8 ms·

A New Real-Estate War in Silicon Valley

55 points by patmcguire 10y ago

spoonie 10y ago
Question to landlords: does rent control hurt your bottom line? I understand the opportunity costs of rent control: if rents in your neighbourhood have gone up 50% this year you feel like a sucker if you can only raise them by 5%. Similarly you might put off minor renovations (that don't require the tenant moving out) because you won't necessarily be able to charge more to make up for the cost (apart from selling the property). But is it common to rent out a property below cost, assuming you can make it up later with rent increases? E.g. you just bought a property in Mountain View so your mortgage payments are high, plus the cost of all of the new appliances, and maybe it's an older house so labour and maintenance costs are higher than the $4k/mo you charge in rent.
- ThrustVectoring 10y ago
  Forget the cash flow of renting out a property for a second, and just consider selling it. If you have an apartment with a tenant paying below market rate, that property is worth less money to potential buyers because of the rent-controlled tenant they'd be stuck with. And buying or building real estate for speculative purposes is extraordinarily common.
  - idlewords 10y ago
    No one has ever shed a tear for real-estate speculators.
    - tormeh 10y ago
      >real-estate speculators Also called "every house owner in the western world".
      - hrunt 10y ago
        I'm a home owner in the Western world and I don't consider myself a real estate speculator. I "bought" my house because I really, really liked it and wanted it to be my home for a very, very long time. Buying the house gives that a better chance of happening, as my payments will remain consistent and I get certain protections as a homeowner I wouldn't otherwise have. Whether I make money on it or not is immaterial to me as I don't plan to sell. While I'd like the value of the home to go down (taxes), it hasn't influenced my decision to stay in it -- so far. I think a lot of homeowners feel this way and aren't in way "speculators", but they're a non-vocal population. By the way, I put "bought" in quotes because it often seems like I'm renting it from the state.
        shostack 10y ago
        Meanwhile most Americans first home purchase, if they can even afford one, is not their forever home. Due to all the handouts to banks through the mortgage industry that have in part caused house prices to go up like they have (ie. QE), many first time buyers have to leverage themselves to the hilt for their first underwhelming home in order to hopefully one day sell for enough to let them ladder up to a nice home. People would much rather own their forever home and not have to worry about selling at some point like you, but that just isn't the reality for most. So speculation is almost forced in the sense that if you want to own your forever home at some point, you have to play the leverage game.
    - stvswn 10y ago
      As a homeowner, I want speculators to drive up the prices in my neighborhood. I want them to snatch up and renovate the homes in disrepair and then rent them out at high prices to people richer than me. That would drive up my property value. There's no need to shed tears for anyone. I fail to see why moral high ground be ceded to either side, honestly. These aren't tenements in 19th century New York. Renters know the deal when they sign leases.
- sokoloff 10y ago
  > Question to landlords: does rent control hurt your bottom line? If it didn't, rent control would be wholly unnecessary.
- jbuzbee 10y ago
  "Question to landlords: does rent control hurt your bottom line?" Of course. If rent remains constant and every year the cost of other factors such as insurance, upkeep, salaries of employees, etc. go up, eventually, the bottom line will be negative.
  - spoonie 10y ago
    Which rent control laws say that rent has to be frozen? I thought they allow for increases, usually inflation-matched. If costs rise faster than inflation I can see how rent control hurts, but then it seems to me that there are other problems.
johan_larson 10y ago
This sounds like a left-wing/market-sceptic attempt to solve a very real problem. I wonder what a more broad-based proposal would look like, one that also had some right-wing/market-friendly features. The left gets rent controls, and the right gets what? As-of-right construction? Relaxed zoning rules? Whatever it is, it would have to be pretty major for the right to put up with rent controls. (By "the right" I mean pro-business democrats mostly, because we are taking about a very blue area of the country.)
- idlewords 10y ago
  I think the better framing in Silicon Valley might be established residents vs. newcomers. As you point out, most people around here are politically similar, and I think NIMBY-ism plays a much more important role than political alignment.
  - natrius 10y ago
    It's pretty useful to point out the contradiction between progressivism and the embrace of literal segregation laws that cause sprawl, cause traffic, and hurt our environment. The prevailing concern about property values during America's urbanization was the arrival of black families. Once racial restrictions were overturned, the best "race-neutral" tool to protect property values was just to exclude cheaper homes from neighborhoods and rely on economic disparities to segregate for you. That is what exclusionary zoning is. You can make neighborhoods expensive on purpose by zoning for fewer people than want to live in a neighborhood so only the richest can live there. It was upheld by the Supreme Court in 1975. It's time to eliminate it near jobs. Anyone who claims to care about affordability while supporting laws that make their neighborhood expensive on purpose is full of poop.
    - idlewords 10y ago
      I think this is an important point to make. The degree to which people will abandon what seem like core principles when it comes to fighting change in their neighborhood, school district etc. is one of the unpleasant things about living in a left-leaning area like the Bay.
ThrustVectoring 10y ago
If you want to fight unaffordable rents, you've got two real options. The first is to do a revenue-neutral tax on landlords - preferably through a land-value tax in order to remove incentives against building tall. The related second choice is to lift development restrictions, up-zone things, and build public transit infrastructure. Rent controls are just a short-sighted way of giving hand-outs to people who are politically connected or otherwise good at navigating bureaucracy. It's a price ceiling, with all the classic issues of them: shortages, quality reduction, search costs, deadweight loss, and misallocation of resources. Shortages: More people want apartments than can get them. Quality reduction: if you're in a rent-controlled apartment, the landlord knows you aren't going anywhere, so why would they improve the building in any way that they can avoid? Search costs: joining a decade-long waiting list for an apartment. Fun. Deadweight loss: Developers want to build places that people would benefit from renting, but they don't, because it's illegal to charge rates that would make them money. Misallocation of resources: someone with a $400/mo rent-controlled apartment in a prime location in downtown SF will keep it forever, even if they only use it a couple weekends a year. Or people commuting from SF to Mountain View can't trade apartments with people commuting from Mountain View to SF, since they're locked into their rent-controlled place.
- kspaans 10y ago
  Deadweight loss: Developers want to build places that people would benefit from renting, but they don't, because it's illegal to charge rates that would make them money. Is this because rent control would drag down market rents below the profitability level for developers? Why can't the developer charge the rent they want for new builds? Or is it because most developers expect some high amount of rent inflation when the puts units on the market?
  - closeparen 10y ago
    It's not that they couldn't make any profit by building in rent-controlled areas, but why would you allocate the capital for construction to a rent-controlled area when you could take it to a city without rent control?
the_rosentotter 10y ago
Rent control just creates an even less regulated, shady sub-industry of subletting, where the lucky ones who got in under rent control basically keep the apartment for life and skim the difference between what they pay, and the real market value.
- spoonie 10y ago
  How do landlords/the IRS allow this? If you tenants can do it without their landlords noticing, why can't landlords do it themselves to get around rent controls?
  - stvswn 10y ago
    Management companies and big developers are too visible to avoid it, but individual property owners cheat the system all the time. For example, if you have an in-law unit attached to your home in San Francisco, you'd be smart to reach a handshake deal with a nephew or friend-of-friend instead of signing a lease with a stranger.
- rhizome 10y ago
  In SF it's illegal to charge more than the actual rent to subletters.
  - TuringNYC 10y ago
    That's never stopped people in NYC. Not sure about SF, but I imagine it is similar. The profit motive is too huge.
    - rhizome 10y ago
      In SF you essentially lose your lease instantly if caught, so the profit motive is not a sure bet. Couple that with the requirement since 1998 that subletters be informed what the actual rent is and the ability for the subletter to report the sublessor, and it's almost a sure loser.
11thEarlOfMar 10y ago
High apartment and real estate costs are the outcome of a variety of factors. I.e., it's a multidimensional equation. Attacking it by capping the rents is like saying that we are going to legislate 2 + 2 = 3.75.
LandoCalrissian 10y ago
Rent control is a terrible idea for controlling cost. This is basically universally agreed upon by all economists. You just artificially reduce the supply of housing because people in rent control places will not leave. On top of that it actually makes it more difficult for low income people to rent since you have to have a sterling rental history to get a rent control apartment. So you actually just exacerbate the situation. Rent control is one of those things that sounds good at face value but once you think about it a little more you realize it's a terrible idea.
- markeroon 10y ago
  Well, for the people who have a tent controlled apartment it's certainly not terrible for controlling cost. Be more specific.
  - deleted 10y ago
    [deleted]
  - withdavidli 10y ago
    They were specific to the situation you mentioned. >because people in rent control places will not leave. What kind of details are you looking for here? That they don't leave because it's likely the lowest possible they would be able to find, and that the tenants would be increasing their cost otherwise.
    - simooooo 10y ago
      Wouldn't another apartment they might move to also be rent controlled?
      - withdavidli 10y ago
        that's if there is one open. argument made is that people that have rent controlled apartments don't leave for economic reasons. this would mean it lessens the supply of rent controlled apartment in the area. the competition for a place is high in the bay area, so even if they find and apply for an apartment doesn't mean they'll get it. my personal situation is worse due to me finding rooms instead of entire apartments. lived in 4-5 different places in last 4 years. I would get a response rate of ~5% from craiglist when looking in SF, percentage better in the peninsula. Usually competing against 10+ people viable applicants each time.
shawnee_ 10y ago
In all, the proposals' opponents have raised more than $1.8 million against the measures in the five cities, according to campaign finance records, largely from groups like the National Association of Realtors and an array of landlords including apartment giant Equity Residential. That far outstrips the roughly $200,000 reported raised by various groups supporting rent control. Real estate is a broken industry. Moreso in the Bay area, but the negative effects there ripple outward. See: http://ecosteader.com/alternative http://ecosteader.com/alternative In the Airbnb story yesterday, my comment (which was maliciously downvoted), was this: "Landlords and Realtors get their cut every time there's a turnover in occupancy. Interestingly, this is the root problem at both ends -- from people living in poverty (Portland's sidewalk tent campers who get shuffled around), those suburbanites affected by the housing "crisis", and those who can afford to own in any upscale hip-n-trendy neighborhoods where Airbnb rentals are desperately sought. Those rooting for turnover are usually those who profit the most from it. Sure, people travel and need to rent rooms once in a while. People like to rent while they're young and mobile, but the two use cases need very serious and separate delineation from each other. Airbnb is pushing them more into "overlap" territory. Airbnb's expansion into "subletting" was the kicker. So, long story made short: it's an interesting economics problem I've been working on solving in my spare time, as a very long and iterated side project with Ecosteader (ecosteader.com). Some of the details emerging need a better format for communication; however, the most clear thing to come from my research is that people need to _own_, and they need to be able to transact with each other directly. Middlemen (Airbnb is the middleman here) taking significant commissions is part of the problem. But the middlemen problem has sort of an obvious solution: to tax rental income so aggressively that it's just not an appealing source of investment to people who invest in rentals. Use the tax generated from over-inflated rents to build properties for sale, and/or figure out a way to use that money to grant-deed land on which people can build. This last option seems the more fun opportunity to me, and is what I originally had in mind building an eco- site. The homesteading movement needs to come back, adapted a bit for the 21st century." Disagree if you want... but explain how the problem can be solved better any other way.
- natrius 10y ago
  Most Americans do not have the savings required to own in cities. Ownership might be a solution that works for you, but penalizing landlords penalizes renters who can't afford ownership.
tiredwired 10y ago
I keep seeing stories about rents falling like this one: http://www.siliconbeat.com/2016/10/14/hard-believe-rents-fell-san-jose-san-francisco/ http://www.siliconbeat.com/2016/10/14/hard-believe-rents-fel...
- kspaans 10y ago
  I'm in a new apartment building (I'm the first tenant in my unit) on Ocean Ave about a 10 min walk from Balboa Park. There are still a handful of units in this building of about 30 units that are unoccupied, almost a year after construction finished. Admittedly, most of the empty units are 2 beds, which I can see being harder to fill than the 1 beds.
poshli 10y ago
No mention of Prop 13?
- drewg123 10y ago
  I was thinking the same thing. Prop 13 is basically rent control for homeowners/landlords. It dramatically increases friction in the real estate market, and increases NIMBY'ism by giving people huge incentives to avoid doing smart things, like downsizing from a house into a condo due to tax increases. While I lived in Mountain View, I rented a house built in the 50s that was renovated in the early 2000s (but renovated carefully to stay within the prop 13 guidelines). Houses up and down the street were selling for well over $1M, and they were smaller and in rougher shape than our rental. I've recently seen some houses in that neighborhood go for $1.4M So let's assume our rental was worth 1.2M The landlord bought the house in the 70s. I just checked the Santa Clara county property tax for this house: $1760.36 / year on an assessed value of $130K. This is for a house whose market value is roughly 10x that!! So an owner of a house has a roughly 90% discount on his property tax, but only as long has he neither moves, nor improves his house. This causes lots of older folks to remain in houses that are far too large for them. Like older people everywhere, these people oppose "change". They want the neighborhood to look exactly the same as it did 40 to years ago when they moved in. They don't want condo or apartment buildings. The oppose new development of any kind. Meanwhile, they pay next to no property taxes, and the schools are falling apart, and there is no money for improvements that could help with traffic (like more bridges over or tunnels under the Caltrain tracks) or other services. I'm so glad that I'm back to living in a sane market on the East coast, and don't have to deal with this issue anymore.
Mao_Zedang 10y ago
Japan seems to be in vogue here on HN atm but I think we in the west could learn from their zoning laws. All they do is set the maximum zone that can be used. http://urbankchoze.blogspot.com.au/2014/04/japanese-zoning.html http://urbankchoze.blogspot.com.au/2014/04/japanese-zoning.h...
WhitneyLand 10y ago
Isn't supporting rent control a little like denying climate change? When so much research and expert analysis shows something is bad, lay people are somehow oblivious "eh, I just don't believe it". Worse yet, why is it so easy for people to like the idea of rent control but dislike the idea of cash assistance? If you want teachers (or whomever) to be able to live nearby, fine then just give them a cash subsidy. Giving out cash doesn't kill the market economy, allows the benefit to be given out precisely, and anyone you want can pay for it via a tax - landlords, rich people, sales tax, whatever. Do nothing or do something, just don't do rent control which hurts everyone.
- candiodari 10y ago
  It has the same problem as climate change: it directly and obviously impacts their personal economics on a big scale. Global warming regulation makes companies that employ millions say they'll have to start firing people, and they will if it passes, and anti-rent-control measures mean a lot of current San Franciscans would have to move because in the short term any change in the regulations will cause their landlord to eject them (raise prices beyond what they can pay, not that raise prices by itself wouldn't be enough). People are always saying that it's bad that people don't vote for their own self-interest but forget that there is a reasonable time horizon for decisions, and it's not infinite. For people living at the margin, for whom it matters most as they'll be the ones affected, that time horizon is zero. At a zero time horizon the decision is obvious : no to change ! Yes to more rent control ! The minimum time horizon for considering these economics would be the amount of time it takes for new buildings to get built, which I imagine would be 2-3 years at least. If you consider the reasonable time needed for the building supply in San Francisco to exceed supply, we should say this measure will only start helping people when the market is oversaturated. That may never happen. Realistically, anything less than 10 years seems to me a very long shot.
  - someguydave 10y ago
    " Realistically, anything less than 10 years seems to me a very long shot." Except in the case of climate change the time horizon under consideration should be more like 100 to 1000 years.
forrestthewoods 10y ago
We have a pie. It only has a certain number of slices. Unfortunately there are more people who want a slice than there are slices. That sucks. There's a lot of way we could determine who gets a slice and who doesn't get a slice. We could give slices to people who have been there longer. Or we could let people who have more money and value the pie slice sufficiently high to spend their money buy a slice. We could give some money to people who really really want a slice but just can't afford it. We can debate and argue about all the ways we could pick the pie slice winners. But at the end of the day it doesn't matter. The exact same number of people will get slices. And the exact same number of people will not get a slice. All we're doing is picking winners and losers in different ways. The only debate that matters is the one that grows the pie. We need more pie so more people can have a slice. Taking a slice from Peter to hand to Paul is an utter waste of time.
edem 10y ago
Can somebody TL;DR this one? I don't want to subscibe/register.
- johan_larson 10y ago
  "Voters in five small and midsize cities in the Bay Area are set to decide Nov. 8 on whether to enact various forms of rent regulation that would keep rent increases for existing tenants pegged near the rate of inflation. "Tenant organizations, unions and church groups are knocking on thousands of doors in an effort to drum up support for measures designed to protect apartment dwellers from runaway rents. "On the other side, landlords and real-state agents are pouring money into mailers and television ads in a vigorous effort to battle the initiatives." You can get around the paywall by typing the title of the article into Google, and clicking on the link to wsj.com.
  - edem 10y ago
    Thank you!
sakopov 10y ago
For those of you living in the bay area what's your take on the future of this situation? I'm genuinely curious because I think in a few years from now Denver will be in the exact same boat.
- Decade 10y ago
  My feeling is firm pessimism. Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” As the WSJ says, we have “tenant organizations, unions and church groups” fighting to pass rent control. They all face imminent declines in power if their constituents have to leave. I guess they are hoping for breathing room, until either the economy collapses or “permanent BMR units” can be built to help with the inevitable churn. But rent control by itself makes the situation even worse for the working class. No amount of science and repeated real-world demonstrations seem to matter to the self-appointed “soul” of the community.[0] The people are, on the whole, just looking for somebody to follow, and the activists are indoctrinating the kids early and often. Horrible legislation has a decent chance of becoming law. [0]http://www.theatlantic.com/politics/archive/2015/12/san-francisco-is-confused-about-the-villain-thats-making-it-unaffordable/422091/ http://www.theatlantic.com/politics/archive/2015/12/san-fran...
sjg007 10y ago
Rent control is going to happen. What it will do is set the price level where it is currently at. It will only be for apartments and those built before 1995 and it will become hard to get into those apartments. Condos, SFH, duplexes etc.. won't be affected but maybe those rents won't rise "as much".
xfour 10y ago
Mirror, non-paywall. http://www.nasdaq.com/article/a-new-realestate-war-in-silicon-valley-20161020-01097 http://www.nasdaq.com/article/a-new-realestate-war-in-silico...
omarforgotpwd 10y ago
The way to stop rents from rising is simple: Make sure there's enough new supply of housing to meet new demand. A lot of people are moving to the Valley but environmental / historical / construction / neighborhood regulations slow down new housing because existing residents don't want their neighborhood "ruined" by new residents and traffic. Attempting to solve rising rents by legally regulating what the market can charge is not a great idea. It will be even harder to find a vacant apartment as people hang onto their rent controlled units, and landlords will have a big incentive to find a way to throw people out of their homes to collect a higher rent as prices rise. Basically existing residents get subsidized as new people trying to move in get fucked over, which works perfectly for politicians who are not elected by people who don't live here yet.

55 points by patmcguire 10y ago

Question to landlords: does rent control hurt your bottom line? I understand the opportunity costs of rent control: if rents in your neighbourhood have gone up 50% this year you feel like a sucker if you can only raise them by 5%. Similarly you might put off minor renovations (that don't require the tenant moving out) because you won't necessarily be able to charge more to make up for the cost (apart from selling the property). But is it common to rent out a property below cost, assuming you can make it up later with rent increases? E.g. you just bought a property in Mountain View so your mortgage payments are high, plus the cost of all of the new appliances, and maybe it's an older house so labour and maintenance costs are higher than the $4k/mo you charge in rent.

ThrustVectoring 10y ago
Forget the cash flow of renting out a property for a second, and just consider selling it. If you have an apartment with a tenant paying below market rate, that property is worth less money to potential buyers because of the rent-controlled tenant they'd be stuck with. And buying or building real estate for speculative purposes is extraordinarily common.
- idlewords 10y ago
  No one has ever shed a tear for real-estate speculators.
  - tormeh 10y ago
    >real-estate speculators Also called "every house owner in the western world".
    - hrunt 10y ago
      I'm a home owner in the Western world and I don't consider myself a real estate speculator. I "bought" my house because I really, really liked it and wanted it to be my home for a very, very long time. Buying the house gives that a better chance of happening, as my payments will remain consistent and I get certain protections as a homeowner I wouldn't otherwise have. Whether I make money on it or not is immaterial to me as I don't plan to sell. While I'd like the value of the home to go down (taxes), it hasn't influenced my decision to stay in it -- so far. I think a lot of homeowners feel this way and aren't in way "speculators", but they're a non-vocal population. By the way, I put "bought" in quotes because it often seems like I'm renting it from the state.
      - shostack 10y ago
        Meanwhile most Americans first home purchase, if they can even afford one, is not their forever home. Due to all the handouts to banks through the mortgage industry that have in part caused house prices to go up like they have (ie. QE), many first time buyers have to leverage themselves to the hilt for their first underwhelming home in order to hopefully one day sell for enough to let them ladder up to a nice home. People would much rather own their forever home and not have to worry about selling at some point like you, but that just isn't the reality for most. So speculation is almost forced in the sense that if you want to own your forever home at some point, you have to play the leverage game.
  - stvswn 10y ago
    As a homeowner, I want speculators to drive up the prices in my neighborhood. I want them to snatch up and renovate the homes in disrepair and then rent them out at high prices to people richer than me. That would drive up my property value. There's no need to shed tears for anyone. I fail to see why moral high ground be ceded to either side, honestly. These aren't tenements in 19th century New York. Renters know the deal when they sign leases.
sokoloff 10y ago
> Question to landlords: does rent control hurt your bottom line? If it didn't, rent control would be wholly unnecessary.
jbuzbee 10y ago
"Question to landlords: does rent control hurt your bottom line?" Of course. If rent remains constant and every year the cost of other factors such as insurance, upkeep, salaries of employees, etc. go up, eventually, the bottom line will be negative.
- spoonie 10y ago
  Which rent control laws say that rent has to be frozen? I thought they allow for increases, usually inflation-matched. If costs rise faster than inflation I can see how rent control hurts, but then it seems to me that there are other problems.

johan_larson 10y ago

This sounds like a left-wing/market-sceptic attempt to solve a very real problem. I wonder what a more broad-based proposal would look like, one that also had some right-wing/market-friendly features. The left gets rent controls, and the right gets what? As-of-right construction? Relaxed zoning rules? Whatever it is, it would have to be pretty major for the right to put up with rent controls. (By "the right" I mean pro-business democrats mostly, because we are taking about a very blue area of the country.)

idlewords 10y ago
I think the better framing in Silicon Valley might be established residents vs. newcomers. As you point out, most people around here are politically similar, and I think NIMBY-ism plays a much more important role than political alignment.
- natrius 10y ago
  It's pretty useful to point out the contradiction between progressivism and the embrace of literal segregation laws that cause sprawl, cause traffic, and hurt our environment. The prevailing concern about property values during America's urbanization was the arrival of black families. Once racial restrictions were overturned, the best "race-neutral" tool to protect property values was just to exclude cheaper homes from neighborhoods and rely on economic disparities to segregate for you. That is what exclusionary zoning is. You can make neighborhoods expensive on purpose by zoning for fewer people than want to live in a neighborhood so only the richest can live there. It was upheld by the Supreme Court in 1975. It's time to eliminate it near jobs. Anyone who claims to care about affordability while supporting laws that make their neighborhood expensive on purpose is full of poop.
  - idlewords 10y ago
    I think this is an important point to make. The degree to which people will abandon what seem like core principles when it comes to fighting change in their neighborhood, school district etc. is one of the unpleasant things about living in a left-leaning area like the Bay.

ThrustVectoring 10y ago

If you want to fight unaffordable rents, you've got two real options. The first is to do a revenue-neutral tax on landlords - preferably through a land-value tax in order to remove incentives against building tall. The related second choice is to lift development restrictions, up-zone things, and build public transit infrastructure. Rent controls are just a short-sighted way of giving hand-outs to people who are politically connected or otherwise good at navigating bureaucracy. It's a price ceiling, with all the classic issues of them: shortages, quality reduction, search costs, deadweight loss, and misallocation of resources. Shortages: More people want apartments than can get them. Quality reduction: if you're in a rent-controlled apartment, the landlord knows you aren't going anywhere, so why would they improve the building in any way that they can avoid? Search costs: joining a decade-long waiting list for an apartment. Fun. Deadweight loss: Developers want to build places that people would benefit from renting, but they don't, because it's illegal to charge rates that would make them money. Misallocation of resources: someone with a $400/mo rent-controlled apartment in a prime location in downtown SF will keep it forever, even if they only use it a couple weekends a year. Or people commuting from SF to Mountain View can't trade apartments with people commuting from Mountain View to SF, since they're locked into their rent-controlled place.

kspaans 10y ago
Deadweight loss: Developers want to build places that people would benefit from renting, but they don't, because it's illegal to charge rates that would make them money. Is this because rent control would drag down market rents below the profitability level for developers? Why can't the developer charge the rent they want for new builds? Or is it because most developers expect some high amount of rent inflation when the puts units on the market?
- closeparen 10y ago
  It's not that they couldn't make any profit by building in rent-controlled areas, but why would you allocate the capital for construction to a rent-controlled area when you could take it to a city without rent control?

the_rosentotter 10y ago

Rent control just creates an even less regulated, shady sub-industry of subletting, where the lucky ones who got in under rent control basically keep the apartment for life and skim the difference between what they pay, and the real market value.

spoonie 10y ago
How do landlords/the IRS allow this? If you tenants can do it without their landlords noticing, why can't landlords do it themselves to get around rent controls?
- stvswn 10y ago
  Management companies and big developers are too visible to avoid it, but individual property owners cheat the system all the time. For example, if you have an in-law unit attached to your home in San Francisco, you'd be smart to reach a handshake deal with a nephew or friend-of-friend instead of signing a lease with a stranger.
rhizome 10y ago
In SF it's illegal to charge more than the actual rent to subletters.
- TuringNYC 10y ago
  That's never stopped people in NYC. Not sure about SF, but I imagine it is similar. The profit motive is too huge.
  - rhizome 10y ago
    In SF you essentially lose your lease instantly if caught, so the profit motive is not a sure bet. Couple that with the requirement since 1998 that subletters be informed what the actual rent is and the ability for the subletter to report the sublessor, and it's almost a sure loser.

11thEarlOfMar 10y ago

High apartment and real estate costs are the outcome of a variety of factors. I.e., it's a multidimensional equation. Attacking it by capping the rents is like saying that we are going to legislate 2 + 2 = 3.75.

LandoCalrissian 10y ago

Rent control is a terrible idea for controlling cost. This is basically universally agreed upon by all economists. You just artificially reduce the supply of housing because people in rent control places will not leave. On top of that it actually makes it more difficult for low income people to rent since you have to have a sterling rental history to get a rent control apartment. So you actually just exacerbate the situation. Rent control is one of those things that sounds good at face value but once you think about it a little more you realize it's a terrible idea.

markeroon 10y ago
Well, for the people who have a tent controlled apartment it's certainly not terrible for controlling cost. Be more specific.
- deleted 10y ago
  [deleted]
- withdavidli 10y ago
  They were specific to the situation you mentioned. >because people in rent control places will not leave. What kind of details are you looking for here? That they don't leave because it's likely the lowest possible they would be able to find, and that the tenants would be increasing their cost otherwise.
  - simooooo 10y ago
    Wouldn't another apartment they might move to also be rent controlled?
    - withdavidli 10y ago
      that's if there is one open. argument made is that people that have rent controlled apartments don't leave for economic reasons. this would mean it lessens the supply of rent controlled apartment in the area. the competition for a place is high in the bay area, so even if they find and apply for an apartment doesn't mean they'll get it. my personal situation is worse due to me finding rooms instead of entire apartments. lived in 4-5 different places in last 4 years. I would get a response rate of ~5% from craiglist when looking in SF, percentage better in the peninsula. Usually competing against 10+ people viable applicants each time.

shawnee_ 10y ago

In all, the proposals' opponents have raised more than $1.8 million against the measures in the five cities, according to campaign finance records, largely from groups like the National Association of Realtors and an array of landlords including apartment giant Equity Residential. That far outstrips the roughly $200,000 reported raised by various groups supporting rent control. Real estate is a broken industry. Moreso in the Bay area, but the negative effects there ripple outward. See: http://ecosteader.com/alternative http://ecosteader.com/alternative In the Airbnb story yesterday, my comment (which was maliciously downvoted), was this: "Landlords and Realtors get their cut every time there's a turnover in occupancy. Interestingly, this is the root problem at both ends -- from people living in poverty (Portland's sidewalk tent campers who get shuffled around), those suburbanites affected by the housing "crisis", and those who can afford to own in any upscale hip-n-trendy neighborhoods where Airbnb rentals are desperately sought. Those rooting for turnover are usually those who profit the most from it. Sure, people travel and need to rent rooms once in a while. People like to rent while they're young and mobile, but the two use cases need very serious and separate delineation from each other. Airbnb is pushing them more into "overlap" territory. Airbnb's expansion into "subletting" was the kicker. So, long story made short: it's an interesting economics problem I've been working on solving in my spare time, as a very long and iterated side project with Ecosteader (ecosteader.com). Some of the details emerging need a better format for communication; however, the most clear thing to come from my research is that people need to _own_, and they need to be able to transact with each other directly. Middlemen (Airbnb is the middleman here) taking significant commissions is part of the problem. But the middlemen problem has sort of an obvious solution: to tax rental income so aggressively that it's just not an appealing source of investment to people who invest in rentals. Use the tax generated from over-inflated rents to build properties for sale, and/or figure out a way to use that money to grant-deed land on which people can build. This last option seems the more fun opportunity to me, and is what I originally had in mind building an eco- site. The homesteading movement needs to come back, adapted a bit for the 21st century." Disagree if you want... but explain how the problem can be solved better any other way.

natrius 10y ago
Most Americans do not have the savings required to own in cities. Ownership might be a solution that works for you, but penalizing landlords penalizes renters who can't afford ownership.

tiredwired 10y ago

I keep seeing stories about rents falling like this one: http://www.siliconbeat.com/2016/10/14/hard-believe-rents-fell-san-jose-san-francisco/ http://www.siliconbeat.com/2016/10/14/hard-believe-rents-fel...

kspaans 10y ago
I'm in a new apartment building (I'm the first tenant in my unit) on Ocean Ave about a 10 min walk from Balboa Park. There are still a handful of units in this building of about 30 units that are unoccupied, almost a year after construction finished. Admittedly, most of the empty units are 2 beds, which I can see being harder to fill than the 1 beds.

poshli 10y ago

No mention of Prop 13?

drewg123 10y ago
I was thinking the same thing. Prop 13 is basically rent control for homeowners/landlords. It dramatically increases friction in the real estate market, and increases NIMBY'ism by giving people huge incentives to avoid doing smart things, like downsizing from a house into a condo due to tax increases. While I lived in Mountain View, I rented a house built in the 50s that was renovated in the early 2000s (but renovated carefully to stay within the prop 13 guidelines). Houses up and down the street were selling for well over $1M, and they were smaller and in rougher shape than our rental. I've recently seen some houses in that neighborhood go for $1.4M So let's assume our rental was worth 1.2M The landlord bought the house in the 70s. I just checked the Santa Clara county property tax for this house: $1760.36 / year on an assessed value of $130K. This is for a house whose market value is roughly 10x that!! So an owner of a house has a roughly 90% discount on his property tax, but only as long has he neither moves, nor improves his house. This causes lots of older folks to remain in houses that are far too large for them. Like older people everywhere, these people oppose "change". They want the neighborhood to look exactly the same as it did 40 to years ago when they moved in. They don't want condo or apartment buildings. The oppose new development of any kind. Meanwhile, they pay next to no property taxes, and the schools are falling apart, and there is no money for improvements that could help with traffic (like more bridges over or tunnels under the Caltrain tracks) or other services. I'm so glad that I'm back to living in a sane market on the East coast, and don't have to deal with this issue anymore.

Mao_Zedang 10y ago

Japan seems to be in vogue here on HN atm but I think we in the west could learn from their zoning laws. All they do is set the maximum zone that can be used. http://urbankchoze.blogspot.com.au/2014/04/japanese-zoning.html http://urbankchoze.blogspot.com.au/2014/04/japanese-zoning.h...

WhitneyLand 10y ago

Isn't supporting rent control a little like denying climate change? When so much research and expert analysis shows something is bad, lay people are somehow oblivious "eh, I just don't believe it". Worse yet, why is it so easy for people to like the idea of rent control but dislike the idea of cash assistance? If you want teachers (or whomever) to be able to live nearby, fine then just give them a cash subsidy. Giving out cash doesn't kill the market economy, allows the benefit to be given out precisely, and anyone you want can pay for it via a tax - landlords, rich people, sales tax, whatever. Do nothing or do something, just don't do rent control which hurts everyone.

candiodari 10y ago
It has the same problem as climate change: it directly and obviously impacts their personal economics on a big scale. Global warming regulation makes companies that employ millions say they'll have to start firing people, and they will if it passes, and anti-rent-control measures mean a lot of current San Franciscans would have to move because in the short term any change in the regulations will cause their landlord to eject them (raise prices beyond what they can pay, not that raise prices by itself wouldn't be enough). People are always saying that it's bad that people don't vote for their own self-interest but forget that there is a reasonable time horizon for decisions, and it's not infinite. For people living at the margin, for whom it matters most as they'll be the ones affected, that time horizon is zero. At a zero time horizon the decision is obvious : no to change ! Yes to more rent control ! The minimum time horizon for considering these economics would be the amount of time it takes for new buildings to get built, which I imagine would be 2-3 years at least. If you consider the reasonable time needed for the building supply in San Francisco to exceed supply, we should say this measure will only start helping people when the market is oversaturated. That may never happen. Realistically, anything less than 10 years seems to me a very long shot.
- someguydave 10y ago
  " Realistically, anything less than 10 years seems to me a very long shot." Except in the case of climate change the time horizon under consideration should be more like 100 to 1000 years.

forrestthewoods 10y ago

We have a pie. It only has a certain number of slices. Unfortunately there are more people who want a slice than there are slices. That sucks. There's a lot of way we could determine who gets a slice and who doesn't get a slice. We could give slices to people who have been there longer. Or we could let people who have more money and value the pie slice sufficiently high to spend their money buy a slice. We could give some money to people who really really want a slice but just can't afford it. We can debate and argue about all the ways we could pick the pie slice winners. But at the end of the day it doesn't matter. The exact same number of people will get slices. And the exact same number of people will not get a slice. All we're doing is picking winners and losers in different ways. The only debate that matters is the one that grows the pie. We need more pie so more people can have a slice. Taking a slice from Peter to hand to Paul is an utter waste of time.

edem 10y ago

Can somebody TL;DR this one? I don't want to subscibe/register.

johan_larson 10y ago
"Voters in five small and midsize cities in the Bay Area are set to decide Nov. 8 on whether to enact various forms of rent regulation that would keep rent increases for existing tenants pegged near the rate of inflation. "Tenant organizations, unions and church groups are knocking on thousands of doors in an effort to drum up support for measures designed to protect apartment dwellers from runaway rents. "On the other side, landlords and real-state agents are pouring money into mailers and television ads in a vigorous effort to battle the initiatives." You can get around the paywall by typing the title of the article into Google, and clicking on the link to wsj.com.
- edem 10y ago
  Thank you!

sakopov 10y ago

For those of you living in the bay area what's your take on the future of this situation? I'm genuinely curious because I think in a few years from now Denver will be in the exact same boat.

Decade 10y ago
My feeling is firm pessimism. Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” As the WSJ says, we have “tenant organizations, unions and church groups” fighting to pass rent control. They all face imminent declines in power if their constituents have to leave. I guess they are hoping for breathing room, until either the economy collapses or “permanent BMR units” can be built to help with the inevitable churn. But rent control by itself makes the situation even worse for the working class. No amount of science and repeated real-world demonstrations seem to matter to the self-appointed “soul” of the community.[0] The people are, on the whole, just looking for somebody to follow, and the activists are indoctrinating the kids early and often. Horrible legislation has a decent chance of becoming law. [0]http://www.theatlantic.com/politics/archive/2015/12/san-francisco-is-confused-about-the-villain-thats-making-it-unaffordable/422091/ http://www.theatlantic.com/politics/archive/2015/12/san-fran...

sjg007 10y ago

Rent control is going to happen. What it will do is set the price level where it is currently at. It will only be for apartments and those built before 1995 and it will become hard to get into those apartments. Condos, SFH, duplexes etc.. won't be affected but maybe those rents won't rise "as much".

xfour 10y ago

Mirror, non-paywall. http://www.nasdaq.com/article/a-new-realestate-war-in-silicon-valley-20161020-01097 http://www.nasdaq.com/article/a-new-realestate-war-in-silico...

omarforgotpwd 10y ago

The way to stop rents from rising is simple: Make sure there's enough new supply of housing to meet new demand. A lot of people are moving to the Valley but environmental / historical / construction / neighborhood regulations slow down new housing because existing residents don't want their neighborhood "ruined" by new residents and traffic. Attempting to solve rising rents by legally regulating what the market can charge is not a great idea. It will be even harder to find a vacant apartment as people hang onto their rent controlled units, and landlords will have a big incentive to find a way to throw people out of their homes to collect a higher rent as prices rise. Basically existing residents get subsidized as new people trying to move in get fucked over, which works perfectly for politicians who are not elected by people who don't live here yet.