price increases.
There is a lot of knock on affects that rent control brings that are negative that I don’t have time to go into
In other words, it is totally permissible to increase the legal rent by the officially allowed 7%, but increase the effective rent paid by your tenants by only 2% (or whatever you want). There does not appear to be any restrictions about removing such incentives/concessions/discounts in the future.
It also appears that the California law resets as soon as the tenancy changes hands; so as soon as there is a vacancy the landlord is free to increase the rent by as much as they want. This is not the case for NYC rent stabilization; there the increase in the legal rent is a property of the unit, not of the tenancy.
I was simply thinking, Unintended Consequences in 5,4,3,2,1...but that's one I hadn't thought of. Of course people will push up against the limit in order to buffer out market values.
You could easily see rents above where they should be from a market standpoint simply because of the inertia in a system of annual increases.
It also makes me wonder if you are allowed to increase rents if you improve a dwelling. If not, nothing gets fixed beyond the bare minimum.
Same when a rent control unit opens up in SF, the goal is to push the rent as high as possible since it’s not going up much after that.
7 percent is a pretty high allowed increase. I suspect that it really doesn't do much except stop gouging in the case of someone who had really cheap rent in a place that gentrified suddenly.
This argument comes up here in Australia with regards to Sydney and Melbourne in particular -- the two largest cities.
Building more houses only makes more sprawl. Increasing density causes problems for current residents and puts enormous strain on existing infrastructure[1].
The only real solution is to get people to live in other places that have more and cheaper housing.
[1] Not just utility infrastructure like water, sewer, power, gas, (roads, sanitation, what the Romans did for us etc) but natural environment and leisure like sport and recreation areas, parks and bush land, and (particularly in Sydney) beaches. It's really hard making new beaches for the increased population.
This is the use-it-or-lose-it budget game, landlord style.
2. Realize that not everybody in the world needs to or should live in the Bay Area/Hollywood.
3. Don't pass statewide laws catering primarily to the group of people aspiring to do so.
Take your "I've got mine so screw everyone else" attitude out of the bay area, we don't have room here for people with so little empathy for their neighbors.
Excluding people from work in productive areas perpetuates poverty.
Entitlement was never a core tenant (no pun intended) of the American dream.
The difference with this law is that a 20% rent hike will take 3-4 years to be implemented instead of 30 or 60 days. That difference, while not enough to allow all families to remain in place, will allow families time to adjust or move within a reasonable time frame.
This law is different. If you want to complain about rent control in SF or NYC or elsewhere, have at it, but know that most of your complaints do not apply to this law.
Homes that are built for renting (mainly apartments and condos, but some houses, too) are built for profit. If you make it less profitable to build, fewer will be built. If fewer homes are built, the problem is compounded, not rectified.
If you want to make housing more affordable, make it as cheap and profitable as possible to build new homes. Get rid of the fees that can push over $100,000 for a single family home in some counties, before the builder even buys a nail or 2x4. In most states you can build a home for less than the price of permission to build a home in some California counties.
In NYC units that might be _actually cheap_, as in rent controlled and not stabilized, number roughly 17k units _in total_. And only about 1/3 of those are significantly below market or in desirable neighborhoods. It's almost insignificant and the number of rent controlled units has gone down by roughly HALF in the last 5 years, because the tenants in them are dying and income limits on any descendants usually kick the units out of being controlled into stabilized.
NYC has a much larger number of rent stabilized units, which is somewhere near 1/3 of all available units that are renting at or below $2700 (twice the national average, btw). The overwhelming majority of these are within a few hundred dollars of market rate.
There are about 4.2M housing units in NYC with roughly 30k being added every year. The "cheap" rent-controlled units are a rounding error.
That is not anything like the situation folks in SF are rightfully railing against.
In fact, the CA, especially in bay area, the rent is already top among this country. 7% on top of that is still a quite sizable increase. And it is hilarious to see those (aspiring) landlords playing the blame-the-game-not-the-player rhetoric here to blame the government not allowing more houses to be built, while themselves being one of the biggest opponents to such initiative.
It's not entirely unreasonable to think landlords somewhere in the state will take this "5% + inflation" as automatically what's called-for. Conceivably a few landlords who otherwise would have held the line will do this. But given this was more or less already standard for the large landlords and given the landlords who have been really, really gouging, this sad collateral.
As it is, they are using force to limit income while expecting the landlord to offer the same product and services and foot the bill on unlimited expenses.
How about legally limiting salary increases while requiring the same or more work? And, when you change jobs, you are only allowed to make 10% more. Oh, yes, but you have to spend thousands to renew your credentials.
And how about truly severe penalties for tenants who destroy or damage property?
Anyone who has been a landlord for with more than a handful of properties knows how much of a nightmare it can often be.
Try running 10, 20 or 100 units and see how quickly you are going to bug out once even this mild form of rent control rears it’s ugly head. Because you know, with almost absolute certainty, that this is the proverbial slippery slope. And nobody wants to be the guy waiting for the last seat out of the Titanic.
Oh, yeah, unintended consequences: If Airbnb is more profitable than conventional renting...
Try - for a moment - to imagine you are living close to your maximum expenses and your landlord increases your rent by 20% next year.
Shortage is pain and rent control simply distributes that pain in a different way than the market would and does so in a way that reduces the ability of the market to gradually alleviate that pain.
The more the government intervenes in rental contracts to mandate that they be like a lifetime lease agreement, the less incentives and sustenance there is to build a rental property overall. Society is better off having more rental units that have prices that are not legislatively stabilized than have a smaller supply of rental units with mandatorily stabilize prices.
If someone wants stabilized rental prices and they should sign a lease agreement with the landlord that gives them that at the price of a slightly higher per month rental rate. These kinds of things should arranged by actors in the market rather than having the government ban all alternatives in order to force people into stabalized rent contracts.
Really? This is pretty common on HN. This is IMO one of its weaknesses.
There are certain topics that bring out political rants. One is regulation and another is housing prices in the bay area. This story brings out both.
HN is heavily focused on the Bay Area. This fervor seems like a persistent feature of that region's culture and not HN in particular.
New state law: 5% + inflation
SF: 60% of inflation. This has has never been over 2.9% a year since the law changed in 1992 from a fixed 4% [0].
I think one could sanely argue that allowing increases of up to 5% plus inflation is a suitable restriction, while limiting increases to significantly below inflation is not.
[0] https://sfrb.org/sites/default/files/Document/Form/571%20All...
Turnabout is fair play. If owners organize politically to control supply, tenants can organize politically to control prices.
The biggest myth is that this kind of stuff actually helps the less-powerful. In reality, it just means they are hurt twice: government artificially suppressing supply, and government manipulating prices which has bad side effects for mamy even if its good for a few.
Also, in reality, the powerful often don't get hurt, and arbitrary market manipulations just introduce new ways for them to get an advantage somehow.
That's fine for existing renters, but think about people who would like to move there to pursue a job, or live in a state friendlier to gay people or for whatever reason. They're going to find it harder to find a place to live, in all likelihood.
Sometimes the system has to break down before progress happens.
So when over-regulation drives up prices, the appropriate response is to introduce new regulations to fight the other regulations? Because that’s exactly what this is. It won’t even improve the problem. The problem is that there are more people who want to live in California than there is housing. The reason for that is because regulations prohibit the market from increasing supply at a rate that comes anywhere near keeping up with demand.
supply is not rising to meet demand
It's frequently renters talking about gentrification that oppose new housing around me.
Subsidize home loans Ban new construction Ban rent increases
It is no wonder why housing prices/rents continue to rise in these markets.
In software engineering sometimes conclude that a rewrite is necessary. How can we completely rewrite our regulations?
A currency collapse or a successful invasion perhaps.
Even 'freezing a moment of time' is kind of a suspicious thing. People don't understand the present time and they sure as heck don't understand previous ones.
While fixing the plane while it's in flight is hard, I'm trusting our upcoming robot overlords to understand tax or criminal law. Accreting everyone's good ideas for a century or two was bound to result in a hairball.
Don't forget crime and violence. Historically speaking those get laws changed quick. That said, I don't think rent control is going to have a very direct effect on crime and violence.
1. Land is a limited resource. 2. Property improvements last for a very long time, and are incrementally improved. 3. The buy-in price is relatively high, so only very interested parties get involved. 4. It's a home for goodness sake, why would you not call it an investment?
... like Idaho did with its regulatory reset.
It's how the market works ffs.
But rent control in the absence of housing supply increases will undoubtedly exacerbate the problem, and at a steady 7% inflation would also slowly price out existing tenants.
Many parts of California already had rent control that was based on building age. Theoretically this could have been the best of both worlds--improved housing security for the majority of existing tenants, but an incentive for new construction, which would be excluded from rent control. Of course, the price of housing security would be marginally higher rent prices up front, but in the real world that's a reasonable tradeoff. Security and predictability are at the top of most people's hierarchy of needs, whether they admit that or not, and regardless of whether they'd willing pay for it. (Healthcare being a great of example of people predictably making irrational decisions, requiring government intervention to mitigate the consequences.)
Unfortunately, new construction in California is extremely costly for entirely unrelated reasons. I think most developers in California would have bargained statewide rent control for development as-of-right. That California permitted rent control again without doing anything substantive about lowering the costs of development is inexcusable. I'm sure lawmakers told themselves that they were buying the acquiescence of NIMBYs and local control advocates regarding future development as-of-right legislation, but they're just lying to themselves.
In fact, that was more or less the deal—until Anthony Portantino torpedoed it.
You can virtually guarantee that rent control and NIMBYism go hand in hand.
I feel like an amount of the general public just wants Big Daddy government to come in and authoritatively force everyone into an unnatural framework, which is pure ignorance.
IMHO, there is nothing "natural" about land ownership. Land ownership in the USA isn't actually what most people think it is. It's not an inalienable right and is largely at the pleasure of the public by way of legislation that can be changed.
This is basically everyone. On today of all days, we see what the PATRIOT ACT USA has done to this country decades later, and people are quick to point that out but not consider it for laws that have not yet passed.
You know I was neutral on this stuff, studied economics and some business law, have actually read Adam Smith rather than just little excerpts. When I was younger most of the 90s working as a tech in and around the financial sector, so while I don't consider myself an expert I do think I'm quite well informed. I spent about 25 years giving market economics and the investor class the benefit of the doubt.
I've changed my mind.
In this specific case, perhaps you are right, I can't say.
But your wide-sweeping declarations and general tone reveal your own harmful ignorance.
A strong counter here would include a counter-argument, and ideally even some support for that counter-argument.
I don’t know who rent-control is supposed to benefit, but it seems broken. Eventually these places end up in the hands of people who know how to game the system. Just build more housing and the incentive will go away.
Are my numbers just totally off?
Perhaps you don't realize how good you have it out there.
Rent control works for those already renting - and that is about it!
Everyone else suffers: those moving to the area, the landlords and those wanting to build more.
Actually, existing property owners benefit. So really is populism--the only people it hurts are landlords and people who don't live there yet.
It’s the same concept as free healthcare or free education. It’s here to ensure people can still find affordable places to live.
You can’t make everything an investment if you want a healthy society.
Rent control does the opposite. It radically reduces choices and increase on price on people looking for a place to live.
Rent control chooses a small handful of existing renters to be winners. And it makes everyone else a loser. Except it's also shitty renters, because it traps them in place. Sure it gives them a home somewhere. But it denies them opportunity to move to another city, or even the other side of time, to pursue opportunity.
If actually you want lower home prices, build more homes. Build tall (curb height restriction rules); build everywhere (no more minimum parking rules); build immediately (reduce complex planning permissions for developers). Just build more.
Supply and demand will decide the price of most goods, and housing is no exception. Rent control does not address the underlying issues that cause prices to rise- lack of supply and growing demand.
But even then, even if there are empty homes, building more will still fix the problem. Let those foolish owners leave the homes empty- we can build more anyways.
It’s a national problem. If you improve the supply only in CA, more folks will move there and recreate the problem.
Rent stabilized apartments have a limit to how much can be charged for them (called the "legal regulated rent"). That amount can only be adjusted (on a percentage basis city-wide) by a government board every year and by a handful of other exceptions (historically: improvements to the building/apartment, major repairs, new tenant in the unit---however some of these exceptions were recently eliminated). The legal regulated rent is sometimes hilariously more than what any sane person would pay for a particular apartment and landlords would never be able to get a tenant at that price (for reference, as an NYC renter, my preferential rent is ~26% less than the regulated rent).
So in comes the concept of "preferential rent": a price below what the landlord is legally entitled to charge. That preferential rent is in effect for the duration of the lease signed. With the recent rent stabilization reforms in New York state, renewal leases on rent stabilized units will only be able to charge the preferential rent plus that year's percentage increase (as decided by the government board). Previously, landlords were allowed to raise the rent all the way up to the legal regulated rent plus that year's percentage.
In other words, before the recent reforms, landlords had a strong incentive to keep the legal regulated rent as high as possible since they can always raise rents upon renewal to that value. Previously, preferential rents were truly temporary and the landlords had no obligation to maintain them upon renewal. Now the only way to raise the preferential rent to the regulated rent is if the current tenant vacates the apartment and the landlord finds a new tenant, on whom they may charge any value up to the regulated rent.
It's difficult for landlords to kick out rent stabilized renters since those renters are generally entitled to renewal leases, but one simple tactic before was to just raise the rent from the preferential value to the regulated value. With the recent reforms, this is no longer a viable tactic.
On a philosophical level, why should my landlord be subsidizing our housing costs? If we want to make housing more affordable for low-income families, surely there's a more equitable way to finance it.
None of them are suffering.
This enables a society to continue to grow and function at a somewhat more sustainable pace, letting cities and counties grow without intense boom-bust and crash cycles, with a more stable working class, and therefore a long-term sustainable housing construction market.
I understand that rent control is no grand solution, and that we need more houses built - but I do not understand how rent control is part of the problem.
The problem starts and ends with personal and corporate greed. The rent control is an attempt at constructing a sustainable, stable society from the ashes of an out-of-control capitalism that is leaving most of its consumers in the dust.
Rent control is not part of the problem and would not deter rational actors from building additional housing - I believe it would increase it.
This is a good example of that. Rent control tends to benefit the older generation at the expense of younger people and families. It does nothing to solve the actual problem of lack of housing inventory.
We could also consider building more, and better, mass transit.
The problem with rent control is that it allows many well-off individuals to collect ever-growing rent subsidies, to the point where after 10 or 15 years their rent is a joke compared to what their (often less-fortunate) neighbors are paying.
This bill does not have that flaw. Crucially, it sets the maximum allowable rent increase to be well above, not below, the historic long-term rent curve. Over time, in the long run, rents will approach market-rate. And that makes all the difference.
Yet, despite the majority of voters saying no, the legislature felt it necessary to push forward with legislation anyways.
Above all else, the government ignoring a direct vote from the people is most disgusting of all and reason enough for why this should be vetoed.
https://www.sfchronicle.com/politics/article/Prop-10-Califor....
It's not the perfect solution, but what do you propose as something better that still helps normal people not get pushed out?
What could go wrong?
https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...
“ A few months ago, when a San Francisco official proposed a study of the city's housing crisis, there was a firestorm of opposition from tenant-advocacy groups. ”
Which is, coincidentally, an apt summary of San Francisco's housing policy for the past twenty years.
[citation needed]
I've never seen an economist support any form of rent control.
1) Rent cap landlords. The landlords will cry Big Government.
2) Abolish single family-only zoning and legalize backyard cottages, townhomes and small apartments. The homeowners will cry Big Government.
3) Do nothing. Watch as more people start living in tents or endure super-commutes that snarl your traffic and worsen climate change.
What if something crazy happens to the economy, say the dollar gets devalued, and all you have is rental property for income? Realistically you would raise your rental price.... But wait, there's a cap, and you can't.
2) "legalizing backyard cottages" is actually against Big Government, and I'm with you there.
You're forgetting another option: deregulate and let the market compete.
The limits to rent increases seem like they are enough to avoid significant short term spikes, while keeping up with market rate rents.
The biggest problem with some existing rent control (like in SF) is that the limit is so low that rents can't keep up with market rates even over decades, which is clearly terrible economic policy. Maybe this limit is high enough that this won't be as much of a problem for the rest of California.
Will never cease to amaze me just now inept politicians are.
Now, with AirBnb, landlords have a much more viable option. They can put the property on AirBnb and have the flexibility to charge what the market will bear.
I foresee that as a consequence of this law, there are going to be fewer rentals and more AirBnb properties in California.
However, since both NIMBY owners occupying their home and renters hate AirBnB, it's quick to imagine anti-airbnb legislation (like what SF already has) quickly passed if the tide turned.
Here is a different article, more tolerant of private browsing: https://www.forbes.com/sites/adammillsap/2019/09/04/more-ren...
The increasing disparity between taxed value and real value results in all tax payers having to pay increased income tax, which is then directed largely to landlords who aren't contributing their fair share - their properties are benefiting from services that they aren't paying for.
Great source there! No agenda at all.
I wonder if this was pushed by landlords. It's easier to push a 5% hike in rent every year than random 10-20% hikes. Especially in a nearly tapped out market. The prices are already astronomical and the home prices are fluctuating/faltering. In 10 years, the rent will be 63% higher. And that's after inflation. Your $3,000 1-bedroom will be nearly $4900 after 10 years. Unbelievable. Will FAANG prop up landlords by adding 5-10% TC increases every year? Startups certainly won't. They stopped increasing comp a few years ago.
I guess we’ll find out in some years whether rent control entices builders to build more or if it will depress the market for building (as it usually does) such that at some point we see people (families) bunking together ala Soviet housing solutions to demand.
If you like better rates, negotiate, fix zoning, or buy. If you can’t do any of those, you should leave. The rest of the country is really not that bad.
> “I’ve been renting in Seattle since 2014, and this is the first time where I felt like I have negotiating power,” said Kjerstin Wood, who went apartment hunting with her partner last weekend and got bombarded with offers like free parking that she plans to use to play landlords off one another. “For the most part, everyone we’ve met with has been very eager to get us to apply right then and there.”
> The trend is likely to continue: The apartment-construction surge that began earlier this decade is continuing at the same brisk pace, outpacing demand for rentals even as the city’s population booms.
And a 2017(!) article talking about vacancy rate in Downtown LA that has seen a huge building boom (no not nearly enough to really depress prices, but enough to stave off the meteoric rise): https://www.scpr.org/news/2017/09/15/75615/in-high-vacancy-d...
Please travel from Sunnyvale Saratoga starting at 101 at the north end to 85/DeAnza at the south end at 5-6 PM every day and see how long it takes to travel 6 miles. Unless you live here and know it already, you will be surprised.
But when it comes to selling housing, the developers, one example being of the vallco mall owner, somehow gets their way without any indication that their project will benefit the city, and thus rightly gets overturned at the ballot. [ And this is from someone (me) who failed to buy a house in Cupertino and now lives elsewhere.]
Anyways the way to build 6 story buildings can not be by making the living worse for everyone who already lives there. Much worse.
A deceleration in rental inflation in neighborhoods such as the above? A reduction in newly homeless populations?
It's one thing to describe a proposal's political motivations, but quite another to actually declare that you might be wrong in your approach and are willing to define object criteria for success.
San Francisco prices go up => only tech bros can afford rent
San Francisco rent prices get capped => tech bros still need place to live and win rental application lotto
Artists can't afford rent, but want to live in city full of tech bros and glass condos?
It doesn't make a lot of sense to me why you'd want to stay in SF if you're genuinely an artist. Is it a romanticization of the city's past rather than the reality of the present - a stark line between rich and poor with tent cities all around? An elementary school system not friendly to families making community ties (random geographic assignment)?
SF doesn't have a thriving liberal arts school - the art academy is a profit pit meant to create student debt. Aren't places like Berkeley, Pacifica, and Santa Cruz much more attractive locations? Even farther south like San Luis Obispo?
Lastly I am just going to ask this more fundamental question: should anyone be allowed to live anywhere they want, and is that the right people are striving for? Or is it simply they should be able to stay in the place they are once they're able to `get int`?
https://sf.curbed.com/2019/5/17/18629809/sb-50-housing-trans...
Yep. Because communities shouldn’t be able to decide for themselves. Make it a state law. I’m just glad that (for now) these central planners are limited to a state economy and are not in Washington.
Great news for property owners in CA. Studies show over and over rent control legislation further restricts supply[1], so the existing housing will become even more valuable!
[1] https://la.curbed.com/2019/9/10/20857225/california-rent-con... [2] https://sfrb.org/topic-no-051-years-annual-allowable-increas...
As though California is at all symptomatic of the problem of providing affordable housing in the rest of the nation. They might as well say it's the biggest step taken in an affordable-housing crunch globally.
A whole article about California's housing problem without a single mention of Prop 13, though? That's some impressive willful ignorance.
It's insane how many of these there are. I even know someone who recently bought a townhouse who didn't even know what prop 13 was.
If your rent increase gets capped by rent control, your ability to stay at a limited scale of operation and just add to the price gets squeezed, and that motivates making more capital investments in property(and specifically in vertical upgrades, since horizontal expansion puts them in a land bidding war). It hits investment properties run by large companies the most, and challenges them to use land more effectively to stay competitive, in the same way that higher minimum wage challenges companies to use labor more effectively.
However, we still need an SB50 or successor bill to deal with the build restrictions. The landlords and developers can demand building big(and they do already in many cases) but they're held back by zoning laws put in place by NIMBY residents. The trick is that instituting rent control does something change the outlook of the NIMBYs too, since their property value has a relationship to the value of rentals. Rental rates and turnover slow down = property values slow down = their house becomes less of an investment.
So it's a good first step either way.
Given how slowly SF builds housing, the fact that anything built 2004 and earlier is eligible basically means almost everything except new high rises.
It limits the price of housing to an arbitrary price which is below the demand price of housing.
It fails to communicate the housing shortage with higher prices, and therefore it does not incentivize the building of additional housing to relieve the shortage.
Nor does it incentivize the finding of lower-cost alternatives, because all prices are capped at the limit, and so there is no information communicated about their relative differences.
Startup idea anyone. The demand would be high.
This is why I'd rather do business with big megacorps than with small businesses; mom & pops are straight-up allowed to hurt their customers and their employees in ways megacorps aren't legally allowed to. See also: exemptions mom & pops have from mandatory sick leave laws, anti-discrimination laws, mandatory health insurance, etc.
If your new law is such a good idea, why do you have to lie so blatantly to promote it?
Before, a pretty apartment was typically more expensive than a similar apartment (same size, same zone) which was ugly and Now, it’s same price.
This seems like a bad solution to a problem (housing shortage @ current market prices) with an obvious solution (allow more housing to be built).
It’s almost like the politicians pushing for this policy don’t value the input of experts and the application of research, but instead are only interested in solutions that sound good at the most superficial level. Golly!
Don't you think that policymakers KNOW that the best way out of a housing crisis is to build your way out? California has put out bills in recent years to try to remedy this (ie. the bill that would require housing near transit lines) that FAILED, breaking down all the local neighborhood associations and powerful interests is not something that can be done in a single legislative cycle.
Rent control is about making it easier for everyday folks to survive day to day, its not meant to be a permanent solution, and if in 20 years this bill is still needed it won't be for lack of effort, it will because the NIMBYs were able to win out.
Queues are over 10 years in many cities and there is no real way of getting a rental apartment in any larger city. This means people are pushed into buying a housing apartment which cost a lot of money and drives up prices a lot.
It's not viable or logical that an apartment in central Stockholm should cost as much as an apartment in a small village in northen Sweden.
Norway, Finland and Denmark all have more free market and it's much easier to find a rental in all those countries. I would advice against having rent control.
The landlord's would be much more afraid of this kind of market based solution.
Any legislation that makes renting less profitable will make BUILDING RENTAL PROPERTY less profitable.
This sort of thing, on the whole, makes rents increase by decreasing housing supply.
I think the pricing mechanism plays a useful role in encouraging people with valuable land to give it to others who will use it more productively. At the same time, I think there's a risk that people who just own land could capture an unreasonable fraction of the generated wealth.
Would it really be right for San Francisco homeowners to capture over 50% of the wealth from Silicon Valley's success?
This does nothing to fix the problem. They need to build more housing. A lot more housing.
But, no, we can't do that. That makes too much sense or something.
For people looking for solutions, here is a link to a supposedly suppressed Housing Development Toolkit put out by the White House in 2016:
https://www.whitehouse.gov/sites/whitehouse.gov/files/images...
After looking at the details, this law looks OK for the present but if we enter a period of hyper inflation then it is not so good. The 5% plus inflation might not be enough since the government jumps through hoops to underestimate the rate of inflation. If we have 75% inflation and the government admits to only 20% inflation (for a hypothetical argument), then landlords will be damaged financially. I believe that sometime the government will inflate its way out of debt.
My uncle has just been evicted so that the owner can fix the place up and raise the rent. Under this law, that would be illegal, but this protection only comes into effect starting January first.
I expect to see thousands of similar last-minute evictions as anyone contemplating this course of action tries to get their tenant out before the end of the year.
Indeed, they work against supply while increasing demand. This does not help people looking for a home.
Nonetheless while it doesn't fix the underlying economics, I can see how it could be good to have a damper on the volatility of real estate prices, so that prices swing over the course of many years rather than violently.
The rest of this is just distortion on the economy that will lead to all sorts of bad outcomes
“Notwithstanding any other law, an after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property, in which the tenant has occupied the residential real property for 12 months or more, with or without a written lease, property shall not terminate the lease tenancy without just cause”
From what I've heard, rent in a lot of Californian cities is extremely expensive, so I assume people are complaining about the price of their rent... probably statewide to some extent.
Hence the new bill. It's just a reaction to a temporary problem.
Which will probably stay in place long past the problem is solved!
Rental housing quality will bifurcate further, with poor and lower middle class people living in worse housing.
This is bad policy. It's not replicating the absolutely insane policies of SF, but it's still bad.
Did the California laws include anything to encourage additional housing to be built?
It's effectively a option on future rent prices... it shouldn't be particularly hard to value numerically.
Chiu is being misleading, to put it mildly.
The median home value in Texas is under $200,000; in Dallas it's only $213,000. In Florida it's $235,000; in Tampa it's $219,000. In Illinois it's $182,000; in Chicago it's $226,000. In Pennsylvania it's $174,000; in Pittsburgh it's $146,000. In Ohio it's $140,000; in Cincinnati it's $144,000. And so on. So much for every corner of America.
In California it's $548,000; in San Francisco it's $1.3 million. California's housing problems are in fact not a national problem.
It passed in the assembly, but must also pass in the senate and be signed by the governor before it actually is law!
It's hardly unfeasible for the bid area to have a rent of <$500, but after gentrification could easily pull $1500. At a 5% cap a year, it would take considerably longer to reach this price, which will likely slowly down the conversion of these areas, as the demographics would change much more slowly.
Where else is it being done? Is it a success in these places? There must be some places it is viewed as working or why else would California do this.
When a landlord increases rent by X% they are saying that the value of the property has increased by X%. Unfortunately businesses and landlords got together to push (and pass) prop 13 which amended the CA constitution to prevent assessed property value from increasing at more than 2% per year.
That means any time a landlord increases rent by more than 2% they are benefiting from incorrect taxable valuation. Because property taxes cover the infrastructure that supports homes + buildings (the roads, police, firefighters, teachers, etc) they are directly offloading the costs of those services onto people who don't own property: The people who don't own property then have to (in addition to insane rent increases) pay higher income taxes, in order to support those services the are functionally there to benefit the undertaxed properties.
>The landlords, like all other men, love to reap where they never sowed, and demand a rent even for the natural produce of the earth.
-Adam Smith
Here are all the reasons you can't buy a commoditized "cheaply made" house in Nowhere Minnesota:
A. There is finite land in the world. Burying it in sprawl housing is an American tradition that has wrought disastrous environmental, health, time consuming, wasteful, and systemic consequences across the nation. B. Housing does not exist in a vacuum, not in a way close to what true commodities - things you buy off a shelf for a purpose but otherwise are non-interactive - operate. Housing requires infrastructure in myriad forms from electrical to transit. These structural requirements are systematized and cannot be commoditized meaningfully and thus housing itself is limited by them. C. Housing is limited by your means to sustain it. This means you need a job, and work is going in the opposite direction of commoditization because any repetitious work is being automated. The availability of meaningful employment is shrinking and thus the viable domains of legitimate housing likewise shrink, which is why the flood to California is a thing, why there is so much demand for density, and why a half century of gentrified urban planning has ruined the states housing market. D. Housing is already commoditized. You can buy a manufactured house made at scale for an inflation adjusted cost half of what manually built houses were costing a century ago with more square footage, modern amenities, and the ability to have it installed on a lot over a weekend. If you price out the physical goods cost of manufacturing some of the highest density vertical condo buildings in the world the per-square footage of livable space costs are often below stick built houses. The limiting factor is land - so back to A through C, thats the limiter.
The construction of buildings should be done in a free market that invites competition of builders but with the regulation to recognize those purchasing said structures are rarely educated on quality or safe construction. The distribution of land needs to be radically rethought because the established paradigm of treating it like a segregated consumer good is bankrupting the working class as the aristocracy pours money into property as their Scrooge McDuck money pit of choice.
genuinely curious what would that entail, in practical steps
Make it undesirable to sit on large amounts or expensive property, reduce the propensity to resell for gain and put a stop the home ownership casino which in some ways looks like bitcoin speculation over the past two decades.
Give credit for primary residence (and or legit Ag or industrial use, but maybe collecting land taxes from industry is preferable to capital gains even.).
After these deductions tax like crazy for the privilege of squatting on what I think truly is, by nature, communal social property (land). That should dampen down the speculation and return prices to earth while encouraging primary single residence ownership.
Oh, and stop inflating financial bubbles that distort the price of a basic human need. For starters.
The solution to the housing crises is to build more housing. This discourages building more housing.
Also HN: These rent controls are just going to make the housing problem in this state even worse.
I don't get it. If the situation were really as simple as the first statement implies, then if this particular law was really going to have a catastrophic effect on housing, that would just mean people would leave and demand would go down and prices would fall, right?
Is it possible that California's housing problems are maybe a little more complex than a few out-of-context pull-quotes from Wealth of Nations would suggest?
Of course the million dollar question is how many less units will be built if they're less profitable, and how many people will be enticed to move or stay in CA because of rent controls.
There were two other comments in this same subthread pointing out that people are in fact moving out of California. (One of them has been deleted.)
It's almost as if f(california_net_migration) is multivariate.
> Less houses will be built, as less profit is being made.
Residential construction in California has been approximately steadily climbing since 2008 [1]. Even if I believed your premise -- which I don't -- reality disagrees with it. The conditions surrounding new residential construction are so much more complex than merely "omg rent control".
A San Jose Mercury News article published last year discussed some of the influences in new residential construction: https://extras.mercurynews.com/blame/
Strangely absent from that article though is that people don't want to just "live in California"; they want to live in the same places where everyone else is already living. There is plenty of affordable land in the central valley, in Kern County, and lots of other places with stagnant economies and depressing downtowns. But if you want to live in San Francisco, expect to pay a stupid amount of money for a vacant lot [2]. Again: this is not a situation that rent control is going to have any effect on whatsoever.
> Therefore, prices will be lower for those already housed, yet more people will be unable to purchase a home.
Funny, this sounds quite a bit like the situation that Proposition 13 created back in 1978 [3].
And yet, proposition 13 is rarely cited as a significant contributor to California's housing issues, especially by the "this is simple supply and demand" crowd. Personally, while I suspect proposition 13 has contributed, there are lots of other factors, including foreign investment [4].
But maybe we'll soon see just how much of an effect that particular factor has had in housing costs [5].
Sure though, rent control is gonna have a huge impact on California's housing prices. Totally.
[1]: https://journal.firsttuesday.us/the-rising-trend-in-californ...
[2]: https://sanfrancisco.cbslocal.com/2016/10/21/san-francisco-v...
[3]: https://en.wikipedia.org/wiki/1978_California_Proposition_13
[4]: https://calmatters.org/housing/2018/03/data-dig-are-foreign-...
[5]: https://www.cnbc.com/2019/07/17/foreign-purchases-of-america...
The inequality gap must be lessened for there to be sustainable growth in the housing construction market; this rent control is part of that.
Yes, which is why a rent-control law is too simplistic to be a solution.
Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year? Who could possibly afford it after several decades of compound growth?
By the time I had to move to CA for work in 2009 of course the market had crashed badly and the condo was well underwater, not even counting the $20k I had put into the kitchen and bathroom.
It was a $185k 2BR 1.5BA unit, with a condo fee of $300/mo and a monthly payment (principle + interest) of $980 with a 3/1 ARM at 3.5%. I got lucky because the rate was indexed to the LIBOR and it was being manipulated to ~0% back then, so my rate stayed super low even though it was adjusting every year.
I put the unit on the market for $165k for two months and got zero showings. So I offered it for rent at $1400 on Craigslist and it was rented that weekend.
I just sold the property last year, to the person who was renting it (and had been for 4 years) for $185k. I gave him the last 4 months before closing rent free because we closed without any broker (no commission) and because I didn’t have to do a thing to the unit pre-closing, seeing as how he was already living there.
Not all landlords are scum out to make a buck on the back of tenants they never met and don’t care about. Not all landlords are even in it because they initially set out to be! And very few landlords are being “fed” half of someone’s paycheck, but more like, covering the costs plus a few percentage points, as long as nothing unexpected happens.
I will nitpick and say that paying your mortgage is not a cost. That is equity you're getting.
That doesn't make much sense to me. 1/2 of the paycheck is only true for a few places with limited housing supply, which is the root cause of the problem. One could apply the same logic of "x% of the paycheck" to other spending items such as food and conclude that the state should also produce our food.
> Public-owned housing is the future. It works in Europe and it can work here.
Public housing in European countries accounts for less than 10% of the overall market and is mainly aimed at poor people. I do not see how this would be a general solution to the shortage of housing.
> Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year?
True, but here, too, the cause is a lack of supply due to zoning, minimum parking requirements, minimum lot sizes and other restrictions.
Public housing has failed time and time again in the US, so citation needed.
The generous way to read the post above is an arrangement where property ownership can be both public and private - possibly where rental units are majority state owned and private ownership is more concentrated in actual residents.
In Asia too: https://en.wikipedia.org/wiki/Public_housing_in_Singapore
Investment requires a return on investment. Return on investment must be commensurate with the risk. Risk adjusted returns are the reason the house/apartment was built in the first place.
But your anger is misdirected. The distortion in the housing market is the direct and predictable result of specific government policy, of which TFA is just more of the same.
In this case by “more of the same” what I mean is a policy which will do nothing to solve the problem. This particular law seems to be relatively harmless.