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0 pointstolmasky6y ago0 comments

What in your second paragraph doesn’t apply without rent control? In other words, what makes 7% the magic number? Your entire argument seems based on market forces (if you raise too much, your tenant leaves and if there’s no wealthy people to replace them, you're stuck). How is this not the case without rent control? Do wealthy tenants somehow appear without rent control?

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11 comments · 1 top-level

joshAg6y ago· 10 in thread

Nothing. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent by that much every year (ostensibly because they are now planning to do this), and my response is that it's absurd to claim that anything in the law will change things so that you could make that sort of increase now if you couldn't already make that increase before the law existed.

closeparen6y ago

Many landlords are not paperclip maximizers. REITs are, but small time families often charge below-market rents to the long term tenants they personally like or can’t be bothered to replace. They feel comfortable doing this because they can always revert to market rate later. With that long-term optionality going away, some will revert to market rate or as close as legally possible right now.

jacobolus6y ago

So in other words, landlords love to reserve the right to kick a tenant they stop liking out at the drop of a hat for no specific reason, by jacking the rent up as high as they want. As compensation for this power, they are willing to charge well below market rates to help indigent tenants.

If they lose this “right”, they insist on becoming pure profit maximizing machines?

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joshAg6y ago

Sure some absolutely will, but there were enough paperclip maximizers relative to the total available rental units that a law limiting their maximizations had enough political will to actually pass through the legislature even though it's blindingly obvious that putting a limit on rent increases encourages all landlords to always increase rent by the maximum allowed.

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vproman6y ago

You can still revert to market rate if your tenant leaves. As a landlord who values consistent occupancy over maximizing profit, I am fine with this. And I agree with above comment, if you are raising rent 7% every year then you or your prop manager lowballed your rent, that’s not the fault of rent control.

track_me_now6y ago

you didn't have to make that response before the law, as a hot market that drove up rates by 15% could be addressed shortly. If you loose the option to make quick upward decisions and any downward movement is essentially irreversible, game theory suggests you'll try to minimize how much increase you leave on the table.

joshAg6y ago

Downward movement isn't irreversible, it's rate of reverse is capped. And the rate limit is pegged to inflation. And roughly equivalent with expected average stock market returns [1].

https://www.creditdonkey.com/average-stock-market-return.htm...

WalterBright6y ago

What has changed with the new rent control law is the risk to the landlord increases, and that means rents rise to pay for the risk.

pishpash6y ago

The thing that would be different is the game theoretic situation where every landlord feels compelled to do that so the market rate increases by 7% per annum.

joshAg6y ago

They could already do that. Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year. The entire point of the 7% cap is to stop that from happening above 7%, because certain hotzones experience that already, not because of a formal agreement, but because the demand outstrips supply by that much and supply can't (or won't) catch up.

However, there's an issue with how you're calculating the market rate: You're assuming that tenants can/will bear that cost indefinitely, so the market rate can be "whatever the landlords want to make it". That won't always be true, not just from landlord defectors who might try to undercut the oligopoly on price, but because the tenants can move elsewhere and effectively remove demand.

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chillwaves6y ago

These guys going to pretend they did not raise rents out of the goodness of their hearts and not cold hard economic reality. What's even the point except to spread FUD?

j / k navigate · click thread line to collapse

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11 comments · 1 top-level

joshAg6y ago· 10 in thread

closeparen6y ago

jacobolus6y ago

If they lose this “right”, they insist on becoming pure profit maximizing machines?

6 more replies

joshAg6y ago

1 more reply

vproman6y ago

track_me_now6y ago

joshAg6y ago

Downward movement isn't irreversible, it's rate of reverse is capped. And the rate limit is pegged to inflation. And roughly equivalent with expected average stock market returns [1].

https://www.creditdonkey.com/average-stock-market-return.htm...

WalterBright6y ago

What has changed with the new rent control law is the risk to the landlord increases, and that means rents rise to pay for the risk.

pishpash6y ago

The thing that would be different is the game theoretic situation where every landlord feels compelled to do that so the market rate increases by 7% per annum.

joshAg6y ago

3 more replies

chillwaves6y ago

These guys going to pretend they did not raise rents out of the goodness of their hearts and not cold hard economic reality. What's even the point except to spread FUD?

j / k navigate · click thread line to collapse