California Approves Statewide Rent Control 449 dawhizkid 11 hrs 682 https://www.nytimes.com/2019/09/11/business/economy/california-rent-control.html news.ycombinator.com/item?id=20945856 phil248 9 hrs I'm shocked at the ideological fervor here and the fact that virtually no one seems to have looked at the details of the actual bill. This is nothing like the rent control ordinance in SF that has caused $3000 units to get stuck at $500 rents. That will never happen under this law. The allowable increases are so much higher than "normal" rent control laws that any given unit will catch up to market rates in a matter of years, at most. Whereas the laws we love to hate result in units getting stuck far below market for decades or even generations.
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.
xxxpupugo 1 hr Well said. It is weird to see so many people jumping out to lay the accusations of 'uninformed!', 'never works', etc...
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.
busterarm 6 hrs The rent control laws in NYC aren't even nearly as bad as SF, despite how much they get demonized here on HN.
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.
heyoni 2 hrs I think rent stabilized apartments can go a lot higher than $2700. Lots of luxury buildings are taking tax abatements in exchange for rent stabilization and setting aside a number of rent controlled units.
irq11 6 hrs The rent control laws in SF aren’t even as bad as HN comments would have you believe.
Rent control doesn’t apply to new construction in SF. It also allows a regulated annual increase, and rent automatically jumps back up to market upon a number of different conditions - not the least of which is that the owner can push you out to renovate the building!
HN commenters are usually just repeating stuff they heard somewhere, and have no idea what the laws actually say.
Moreover, while there are indeed lots of publications on the theoretical impacts of rent control, few of those publications consider laws as they actually exist, or if they do, the scope of the impacts is rarely communicated when translated into HN talking points. Every study I’m aware of has shown, at worst, diffuse, long-term negative impacts to housing costs. Meanwhile, many of them do exactly what they set out to do: stabilize short-term prices for vulnerable populations.
These laws are simply not the boogeymen that comments here make them seem.
refurb 5 hrs Rent control in SF really is that bad. Rent increase limits are 60% of CPI, so it can’t even match inflation. If your costs go up (utilities) or you want to do capital improvements, good luck getting the rent board to approve a pass through. Want to prevent other people than the tenant from moving into a 1 bedroom? Tough, can’t say no to that, it just has to be under 3 people. Want to move into your own house? Sure, just pay the tenant a few tens of thousands in “pay off”.
SF rent control is absolutely onerous and definitely shrinks the pool of potential landlords and thus potential units.
toastal 3 hrs Why should I care about the woes of landlords as opposed to renters?
cm2187 2 hrs Because if it is uneconomical to rent out, there are few units available to rent and the few that are are super expensive. And the property won't be maintained properly. These unintended consequences ultimately hit tenants.
In Paris there is a similar impact of bad regulation. It has become so hard to expel a tenant that has stopped paying that landlords will demand extraordinary guaranties: bank credit lines, guaranties from relatives, sometimes even medical exam, etc and will be super picky. I knew of a foreign investment banker, high salary, not allowed to get in financial dispute because of his profession, who just couldn't find a place to rent in Paris because he couldn't provide some of those.
aaronblohowiak 2 hrs Because shrinking the number of landlords shrinks the number of units available, raising rents, hurting renters.
falsedan 43 mins are these vanishing landlord eating their properties or just throwing them into the sea
icebraining 28 mins No, just leaving them vacant while the value increases.
bakuninsbart 1 min SF Metro vacancy rate is below the national average for large metro areas.0
0 https://www.sfchronicle.com/realestate/article/An-estimated-...
Double_a_92 20 mins Also it lowers incentive to build new units if renting them out becomes too much of a hassle.
macspoofing 32 mins No. They let population growth take care of that while they decide not to invest in rental properties.
Your flippant argument can be flipped around too. If there is a housing shortage, by what mechanism does rent control conjure new housing units?
icebraining 2 hrs Because landlords start being unable to afford repairs, and you get a bunch of decrepit buildings falling apart all over the city (with all the dangers that implies, not just to occupants, but to nearby buildings as well). It happened in my home town, and it wasn't pretty.
Landlords are not social security. It's probably better for the city to forcefully buy them out and create a new management model of the buildings than to impose strangling limits on prices.
Jweb_Guru 1 hr Rents are growing insanely fast in SF compare to anything else. The idea that landlords can't afford to make repairs because they aren't extracting maximum rent from the property is completely ludicrous on the face of it. Do you actually believe these arguments?
icebraining 31 mins Are you talking about all rents, or controlled ones? The post above wrote that rent control rules in SF limit increases to "60% of CPI, so it can’t even match inflation". If that's false, then my post doesn't apply, sure.
jjav 1 hr Because it is hurting the would-be renter group even more?
I personally know two people who are renting rent-controlled apartments in SF and don't live in them. Their lives have moved elsewhere and they don't need the place anymore. One uses it as a weekend getaway and the other one visits rarely.
Thanks to rent control their rent is so cheap that it's worth hanging on to it even though they don't live there.
So these two units are off the rental market effectively forever, sitting empty most of the time.
macspoofing 34 mins Ok. Then care about the tenants. Do you have one shred of evidence that rent control, broadly, helps tenants? Because every economist I ever heard on this topic, left or right, argues rent control is bad for tenants.
mruts 50 mins Why should I care about the woes of you opposed to me? Why should I care about the woes of the poor opposed to the rich?
vixen99 56 mins Because landlords supply housing and renters don't.
bobcostas55 15 mins
Rent control doesn’t apply to new construction in SF.
Conveniently, SF doesn't allow new construction either.
seraphsf 5 hrs I agree with you. I’m renting out a previous condo, and as a landlord, this law strikes me as reasonable and measured. The market will still find its natural level. These controls merely dampen short-term shocks, allowing tenants and communities time to adjust as market conditions change.
rjf72 1 hr To take the other side of the argument here I'm completely against this change but I'm happy that it passed. The reason is simple: without data we're all just speculating. If I'm correct, now I will have real bias-free (since we're looking at this exact location as opposed to other locations where rent control has had... issues) data to support my views.
And of course only a fool would cling to certainty on issues this complex. It's very possible my views are wrong. And if they are then that's a great outcome. If they're not? Well the cost of this experiment is not going to be that big, and it can be reversed relatively easily.
The one thing I think both sides often fail to do though is to set falsifiable metrics before running such an experiment. Take a group of qualified individuals against the program, and those for the program. And have them sit down and work out their expectations of the program. So for instance homelessness. The pro side probably expects this will cause it to decline, the neg side probably does not expect it to have much of an effect. Why not convert those views to numbers collected in a mutually agreed upon fashion, which can then be regularly published - alongside results? And let's see who's right, with accurate data. Of course there are confounders. If we hit a major recession, homelessness will increase regardless. These factors could be mentioned alongside such data.
Instead without doing things beforehand both sides are simply going to spin arguments entirely in their favor, such as with the case of minimum wage increases. Did minimum wage increases collapse the economies? No. Did they cause some economic damage? Yes. Did they bring about a great life for low earners? No. Did they improve the quality of life of some low earners? Yes. And so both sides just create disingenuous arguments painting themselves as 100% correct, which informs nobody and divides everybody, since both sides come back with 'told ya so!'
meerita 49 mins This has been tried in several countries, and it failed miserably. Rent control never worked. In Sweden you have to wait 20 years to get a flat with rent control. The only solution for the people is to increase the offer, how? by deregulating and allowing others to build more.
Ardren 18 mins But this is not what the new bill is about. It doesn't cap total costs, it allows 5% per year increase, it doesn't apply to new homes, etc.
meerita 0 mins If there is any attempt to rent control is what I mentioned, not any particular point of the bill. The truth and I don't get it why people downvote me for just plainly state a fact, any kind of rent control and construction regulations just bring housing problems.
joe_the_user 8 hrs Well,
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.
xenocyon 5 hrs The Urbanist has an article on how modern rent control proposals differ from older ones, and the ramifications thereof: https://www.theurbanist.org/2019/08/05/the-case-for-rent-con...
ovi256 2 hrs At a maximum 5% increase per year, it takes 37 years for a $500 unit to catch up to the $3000 market price. So this law doesn't help that much with that particular case.
moccachino 1 hr I think the example was that this law will not create such a scenario, in the way that previous rent control schemes have.
The example given is of a 500% increase in rent, by definition no rent control law should make such an increase possible in a short time frame.
robomartin 3 hrs At a basic level I would not have any issues with these laws if they also limited expenses. In other words, if you are going to use force to limit income then landlords ought to have the right to limit expenses proportionately. For example, make tenants responsible for wear and tear on the property, just like you pay for mileage on a rental car and are responsible for damages.
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...
throwaway5752 8 hrs This should be the top comment. The upshot is that if you are a family that is renting, you won't be forced out of your home on short notice.
Try - for a moment - to imagine you are living close to your maximum expenses and your landlord increases your rent by 20% next year.
m463 6 hrs This happened to a family I know, except it was 50%. The building was purchased, "refurbished" and the rent was reset to a very high number.
optimusclimb 3 hrs
The building was purchased, "refurbished" and the rent was reset to a very high number.
And if someone was willing to pay that number, then that's what the place was worth.
heyoni 2 hrs Yea but moving as an individual is stressful and 10x moreso for families. We’re trying to keep people off the streets and from having to make bad decisions without hurting the landlords ability to capitalize on their investment. This is a compromise.
mratzloff 2 hrs Not to mention a sudden, unexpected expense in a situation where renters are on a tight budget and likely don't have much or any savings.
heyoni 1 hr That’s it. That’s all this is. The law is just regulating shitty behavior. But you always have those who say “well I can legally raise blah and if I don’t less money.”
Well now they can’t. Good. We’ve made it slightly hard to be a major cunt.
thaumasiotes 3 mins It's interesting to compare what happened under rent control in medieval Europe. Under the feudal system, land rents were permanently fixed. They could never increase or decrease by any amount. This had the advantage that everyone knew what they were.
...sort of. What actually happened was that lords meddled with the size of units. The dues for a plot of land may be fixed at 3 bushels of grain, but if you can make the bushel bigger you can pass a rent increase anyway. So a major concern of European peasant movements was stable and uniform units.
nostrebored 1 hr What are you talking about... One of the nicest things about being a renter is being able to choose to live in a place where you can get those savings.
mcv 30 mins True, but if someone is already using it, it's shitty to increase the price that much. It makes it a bait-and-switch: offer for a reasonable price first, and once the family is all settled, jump a massive price increase on them. That's absolutely something that needs to be banned by law.
anthony_doan 3 hrs That doesn't help the housing issues... which is the whole point of this article and the comment your replied to.
While what you're saying isn't false it's not going to solve anything. Unless you don't think there is a housing issue.
SquishyPanda23 7 hrs
I'm shocked at the ideological fervor here
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.
t34543 6 hrs Plastic, climate change, and identity politics also bring out radical behavior.
skybrian 5 hrs Also, privacy and anything somehow related to Google or Facebook.
quotemstr 7 hrs
I'm shocked at the ideological fervor here > Really? This is pretty common on HN. This is IMO one of its weaknesses.
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.
jquery 8 hrs Are there any provisions for periods of high inflation in the market?
WalterSear 4 hrs The limit is 5% plus inflation.
macspoofing 8 hrs So ... you are arguing rent control is good? Or that this isn't rent control? Or that some rent control is good, but more is really bad?
ac29 7 hrs The point was that this CA statewide bill is quite different from places like SF.
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...
adamsb6 2 hrs What if the market clearing price increases at greater than 5% plus inflation?
This isn’t a free lunch, the tradeoff of a price cap is under provision of a good.
namesbc 2 hrs We currently have a drastic under provision of a good to the tune of 3.5 million homes in CA alone.
This under provision is not because building new homes isn't profitable, it is because realtors, landlords and homeowners are actively blocking new supply in order to extract above market rents from desperate people.
Adding a rent cap of MORE THAN DOUBLE inflation will have no affect on supply, it is ridiculously profitable to rent out your property right now.
CA would have to do something like cap rents at less than $500 per bedroom before profit margins would affect supply.
jjav 1 hr
it is ridiculously profitable to rent out your property right now
I'd be curious if you can share specific numbers on where this is true?
Where in CA can I buy a house/apt and rent it out for more than the mortgage+insurance+taxes+maintenance? A link to the MLS listing would be appreciated.
Every now and then I look at housing costs vs. rental income to consider buying some investment property. But the numbers never work out, I'd always end up loosing money to rent it out.
brohee 45 mins renting is profitable if you can rent for more than
interest_on_mortgage+insurance+taxes+maintenance-raise_in_house_valuation no?
If your formula was the one, renting would never make any sense...
macspoofing 38 mins It is still rent control. The problems you see will not be fixed by the law.
I think one could sanely argue that allowing increases of up to 5% plus inflation is a suitable restrictio
Based on what data?
And no, it's not a 'sane' argument:
1) if 5% + inflation is above market rates then this rent control is either a no-op or detrimental because it may incentivize landlords to hike rent to maximum because they won't have have the flexibility to do that in the future if the market changes.
2) if it is below market rates, then it's just rent control and it comes with all the same baggage and detrimental effects we always see.
Rent control does not work. I don't understand the appeal to continue experimenting.
rolltiide 7 hrs Why does someone have to be arguing anything? They wrote what happened and described it adequately with no disclaimers or partisan copy-pasta to assign favor to any mob.
bhauer 10 hrs I am a landlord in Oregon, but not California. The curious, although ultimately predictable, outcome of the new rent control measure in Oregon is that while I have historically had an arrangement with my property management to be restrained in annual rent increases, they are now advising a default annual increase of the maximum allowed (7 percent before inflation). This is because larger adjustments cannot be made if and when necessary due to market conditions, so it's smart to just steadily increase rent at the maximum rate permitted. If I agree, I believe the result will be more profitable for landlords, and hurtful to tenants.
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.
joshAg 9 hrs The entire point of the law is to prevent you from being able to make those larger adjustments, though.
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.
tolmasky 9 hrs 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?
joshAg 8 hrs 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.
closeparen 8 hrs 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.
jacobolus 7 hrs 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?
cookiecaper 6 hrs
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.
It's disingenuous to pretend like the landlord is the only party with any control. Landlords cannot remove a tenant at "the drop of a hat" by any stretch of the imagination, nor can they arbitrarily increase rental prices. Rentals usually involve a lease that protects the tenant from arbitrary removal and price modifications as much as it protects the landlord from unexpected vacancy. If you're renting, you should know when your lease is up and know that the landlord has the option not to renew and/or to modify the price. (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)
On top of conventional lease protections, virtually every state has default tenant protections written into statute that can't be overridden by lease agreements, and that include a default implicit month-to-month tenancy term, providing at least basic protection from out-of-the-blue demands to vacate.
If an eviction must occur, it has to be conducted as prescribed in state law. Tenants overstaying or defaulting on their leases frequently can't be removed without 3-6 months of legal wrangling, which is no fun.
joshAg 6 hrs
(If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)
The CA law allows the rental price to reset to market rate for a new tenant, so unless the landlord doing you a solid was planning to stick you specifically with a rent increase down the line to recapture the present solid, they can still keep your rent stable across lease terms.
yojo 4 hrs I am a CA landlord of a single house. Keeping track of “market rate” is an annoying exercise and I tend to just leave the rate unchanged for multiple years (3-5) then bring it up in one go. The last time I did this the rent increased ~12%.
Before, the tenant was happy because they got below market rent for 4 years, and I was happy because I could defer pricing work without long term penalty or risking a move-out during an already busy year. This new law will likely result in my tenant paying more, and me working more at times I don’t want to work.
It’s not the end of the world, it’s just one more annoying piece of red tape that doesn’t seem to help anyone.
mratzloff 2 hrs Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants. A smaller annual increase will give them time to adjust to market conditions and choose over a longer period whether or not to move and to save up to do so.
You are doing no one any favors except short-term renters who never get an increase. In other words, your so-called benefit is actually a detriment to long-term renters.
joshAg 3 hrs You can still do it that way. But instead of raising the rent 12% in one year, you can just raise it by 7% one year and then by 4% the next year.
The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year.
I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).
mlyle 3 hrs The point is, if you decline an increase now-- and costs increase unexpectedly, you have a hard cap on how much you can do to adjust. This incents landlords to be more aggressive with pricing, because a mispricing now can extend to be mispriced for many years.
It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.
someguydave 7 hrs A better way to think about it is that a social norm that constrains landlords will be completely upended by the new legal norm. This legal norm will likely encourage behavior that otherwise wouldn't be exhibited, due to unintended consequences - in particular the landlord's estimation of what other landlords are going to do under the new law.
closeparen 6 hrs More like a household renting to a family friend, a student, an artist, someone who helps with child- or elder-care, etc. Homeowners put situations like that on the "market" in large part because they're allowed to change their minds later when the lease is up.
joshAg 7 hrs 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.
kelnos 3 hrs If eligible landlords in SF all started raising rents by 7% per year, every year, the city would empty out. As much as housing is crazy expensive in SF, there's no way the market would bear those kinds of increases
mlyle 3 hrs SF already has rent control, which limits most landlords to increasing rent at 60% of inflation.
Needless to say, costs are increasing faster than 60% of inflation... In turn, landlords are only willing to write leases at very high prices and the supply of rental units is even lower than it would be otherwise...
track_me_now 8 hrs 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.
joshAg 7 hrs 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...
WalterBright 4 hrs 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.
chillwaves 6 hrs 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?
pishpash 8 hrs 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.
joshAg 8 hrs 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.
dragonwriter 7 hrs
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
Well, “Nothing” is an unusual way of referring to the Sherman Anti-Trust Act.
pishpash 7 hrs Let me put it more simply, all that rent control does is put a damper on large increases [1], but the rental market will still seek a market price. The only way to do that is to spread the increases to leaner years where the natural rate increase would be lower than the cap. Every landlord would independently conclude the same, no collusion needed.
To undercut that this year would mean being below market price in a future year. The only arbitrage would be between present and future prices. Perhaps some subset of landlords only seek to rent out for the front-end years, so they would have a different calculus, but all that would do is to pull down the average transaction price by a little, according to their size in the market. So if the current price demands a natural increase of 2%, maybe the market will clear at 5% instead of the 7% max, but it remains the case that there will necessarily be years where the clearing price is higher than without rent control.
[1] This is assuming the government "guesses" it right that 7% is the average rate of increase over the long term. If it is below average, then the market gets severely distorted.
joshAg 6 hrs I'm saying that game theoretic situation you proposed where every landlord raises their price by a similar amount is exactly what the law is working to limit to a fixed ceiling because the situation you described already exists in enough areas that there's political will to do something to limit the maximum yearly percentage increase.
And the cap was explicitly set to be below the average rates of increase for many areas because the effects of the higher increases in those areas is what the law is explicitly trying to prevent.
Spreading the increase to a leaner year only works if the unit is below the market rate. If the unit is already within 7% or so of market rate, then market won't bear that increase. Instead the tenant will move out to a market rate unit. If the entire city increases in lockstep that means people near the bottom of the market will be literally priced out and either move to another city or resort to sleeping in their cars or become homeless, but everyone else will just downgrade the size of the unit they rent since once the price of the current unit exceeds their ability to pay. At the very top end of the market that will mean units will have decreasing occupancy rates assuming the landlord refuses to compete on price to increase demand and insists on capturing the 7% increase.
mc32 9 hrs I think your argument is contradicting itself at least partially because you say if an LL (landlord/landlady) was already getting market price, they’d price themselves out of the market so the 7% cap is more than enough... so in essence you’re saying the market will tell the LL not to raise the rent... which then means you’re relying on market forces... but you’re saying despite that you need a YoY cap... so something seems amiss...
joshAg 8 hrs No no that's not my argument here at all. I'm not making any argument about whether the cap is enough or needed. 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.
mc32 8 hrs Ah, gotcha I see what you are saying.
I think what OP was saying was that in an unrestricted market they have wider range (due to discretion) but given this shackle on hikes, they are going to max it out. Maxing it out means there will not be downward adjustments when warranted (economic trends) and will instead ride it out (not make it avail at lower price) because when the economy picks up they’ll more than make the loss up.
track_me_now 8 hrs what you are arguing is the captured surplus under the supply curve. We can assume that demand is essentially inelastic for a relatively large price range (hence the introduction of rent control) so the extracted value is the area under a curve that changes rapidly over the short term, or a less volatile curve that shifts out 7% every year. I don't see how either of you can be confident in the expected future actuals.
tomc1985 8 hrs This makes me curious... is it the property management company or the landlord that sets the rental price? I recently rented a house and tried to haggle with the PM but they refused to budge on price but were willing to negotiate on other factors (like lease term and property rules), which made me wonder if the PM's hands were tied re: price.
joshAg 8 hrs I don't know exact specifics of typical PM agreements, but usually yeah the PM follows whatever the landlord specifies. If the PM doesn't like the landlord's terms, they will just decline to do business with them, but ultimately they're just the landlord's agent.
I'd hazard that the PM charges a percent of the gross rent, but has a minimum irrespective of the rent actually charged, so the landlord will then just tell them that they don't want the PM to rent at a price where the PM's minimum fee is more than the fixed percentage. (or in hard numbers. If the PM requires the greater of 10% or $100, then the landlord will just say "don't rent below $1000")
WWLink 6 hrs Some PMs will try to act the opposite, but if you're the property owner, you're HIRING the property manager to find you tenants and/or manage the rental process. Their responsibilities are defined in the property management contract.
Sadly, their contracts are pretty slimy - they usually absolve the property manager of any wrongdoing whatsoever. Do they hold up in court? KINDA. Unless you're incredibly rich and have a fantastic lawyer.
bzbz 9 hrs So then what’s the point of not being able to make those larger adjustments?
joshAg 8 hrs There's certain hot zones in cities where the rent can increase by much greater than 7% YoY. In those hot zones no one's wages are rising at the same rate, so that law is the only thing that prevents the people previously living there from being forced to move even if they would rather stay. Essentially, it's the policy that is in response to all the stories about retirees being forced out of a home they rented for decades or the stories about the cops and firemen sleeping in their cars because their job is a 20 hour drive from their house and they can't afford anything closer to their job.
adamsb6 2 hrs What happens to the people that want to live there and are willing to pay a higher price for it?
mratzloff 2 hrs "What happens to the firemen and teachers?" is a more important question than "What happens to the tech workers?"
jquery 1 hr Why?
amahani 8 hrs You are absolutely correct: rent control (1) increases upward pressure, and (2) decreases rental supplies (and therefore drives up the price of rent) , and (3) benefits high-income earners when not coupled with income limits.
(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.
tachyonbeam 5 hrs In Montreal we've had universal rent control all my life, and it actually works quite well. The rents are comparatively low. We have a decent tech scene, but it's still an affordable, left-leaning city, where even struggling artists can scrape by if they want to dedicate themselves to artistic work. I'm sure some people would argue that apartments in Montreal are less well-maintained as a result of universal rent control, but I've lived in the bay area, been to San Francisco many times, and uh, a two-bedroom San Francisco shithole which rents for over 3000 USD/month would rent for about 700 CAD here (~550 USD). If you go to the 800USD/month+ range, you can find very nice apartments.
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.
CryptoPunk 5 hrs Montreal has a large supply of old housing stock. Its population growth has also been much slower than Vancouver and Toronto's over the last few decades:
https://www.theglobeandmail.com/news/national/how-does-montr...
Montreal is not shrinking, but it is growing slower than other big Canadian cities – driving down rental demand in the process. From 2013 to 2014, despite gaining nearly 43,000 immigrants from other parts of the world, Montreal tallied a net loss of 10,000 residents to other provinces.
If either Vancouver or Toronto had had more stringent rent control in place over the last few decades, the housing situation in these cities would be much worse than it is right now.
The effects of rent control have been heavily studied and are well-known:
https://www.econlib.org/library/Enc/RentControl.html
JackFr 7 hrs
(2) tie rent control to income.
Give one moment's thought to the most likely side effect of that...
andrewprock 6 hrs Keep in mind that CA has been operating with a variant of rent control since 1978 and the broader populace expresses wild support for it.
briffle 2 hrs The Hilarious thing in Oregon is some of the 'marketing' for this new rent control law stressed over and over that rent had grown 25% in Oregon over the last 4 years, so 'something needed to be done'. So they capped at 7% per year.. Someone really, really sucks at math...
refurb 8 hrs It also results in a lot of empty units.
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.
pcwalton 8 hrs Vacancy rates in San Francisco are very low compared to the rest of the state and the country. Rent control in SF is problematic not because it leads to vacancies but because the allowable increase is far too low, way below inflation.
refurb 8 hrs Vacancy rates are empty units that are available as a percent of all units available for rent. It doesn’t typically include units that aren’t available for rent.
The estimate is there are 100,000 empty homes in the SF area.[1]
I’ve seen an estimate of 20,000 for SF proper.
This [2] report to SF Planning states the number of empty units has doubled over time.
[1]https://www.sfgate.com/realestate/article/An-estimated-100-0... [2]http://ternercenter.berkeley.edu/uploads/CR_Final_2.3.19.pdf
dragonwriter 7 hrs
I’ve seen an estimate of 20,000 for SF proper.
Even if that was added to the vacancy rate, that would still leave SF with around the national average (~7%) vacancy rate, and that's without counting the off-the-market housing anywhere else in the average (and not double counting actual on-the-market vacancies everywhere else, either.) Anyway you cut it, SF has a low vacancy rate/rate of empty homes.
refurb 5 hrs Yeah, but 2% to 7% vacancy rate can mean the difference between rents that are $2000 per month and rents that are $4000 per month.
pcwalton 8 hrs It's low no matter what measure you look at.
refurb 6 hrs You'd also have to consider all the people that would be happy to rent out their in-law but decide not to because of rent control.
Not saying it would solve the housing crisis, but adding another 20,000+ units onto the market would certainly help.
tmh79 8 hrs yea, vacancy rates in SF are 2 - 3%, way way below the national median, and way below the california median as well
fountainofage 8 hrs What units go into the vacancy rate? The comment seems to be saying these units aren't even listed as available. Would they still show up in the vacancy calculation? How do they get in there?
justinhj 8 hrs Which is why vacant property tax makes sense for popular areas
refurb 7 hrs So solve a problem created by regulations with more regulations?
rileymat2 7 hrs The presumption (right or wrong) is that the problem the first regulations solved is bigger than the problem that the regulations created. After seeing this new (smaller) problem, more regulations are applied creating a new even smaller problem. Making life better.
This may or may not be true, but that is the idea.
lbacaj 8 hrs It’s not so easy, how do you prove this?
What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.
fountainofage 8 hrs Well, what you do is get rid of prop 13 and do yearly appraisals. Then you just tax the property on what it's worth, and if a landlord refuses to rent, then the tax is now a vacancy tax.
The real problem is we're not taxing these properties at the true value they could provide to society, so a massive market inefficiency exists.
KibbutzDalia 3 hrs You are pure evil.
inferiorhuman 7 hrs What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.
If you're putting the place up on AirBnB more often than not, the unit is not your primary residence and shouldn't be afforded benefits as such. If the goal of a vacancy tax is to increase rental supply, AirBnB does pretty much the opposite.
In California, and most of the US, property assessments are done by elected officials on an annual basis. In California the rate of increase is severely capped, but you're free to apply for a reduction if the value of your property decreases. If you're legitimately on vacation (or whatever), apply for an exemption. It's not that complex.
cko 8 hrs As a landlord this doesn’t make too much sense. The value of the property is net operating income divided by cap rate, so vacancies would lower value. It doesn’t matter what the gross scheduled rent is in that calculation.
travisjungroth 8 hrs You can also look at the value as discounted future cash flow. And in that calculation, an empty apartment that the buyer is confident they can fill quickly and rent for $5k is worth more than a full one renting for $4k.
Also, if you take your reasoning to the extreme then an empty apartment building has a negative value.
refurb 8 hrs If you have a tenant paying $1000 per month when market rate is $3000, an empty units drastically increase income and thus the value of the property.
It also opens it up to people who want to buy the building and move in.
lliamander 4 hrs The tendency for government regulation is to subsidize demand (rent control, housing assistance) and restrict supply (zoning, permitting, etc). The side effect is always higher prices.
jdavis703 9 hrs I would suggest you fire your property management company. Any relatively savvy tenant is not going to pay above market rate. Then you'll be out of a presumably stable tenant and taking a risk on a new one. You'll also forfeit the money while your unit is vacant. Lastly you're gonna have some repair and cleaning costs. All in all unless there's crazy price appreciation in your market this strategy is going to cost you money.
zuminator 8 hrs If it's true what you say that "the result will be more profitable for landlords, and hurtful to tenants," then it seems odd that landlords are not universally applauding rent control.
mactrey 7 hrs From the article: "[The measure] was unopposed by the state’s biggest landlords’ group."
It shouldn't be a surprise that more landlord-friendly rent control measures get less resistance from landlords.
mike_d 8 hrs Landlords want to be able to raise rents at whatever rate maximizes profit without generating turn over - except when they want turn over (to get renters out).
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.
john_moscow 8 hrs
they are now advising a default annual increase of the maximum allowed (7 percent before inflation)
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.
halflings 8 hrs Isn't OP saying they are doing this because of rent control? (e.g not being able to change rent selectively, only able to constantly increase rent?)
kd0amg 8 hrs Specifically, it's an attempt to hedge against the possibility of the market rate increasing by more than 7% in a year.
gregs1986 9 hrs Landlords who choose to increase rents at the maximum rate permitted each year do so at the risk that they will be undercut by competing property owners who do not do so. Given this, I think that your property management company is offering you bad advice.
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.
sologoub 9 hrs That’s how large corporations behave, but what the OP is voicing is a common sentiment for smaller investors or people doing landlording as a side gig or housing hack to financial independence.
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.
rory096 5 hrs
Landlords who choose to increase rents at the maximum rate permitted each year do so at the risk that they will be undercut by competing property owners who do not do so.
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...
jquery 1 hr Fascinating. Makes sense from a game theory perspective.
pmikesell 9 hrs
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?
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.
jimmaswell 8 hrs Maybe more people selling property instead of collecting money forever for winning the land lottery 50 years ago it is a good thing.
pmikesell 8 hrs That would remove rental units from the market and further increase cost of living for folks who can’t purchase.
What would be the positive effects?
baddox 9 hrs One example I could imagine is that a landlord may not want to raise rents significantly on a long-term reliable tenant, but would want to increase rents when the reliable tenant leaves. “Market price” probably doesn’t include the cost risks of having a nightmare tenant.
nitwit005 6 hrs There's not much risk to it. Sure, others could undercut you, but when you see that happening you're free to lower the rent and have a tenant again.
Jweb_Guru 1 hr Yes, the real solution is to make life as easy as possible for real estate developers and strip tenants of their rights. That is definitely good for tenants, according to landlords such as yourself. For the rest of us, I hope you understand why this sounds fairly nonsensical. "More housing" does not automatically translate to "affordable housing" and many regulations are there for a reason--including regulations protecting tenants from unscrupulous landlords.
majormajor 5 hrs
because larger adjustments cannot be made if and when necessary due to market conditions
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.
mayneack 7 hrs Counter anecdote: I've lived in a rent controlled apartment in Santa Monica for 5 years. My rent increases by the maximum allowed every year, but that's drastically lower than the non-rent controlled apartments in Santa Monica and West LA. My rent is now pretty significantly below market.
cybersnowflake 8 hrs Also
-
Realize that not everybody in the world needs to or should live in the Bay Area/Hollywood.
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Don't pass statewide laws catering primarily to the group of people aspiring to do so.
namesbc 2 hrs Bay Area has more jobs than it does housing for the people who work those jobs. There just isn't an option for everyone to move away from the bay area and still have work.
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.
algaeontoast 7 hrs This needs to be talked about more.
Entitlement was never a core tenant (no pun intended) of the American dream.
taejo 1 hr It's tenet if you don't intend the pun, by the way.
eloisant 2 hrs I don't think so.
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.
abalone 3 hrs
it's smart to just steadily increase rent at the maximum rate permitted.
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...
seanmcdirmid 7 hrs Have there been leasing periods in your past where rent increases exceeded 7 percent? Is that common?
Also, I assume there is some market pressure to consider, if your increases outpace supply and demand, then tenants would simply move, right?
Bahamut 4 hrs Before Mountain View landed rent control a few years ago, my rent was being increased 10% year over year - I had enough after 3 years and moved to Sunnyvale where my rent was $50 more a month for an extra bedroom and 300-400 sqft extra.
Interestingly, my rent has remained stable ever since moving - guess it's possible to have much better luck with smaller landlords.
maxsilver 7 hrs In the US, it is very common the past decade or so.
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.
cookiecaper 6 hrs It really depends on the landlord. I just renewed my lease on a single-family home in a relatively hot market with no price increase. Of the 7 or 8 different units I've rented across 4 different states, only 2 of them had landlords that routinely nudged the rent upward at lease renewal. My personal experience is that unless someone is really working to maximize profit per unit, they're usually content to leave well enough alone, and only raise rates when the unit goes empty. I know multiple people who've rented for 15+ years with no increase in rent.
Indexes and aggregations may show something, but it's important to remember that they're lossier than many people appreciate. You'd have to dig into the data to learn how representative it may or may not be. Since small-time landlords are hard to collect data from, most of these city rental indexes are probably relying on large-scale apartment landlords who are constantly trying to squeeze maximum price-per-unit. I'd say you'd do well to take it with a grain of salt.
seanmcdirmid 7 hrs I’ve been back in the USA for more than 3 years now and haven’t experienced this yet. I’ve lived in hot housing markets also (LA and then the Seattle area).
maxsilver 7 hrs Seattle's rent, specifically, has risen an average of 8% year-over-year for the past 4 years now. (According to Zillow's rental data - https://www.zillow.com/downtown-seattle-seattle-wa/home-valu...).
And I strongly suspect these numbers are below real-world ones (they use Zillow-listing advertised price, which like most advertisements, are usually slightly lower than the actual price a real person would have to pay)
seanmcdirmid 7 hrs I’ve been told that supply “caught” up in 2017 when I moved into downtown Bellevue, so the market has been weak on apartments (indeed everyone was offering incentives). Anyways, as anecdotal, we aren’t paying more than 7% more for our third leasing period in 2019 as we were in our first leasing period in 2017.
novok 6 hrs Thats why cities like oakland allowed landlords to 'store' rental increases if they didn't increase it to the max in previous years AFAIK.
BurningFrog 8 hrs If the marked could bear annual 7% increases, why didn't you make them before?
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.
jeffdavis 6 hrs A new rent control law changes the market. If the tenant leaves, they will need to sign a new lease, and the leasor will build in extra rent because they are worried they won't be able to raise it enough later.
In other words, it scares all the landlords at once, and they all raise prices a little because of it.
quickthrower2 5 hrs It all depends if tenants can afford it. On a scale this could be "happy with rent"->"rent too high but can afford"->"cannot afford rent, in arrears".
Are average renters getting 7% pay raises every year in perpetuity?
foobar1962 3 hrs
The real solution to a housing problem is to incentivize and facilitate the building of more housing.
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.
cycrutchfield 3 hrs That’s not a real solution, that’s just wishing the problem would go away on its own. What you are advocating for here is that prices should be more expensive due to limited supply, so that people are forced away due to inability to afford living there.
foobar1962 59 mins It's not wishing anything. People ARE ALREADY struggling to afford rent in Sydney and other large cities. They have been getting bigger and bigger in the past decade yet the problem only gets worse (like building highways to solve traffic congestion).
The solution is to make other places attractive for living and have hood opportunities for employment.
Look at it this way: your house or apartment or whatever can probably fit double the people in it. They might be on the floor or on the sofa or whatever, we can double the density. The quality of life will be decreased for everybody.
At what point do we say "It's full, go somewhere else."
pvelagal 7 hrs Not really, landlords who choose to increase rent with rent control in effect , will increase rent no matter what. The only thing stopping any landlord to not increase rent are supply/demand (market conditions)
gigatexal 5 hrs Landlord here in Oregon with just a single unit. I was a renter and now I’m fortunate enough to be an owner and I go out of my way to do right by my tenant. Rent increases are just for inflation for me 1-3% on renewal only.
There is a lot of knock on affects that rent control brings that are negative that I don’t have time to go into
PorterDuff 7 hrs Hah, thanks for the insight.
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.
Railsify 4 hrs I agree with your final statement, even if zoning and build regs are revamped rent control restricts the potential profit of those new buildings which will cause developers to build elsewhere.
refurb 9 hrs This same thing happens prior to rent control coming into effect - landlords institute a forward looking rent increase to compensate for the fact they’ll be limited in the future.
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.
decebalus1 9 hrs
The real solution to a housing problem is to incentivize and facilitate the building of more housing.
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.
tmh79 8 hrs This tends to happen with new apartment buildings for the first 2 years or so, and its an artifact of real estate finance. For finance purposes, the building is valued on the theoretical sum of its leases when its at full capacity. If you have a 100 unit building where each unit rents for exactly 2.5k/month, then your building is valued on a multiple of of the $250000/month it generates. That value is used as capital for the real estate company that owns the building to use to get a loan to build another apartment complex. Where this gets tricky is that the max cashflow a building can generate is decreased when you lower rents in leases for for finance and accounting purposes,but when you give someone 1/2/3 months free rent the "max theoretical monthly rent" remains the same as if you hadn't given them the free rent. Thus, while the 2 months free rent is an effective ~18% rent decrease for the tenant, it doesn't impact the ability for the development company to borrow, and thats why it is widely used.
mbajkowski 7 hrs This seems about right. Also, there is a time frame when a new complex after completion transitions from a short term builder/construction loan to a long term permanent loan. For that loan as mentioned above the building is valued at theoretical sum of it leases by the bank. Thus for that loan it is better to show high actual rents and extrapolate to secure a better loan value / term.
epistasis 9 hrs For a town of 20k people, a couple hundred apartments doesn't seem like much at all to me. That's probably less than 5% population growth, right?
A big big problem is that we have underbuilt for decades, which has normalized underhousing for younger people.
matchbok 7 hrs Nobody says the rent will go down. That's not the argument.
Increasing supply simply ensures tomorrow's rent is lower than it would be otherwise.
tolmasky 9 hrs Losing an entire year of 1.2K rent breaks even with 1.7K rent after roughly 3.3 years, breaks even (1.7(x-12)=1.2x, x = 40 months). And that’s if the new tenants stay with no churn and you don’t play the same game forcing them out for another year. Had they just raised your rent $200, the break even point becomes almost 6 years. I don’t understand your landlords at all.
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).
jurassic 7 hrs I believe part of the explanation for this is that big landlords have more ways to make money off property than just collecting rent over long periods of time due to the way buildings are valued in the commercial real estate market. Building net operating income has a direct relationship to market value; the ratio of these things gives you the capitalization rate, which tends to be known for a given type of building in a given market.
If the unit sits vacant for a while but they do eventually succeed in growing building revenue through rent increases, they don't have to wait out the full breakeven timeline to make money since they can sell it on to the next buyer at the newer higher price indicated by the latest year's financials.
Let's take an example building where the local market has apartments trading at a 3% cap rate. If there are 30 units renting at 1.2k with no vacancy, that's $432k in annual rent. Let's say running this property requires a $80k property manager, $80k in property taxes, $40k in utilities, $40k in insurance, and $25k in miscellaneous expenses for a total of $265k/yr in expenses. The net operating income is $432k - $265k = $167k/yr. The market value of this building to a prospective buyer would be $167k/0.03=~$5.56M
Renting the 30 units at $1.7k (41% rent increase), gross rents would be $612k. Expenses constant at $265k/yr (taxes would go up, but this is napkin math), the NOI is now $347k and the building is worth $347k/0.03=$11.56M .
In this example, a 41% rent increase more than doubled the value of the building. For an investor with deep enough pockets, the $6M of equity created by renting units at the higher price is enough to cover the cost of a long vacancy / rehab process. But they can't get too greedy or the units will never rent and they're just stuck holding the bag on a high-vacancy underperforming property.
These dynamics amount to what is basically a slow-motion flip playing out over 4-10 years. Some REITs do this across their entire portfolio to achieve healthy annualized returns.
decebalus1 6 hrs Alright, that makes sense. But can we all agree that it's a problem?
When I said there needs to be some level of control (and apparently nobody agrees), I was referring to something like the taxes put in place by local governments against foreigners buying up property, keeping it unoccupied thus creating scarcity and driving prices up.
In this particular case, the local government practically gave away building permits, changed codes, the whole town was at the developer's feet (roads closed, free traffic enforcement, less green space, redesigned roads to deal with the forecasted traffic, etc..) under the promise of building plenty of 'affordable housing'.
But when after you build it (tons of this crap https://www.bloomberg.com/news/features/2019-02-13/why-ameri...) you raise the rent for no reason and practically drive people away (I'm not saying it's gentrification, I'm saying it's well-off young professionals who are now choosing to move to a different city), the local market stops being competitive, you sit around with empty apartments, somebody went wrong somewhere. All new developments are under the ownership of two or three giant entities which have a vested interest of keeping prices very high as opposed to competing among themselves. The management companies who own these also made sure to buy a lot of the existing (crappy) apartment buildings.
The argument I was trying to make is that more housing does not necessarily solve the rent price problem, especially if the new housing is governed by a handful of large corporations. And that is usually the case.
bsder 8 hrs There's some weird legal implications that I know that I don't understand.
I see this all the time where a large ownership company will leave apartments or commercial real estate totally unoccupied rather than allow a cheaper rent.
I don't understand what they gain.
ac29 7 hrs Losses on rental, including depreciation and fixed costs like property tax can be counted against profits on other units. These losses can be carried forward and applied against future taxes indefinitely in the US.
So, leaving an apartment empty that could be rented for $X isnt quite a straightforward loss of $X, since you also gain the ability to offset future taxes.
PorterDuff 6 hrs Perhaps it's similar to the economics of retail gasoline prices at gas stations.
bsder 9 hrs
they are now advising a default annual increase of the maximum allowed (7 percent before inflation).
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.
MagnumPIG 7 hrs Agreed, here in Montreal it's something like 2%.
Causality1 9 hrs Indeed. If you have a crises stemming from "not enough housing", increasing the number of potential customers for that housing is only going to make the lack of supply worse.
human20190310 7 hrs There is no functioning market to begin with. Housing prices and rent are through the roof in California, yet supply is not rising to meet demand, largely because existing owners oppose new construction.
Turnabout is fair play. If owners organize politically to control supply, tenants can organize politically to control prices.
jeffdavis 6 hrs
Turnabout is fair play.
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.
eagsalazar2 5 hrs Give me a break. Until suppression of building new units stops (by poor, helpless owners), this is the only recourse. I agree wholeheartedly that the real solution is to build more homes but that doesn't appear to be in the cards. So the idea that rent control doesn't actually help lower income people is completely nuts. I know of many people off the top of my head that no-way would still be living in San Francisco if there weren't rent control (including my elderly aunt and uncle).
roenxi 4 hrs
Until suppression of building new units stops (by poor, helpless owners), this is the only recourse.
In the spirit of furious agreement, yes the best option would obviously be not to suppress construction.
Just because one interest group wants stupid things to happen that benefit them in the short term doesn't make it a good idea to go open season on stupid things. The goal should always be to improve the state of affairs; not to spread the pain around.
Everyone bar no-one needs institutions stuffed with people who make sensible long-term decisions. The best way to get that is to always pressure them in that direction. Bending to political expedience encourages people who make bad decisions; not a good strategy.
Renevith 4 hrs If there weren't rent control, market rents would certainly be much lower, so it's really hard to say whether your aunt and uncle could afford it or not. Surely you weren't basing your statement on the current market rent in their neighborhood? On what basis are you making that claim?
negrit 1 hr
If there weren't rent control, market rents would certainly be much lower
source?
aaronblohowiak 4 hrs Rent control is another form of pulling up the bridge behind you.
anigbrowl 4 hrs Except renters aren't accumulators in anything like the same way as investors and don't tend to be the ones agitating against development because they're not invested the property and have no incentive to drive it up by limiting housing stock. Guilting the least financially secure for having any degree of predictability and stability is an emotionally manipulative rather than a substantive argument.
rtpg 5 hrs
manipulating prices which has bad side effects for many even if its good for a few.
There are way more renters than owners. Prices have been going up more than 5%. Owners are most definitely not the "less-powerful" here.
So in reality the gov't might be artificially surpressing supply (though it's mostly due to owner pushback), but the "manipulating prices" (trying to keep rent growth from getting out of control) is helping less-powerful.
I get the point about how this can default owners to just increase prices. Well they were going to be doing that anyways! Especially with surpressed supply!
Arguing that "overall price increases with this law" > "overall prices increase without this law" is non-intuitive and probably just not true.
(thought experiment: if raising 5% every year with the law made sense, why would it not make sense to raise it 5% every year without the law? This law doesn't prevent other owners from offering lower rents, if the market calls for it)
AnthonyMouse 5 hrs
thought experiment: if raising 5% every year with the law made sense, why would it not make sense to raise it 5% every year without the law?
If you don't raise it now then you can no longer do it later in the event that taxes or mortgage interest rates or some other cost increases. That creates a major risk for the landlord, which most of them would prefer to mitigate by raising rents even if it means apartments going vacant longer. And when they're all similarly situated, they all do the same thing, which means the tenants can't avoid the rent increases by moving to another apartment, which allows for more of the landlords to get in on the rent increase without incurring vacancies.
tylerl 4 hrs Having an actual number on the books shared by all creates an expectation. It's an anchor. If everyone agrees a 5% increase is reasonable, then everyone will do it. Now you don't need a reason, you're just keeping up with the market.
ralusek 7 hrs Let's just not even talk about the fact that regulation is the reason why housing is scarce, let's just assume California is 100% at capacity. How the hell does rent control increase turnabout? It just let's people who got in at the right time have their status as a resident enforced indefinitely, when there are plenty of people who are willing and able to pay far more in order to live there.
human20190310 7 hrs It hurts the owners who would be receiving the wealthy newcomers' money.
It doesn't solve anything directly, but it's an attack on the prosperity of the people who are maintaining artificial restrictions on new construction.
A laissez-faire approach to both construction and rent would probably be a better option. But that's already not happening, and it's not going to happen without pressuring homeowners and landlords to stop opposing construction.
khawkins 6 hrs Pernicious attacks on landlords because of some perceived collusion amongst them is ugly. The landlords aren't any more to blame for the lack of supply than their tenants or the politicians.
There's obviously money to be had in leveling a block of houses and increasing the population density by 10-30 times the amount. The market demand is extremely high. Real estate developers would jump at the chance to do so if they thought they could get through all the red tape. The landlords owning those houses would certainly sell for the right price.
The entire society is abandoning free market principles in favor of social engineering. If they're not careful, they'll kill the goose that lays the golden egg.
fivre 5 hrs They may not be some grand cabal, but if biggerpockets.com posts are anything to go by, I have no qualms with any pernicious attacks against them.
Ruthless capitalism and fundamental human needs do not mix well.
jlebar 4 hrs Ruthless capitalism and fundamental human needs do not mix well.
I dunno. I don't have much trouble finding reasonably priced, nutritious, and tasty food (cooked or as ingredients) anywhere I've visited in the world. Yet food is governed by ruthless capitalism, no? Surely we wouldn't argue that farm subsidies are all that's standing in the way between people getting a decent meal and chaos?
What about...petroleum? Like it or not, it's necessary for survival today. Absolutely ruthless capitalism at play, and at the hands of a lot of people we don't like. And yet...the system works pretty ok, I think? The last major oil shock we had was in the '70s -- not bad, considering how many financial crises we've had since then.
I don't get what is your proposed alternative to "ruthless capitalism" for housing. Are you proposing "single payer housing"? Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market, where the means of production^W^W^Whousing stock is owned by The People but decisions about how to employ the housing stock is made by the government?
pmiller2 4 hrs Neither food nor oil actually make your point, since both are heavily subsidized by the US government.
fiter 3 hrs But surely they're not subsidized for the entire world by the US government?
abalone 4 hrs Petroleum is literally exhibit number one of the failures of ruthless capitalism in that its negative externalities have led to the possibly irreversible destruction of our climate. This is not a good start to your argument.
Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market, where the means of production^W^W^Whousing stock is owned by The People but decisions about how to employ the housing stock is made by the government?
Basically yes. The “progressive” position on affordable housing generally calls for major government investment in housing. This is not a new idea; in the U.S., much of the big buildout of middle class housing last century was heavily subsidized by HUD.
CryptoPunk 5 hrs "Capitalism" doesn't mean profit motivated action. Advocating for government restrictions on private property rights, in order to restrict supply growth and increase profits, is not capitalism. It's cronyism.
dgzl 6 hrs Construction isn't easy anymore. we've taxed and regulated it into a luxury.
ravenstine 6 hrs Lots of developers choose to build luxury buildings because it can take several years for the construction to be approved. We could build more starter homes like we used to, but it's hardly worth it for developers.
dcolkitt 6 hrs Maybe, but construction may not even be necessary. Shipping containers can now be easily retrofitted into stylish apartments. They can easily be stacked eight stories tall.
95% of the work can be done in overseas factories and is subject to the same globally competitive downward price pressure as every other manufactured good. Build them in Shenzen at a wholesale cost of $30,000 per pod, ship them to San Franciso for $2000, stack and install them at a cost of $8000. At 320 square feet, that's $120 per square foot. The same cost as new homes in rural Texas.
All the California legislature needs to do is pass a law zoning everywhere in the state for multi-story shipping container apartments. Then watch prices plummet. Even for single family regular construction homes, because the shipping container apartments will suck so much demand out of the market.
TFortunato 5 hrs Prefabricated easily moveable homes are already a thing. You can go on https://factorydirectmobilehomes.com/ right now and buy a home larger than a shipping container for less than $30k.
Modular apartment buildings also exist and can be thrown together quickly and affordably.
Not to be rude, but the problem is likely going to take a bit more to solve than throwing shipping containers at it..
camjohnson26 5 hrs I genuinely can’t tell if this is sarcasm or not because there are definitely people with this level of economic illiteracy.
dcolkitt 5 hrs In zoning-restricted markets like the Bay Area, housing supply is extremely price inelastic. The coefficient is at least 2.0 if not higher.
If cheap, abundant, shipping containers pull 25% of the demand out of the low-end multi-family segment, that's a 50% drop in prices. Low-end housing is a substitute good with mid-end housing for at least some of the demand.
The prime example are people who live with roommates in mid-end housing, who with cheap enough low-end prices, would get their own place. A 50% price shock to low-end multi-family at the very least would pull 10% of the demand out of the mid-end. That would lead to a 20% drop in mid-end multi-family prices.
Just the same there's at least some substitutability between mid-end multi-family and mid-to-high-end single family. A prime example are empty-nesters looking to downsize. With a 20% price shock to multi-family, that would suck at least 5% of the demand out of the single-family segment. That's a minimum of a 10% price reduction.
Hence a positive supply shock in the form of cheap, abundant shipping container homes would reduce the price of mid-high-end single family homes by at least 10%. This is all micro-econ 101.
yocheckitdawg 5 hrs Who the fuck wants to live in a shipping container?
dcolkitt 5 hrs A shipping container is 320 square feet. Two pods can be joined into a single 740 square foot unit. That's a total cost of $80,000. Let's round to $100,000. Assume a rental yield of 12%.
$1000 a month for a brand new 740 square foot apartment in the middle of San Francisco. Plus with modern finishes that are frankly much nicer than anything you'll find in the low-end SF rental market. I'd imagine quite a lot of people would sign up.
clucas 5 hrs I don't think shipping container housing is the panacea the marketing makes it out to be. The savings aren't as crazy as you might think because of all the retrofitting involved to make them pleasant for human occupancy. Square feet are a nice shorthand for certain aspects of habitability, but floor area is not the only relevant factor.
This is mostly from an NYT article, so perhaps it's just one school if thought among many, but I found it convincing on the merits. https://www.nytimes.com/2019/08/14/opinion/shipping-containe...
kube-system 4 hrs That seems like a lot of money compared to existing prefab options. For the same or less money, why not use something designed to be a dwelling to begin with?
patmcc 4 hrs Why do you think construction price, and not land price, is the limiting factor?
I'm in a high-demand city in Canada. The house I'm in right now is worth about $70k. The land it sits on is worth $900k. Shipping containers aren't going to help with that.
dcolkitt 3 hrs It will if you stack them eight stories high.
Don't know where you live, but I doubt it's more expensive land than San Francisco, where the average acre of land costs $3.2 million[1]. Taking that acre of land, save half the area for green-space and courtyard. Use half the footprint for shipping containers. Stack the containers 8 high.
You now have 242 double-pod units. The amortized land cost per unit is $13,000. Assuming a generous rental yield of 12%, the land cost only adds $130 a month to the rent. That's hardly anything for a 720 square foot apartment.
The lesson is that even San Francisco land costs are no match for the power of high-rise high-density housing.
[1] https://www.6sqft.com/study-shows-huge-disparity-in-u-s-urba...
throwawaynihil 56 mins The kind of people who move to San Francisco from new york or connecticut, or wherever, to get rich then immediately start complaining that San Francisco isn't like wherever it is they immigrated from.
dgzl 5 hrs I know many people who would rather live in a shipping container than where they're currently living.
eecc 4 hrs Well, in Amsterdam students:
https://www.studenten.net/artikel/wonen-in-een-container
mratzloff 1 hr Oh my god. When Hacker News begins literally suggesting the Stacks from Ready Player One as a solution to anything it's time for me to close my browser.
foxtr0t 4 hrs That is only true if you assume the housing market under rent control is otherwise efficient. In reality it is painfully inefficient. Scarcity due to rent control (due to existing tenants holding on to leases) allows landlords to price gouge on everything from open units to parking to laundry.
If you play that dynamic forward you end up in a situation where everyone is overpaying compared to a more fluid market, even those longer term tenants.
slavik81 4 hrs Getting back at owners for opposing new construction by instituting rent control is cutting off your nose to spite your face. Rent control adds even more people who have no financial incentive to reduce the cost of housing in their neighborhood, thus making new construction even more politically difficult.
um_ya 6 hrs Do you really expect a place like California to reduce regulations? Their solution is a new regulation!
jackvalentine 7 hrs
Let's just not even talk about the fact that regulation is the reason why housing is scarce, let's just assume California is 100% at capacity.
AKA ignore the entire foundation of the previous poster's point?
Edit: upon re-reading your comment I think maybe you don't know what the phrase 'Turnabout is fair play.' means.
https://en.wiktionary.org/wiki/turnabout_is_fair_play
dgzl 6 hrs Thanks for that, I didn't know this term. However I disagree with the idea that two wrongs make a right. Forcing the suffering around like that just creates more problems than it's worth.
jackvalentine 6 hrs In this case two wrongs may not make a right, but at least it shares some pain with the rent-seeking property owning class and may in time cause them to accept change.
It's a bit fatalistic but if we're going down anyway, we're going down together!
sgc 6 hrs If they are making less money, they certainly won't allow more construction to deflate prices even further. Rent is already below mortgage in California, so I am not sure what kind of deal people are looking for. As others have said here in various ways, it seems more like lashing out at someone because it sucks life is so expensive where you live rather than dealing with the root causes.
jackvalentine 6 hrs How would you deal with the root causes?
AnthonyMouse 5 hrs Impose relaxed zoning rules at the state level instead of imposing rent control there.
jackvalentine 4 hrs I would completely agree with that, but for some reason it isn't as politically do-able as this rent control legislation was.
AnthonyMouse 4 hrs
I would completely agree with that, but for some reason it isn't as politically do-able as this rent control legislation was.
The reason is that landlords know exactly what rent control does.
Landlords know that the tenants with the strongest interest in local housing costs are the people who already live there and plan to continue to do so indefinitely. Rent control is a method of buying them off without actually solving the problem in general, so that overall rents and housing costs remain high but the subset of people most likely to be politically active in doing something to correct that gets a bribe to stop objecting while overall housing costs continue to rise faster than inflation.
What it is, then, is not a step on the road to a real solution, it's a roadblock preventing that from happening by weakening opposition to the status quo by just enough that no actually effective reforms can be enacted.
jackvalentine 3 hrs So how would you solve the root cause?
dgzl 6 hrs I hate that mentality. It achieves nothing good in the long run.
nradov 6 hrs Many parts of California are already beyond 100% capacity for certain pieces of infrastructure like transportation, schools, water, and sewers. So I only support more housing in those areas if building permits are directly coupled with equivalent infrastructure upgrades.
sgc 6 hrs There are places in California where infrastructure can't help. There is just not enough water for more people.
labster 5 hrs That's not really true except perhaps on the shallowest level. There's a lot of environmental issues, pre-1914 water rights, short-term climate issues like ENSO and MJO, and crop choices that have caused California to experience water shortages. Maybe in some cases we can put crops under solar panels to save water0, or reclaim more water through toilet-to-tap programs. You know, through infrastructure.
Reductionist statements like yours never really reflect any real-world policy environment. The real world is messy and complicated.
tbihl 5 hrs To push in a different direction, there isn't enough water for more people while keeping the amount and types of agriculture in California constant. Prioritize residential water use over agricultural rather than aggressively doing the reverse, and you'd probably see improvement. Singapore and Hong Kong are very strong arguments to me against the idea that California couldn't handle more.
0xB31B1B 3 hrs Lucky for us, none of these “at capacity” areas are in high cost metros like LA, San Diego or the Bay Area
WWLink 6 hrs I highly doubt that. At least in LA county, this place was built up in a giant friggin profit-motivated hurry.
Now, if we're talking about planned cities built in the 80s in orange county, maybe we have a point! Maybe.
SF has a similar story of sorts. Building code regulations were heavily relaxed after the 1906 earthquake in fear that people wouldn't rebuild otherwise.
Businesses will build whatever is most profitable. If it's more profitable to de-regulate and unzone everything, then they would be lobbying like hell to get that.
guelo 5 hrs Getting in at the right time is a big part of free markets and capitalism. It's the same as someone complaining that Zukerberg or Henry Ford just got in at the right time and didn't deserve their wealth.
davidw 5 hrs
tenants can organize politically to control prices.
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.
dgzl 6 hrs California is also one of the most taxed and regulated states. Do you think that is a coincidence?
guelo 5 hrs California has also been creating high paying jobs at a fast pace, could that be a coincidence?
onlyrealcuzzo 5 hrs D.C. is probably a better example here. California is 1/6th of the US economy. It's not really creating "good" jobs relative to its size.
And D.C. is only doing that because it's just one city. Cities are the winners in the current economy. They happen to be liberal. Cities in Texas and Tenesee happen to be conservative, and they're doing swimmingly also.
Despite how much people get worked up, policy doesn't have a huge macroeconomic effect.
bbreier 4 hrs
Cities in Texas and Tenesee happen to be conservative
I don't know anything about Tennessee, but cities in Texas are not conservative. See these maps of 2012 and 2016 election results by county:
https://www.chron.com/politics/election/local/article/Map-co...
onlyrealcuzzo 4 hrs That's a very recent development -- starting around 2008. Even still -- beside Austin -- they are barely liberal. You do realize places like SF, Los Angeles, NYC, Philadelphia, Boston, Chicago, Seattle etc vote democratic at rates close to 75% for like 30 straight years.
Even most southern cities like Atlanta, Jacksonville, Tampa, Orlando, and Miami are well into the 60s.
Even if Dallas, Houston, and San Antonio are like ~52% for the last 8 years, they're a bit of an outlier as far as major cities go.
PorterDuff 7 hrs It's worth considering California building code in the cost of new construction.
sgc 5 hrs California building code is really not that different from anywhere else in the US, since almost all states base their code off the IBC. it costs a little more to build in a seismic zone or a high fire risk zone, but that is inevitable. The code does help keep people alive and healthy, and protect against more costly damage than otherwise in case of natural disasters.
In California, 25% of a new SFR is land. Another 25% easy goes to permits and municipal utility connections. 40% construction costs (including paying the boss a salary), and if you are lucky, 10% profit. Simply reducing permitting costs and streamlining the process to reduce holding costs (without even easing restrictions, just being more efficient/faster at the municipal level) could shave 20% off a new home price. That would drive down all home prices to some extent and open up a large number of people to get out of the renters pool.
So CA government is the major player to blame for housing costs, and these laws are in place of just doing their jobs well. This might drive prices down too, eventually, but not nearly as quickly or fairly as bureaucratic reform would.
PorterDuff 5 hrs Do they require fire suppression systems and solar panels in the rest of the US? I honestly don't know.
sgc 4 hrs Fire suppression is required everywhere AFAIK. Solar is not yet required, but will be next year. So it has had no effect on current Ca housing. That is a stupid rule and should have exemptions for areas that don't receive enough sun due to fog/trees/etc. But solar will still be far, far cheaper than permits and will add value/decrease ownership costs for most homes.
dgzl 7 hrs Regulations and taxes drive developers away.
camjohnson26 5 hrs That’s just not true, of course there is a functioning market. It’s disingenuous to say that just because the market has problems that means there isn’t one at all and to justify taking away what little freedoms are left.
cheriot 5 hrs
Turnabout is fair play. If owners organize politically to control supply...
It's frequently renters talking about gentrification that oppose new housing around me.
masonic 6 hrs supply is not rising to meet demand How will that aspect not worsen with added rent control? namesbc 2 hrs We are so very very far above market equilibrium rents. Even if CA did something drastic and limited rents to say $500 per bedroom it would still be profitable to build more housing.
Lack of profit incentives is NOT what is blocking housing construction in CA right now.
This very minor, way above inflation, rent cap will not affect housing supply.
breerly 5 hrs Yes. Price controls are a race to the bottom.
downrightmike 5 hrs Time to let half of Rome burn.
Romanulus 6 hrs That seems like a really clumsy way of pretending to be in a free market.
AmericanChopper 6 hrs
yet supply is not rising to meet demand, largely because existing owners oppose new construction.
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.
coliveira 6 hrs Talking about "regulation" doesn't really say anything. All laws, good and bad are regulation. There is regulation passed by businesses, and very few passed by citizens. When you cry about regulation, it is similar to crying about the water being wet or over having to breath. In modern society, very few things are done without regulation. Even basic rights that we take for granted, such as freedom of speech, are guaranteed in the US because there is a piece of regulation, passed more than two centuries ago, called "constitution".
AmericanChopper 6 hrs I’m not sure what this is supposed to contribute to the conversation. Regulations make it simply impossible for housing supply to keep up with demand in California (and lots of other places too). This point in particular is not even contentious as far as I can tell. If you want to fix the problem, the only way to do it is to relax zoning and permit regulations. Trying to fix over-regulation with more regulation will only ever make things less efficient, requiring even more regulations, ad infinitum. This has been California’s long standing policy, and not only has this never solved the problem, it’s never even been able to stop it from endlessly getting worse.
human20190310 5 hrs
This point in particular is not even contentious as far as I can tell. If you want to fix the problem, the only way to do it is to relax zoning and permit regulations.
This has already been proposed by Scott Wiener as SB50. It was opposed by local councils and never put to an actual vote, and it never will be, unless political pressure is applied in the form of counter-regulation.
sgc 5 hrs As I said above, they don't even need to ease the regulations, just work faster for permit approval and charge less for them, and the problem could largely sort itself out.
AmericanChopper 5 hrs The cost of compliance is really a minor factor here. The problem is that zoning laws simply prohibit building enough hosing to meet demand. The zoning laws in LA, the Bay Area and elsewhere will ensure an ever-worsening and never ending housing shortage for as long as they exist in their current state.
sgc 4 hrs There are many lots that don't get built on because the cost of construction is higher than the value of the home once built. I have done the math on a number of such lots, and the permitting fees have been roughly the amount to tip the scales. Add to that the one year minimum build time due to at least 4-6 months of bureaucratic delays, and it just becomes unfeasible.
human20190310 6 hrs
So when over-regulation drives up the costs, the appropriate response is to introduce new regulations to fight the other regulations?
Yes. The effort to reduce regulations on construction has failed. As such, retaliating against the beneficiaries of those regulations with counter-regulations is appropriate.
It's not pretty or efficient, this is a fight between different interests, not a group problem-solving effort.
AmericanChopper 6 hrs If over regulation drove up prices, what exactly do you expect from more regulation?
clucas 5 hrs It is possible for regulation to lower the cost of some things. For example, currently the regulatory environment in many California real estate market lowers the cost of holding rental property. In a more competitive, less regulated market, the opportunity cost of buildin developing now housing would be lower, so landlords would have more cost (indirectly through decreased rent or directly through more frequent renovations).
Hopefully this move leads relaxed zoning laws and regulations, allowing new development... People who want such things will gain political clout because capital will want return on investment, and rent control shifts the calculus for good ROI in the real estate market toward new development (marginally).
I'm sure hundreds of economists have written thousands of papers about this subject, each going its own idiosyncratic way, so maybe I've actually been proven wrong in this particular case, I don't know, but I have to say that the idea that regulation only ever increases costs is silly.
AnthonyMouse 5 hrs
rent control shifts the calculus for good ROI in the real estate market toward new development (marginally).
It does precisely the opposite. It reduces the value of rental properties, which makes investing in constructing them less competitive against investment in constructing new housing in some other state or country, or constructing commercial properties rather than residential ones, or any other competing investment securities.
human20190310 6 hrs To expand the set of people suffering to include landlords and owners, instead of having own group of people benefiting from regulation (in the form of restricted supply) and another not.
EDIT: to be clear, not suffering for its own sake, but to pressure owners to stop supporting the current regulations.
AmericanChopper 5 hrs As long as demand for housing continues to outstrip supply, especially if demand continues to grow at a rate exceeding the growth in supply, then there will always be money to be made in housing.
This law in California allows for 5% annual increases after inflation. It’s hard to see how this will even hurt landlords. Creating a pretty clear incentive to perform a maximum increase ever year doesn’t seem great for renters though.