4 ms·

How is rent control counterproductive?

by TekMol 8y ago

deleted 8y ago
[deleted]
vojta_letal 8y ago
First of all, it does not work. We had it in Prague like a decade ago. I've seen contracts including extra cost of renting keys for as much as the regulated price. Also I guess it could decrease pressure to developers to build new houses since the prices are artificially low.
darawk 8y ago
Rent control disincentivizes construction of new housing, by adding a major regulatory risk to investment in new housing units. First, imagine that you are the owner of a rental building, and the rent control law passes, in let's say SF. You own the building, and as the landlord, you're obligated to pay for things like repairs and general property management. That takes labor. The price of labor (i.e. wages) tends to increase more or less in step with property values. So, now your costs are increasing, but it's illegal for you to raise your rents. The investment you made, with the presumption that you would be able to charge a market rate for rents is now fucked. Now, consider that you are a prospective property developer. Someone thinking about building a new rental building. You're thinking about investing millions of dollars of your own money to do this. But you look at what happened to the last guy, who got fucked by this rent control law, and you think "maybe i'll build elsewhere, or just stick my money in an index fund instead".
pwnguin 8y ago
The California model of rent control limits the amount you can raise rent on a tenant, and the reasons you can evict someone. Surprisingly, you can often transfer a lease to a family member, leading to situations where someone is living in a rented house originally rented to their grandparent. It also leads to situations where an empty nester has spare bedrooms but cannot afford to move into a smaller rental unit, effectively taking bedrooms off the market and making prices higher for everyone. Presumably AirBNB relieves some of this pressure, though I seem to recall some landlords running sting operations in order to evict long term tenants and reset the market rate. Over the past 30 years of SF rent control, this dynamic has created a group of people for whom in-fill redevelopment would be disastrous: they'd lose their rent control, and definitely can't live here anymore. Much of SF is pretty low density, and housing supply would come from building up. Doesn't need to be a 60 tower millenium tower deal. But you'll need to tear up some buildings to make it happen, and the cheapest properties are the ones under rent control. So anyone campaigning on a 'build baby build' platform is more or less running a platform of evicting the poor and/or elderly. At it's core, rent control is treating the symptom of high prices rather than the disease of tight supply.
kjksf 8y ago
Name one example where rent control was followed by decrease in average rent in the city. You can't and that's how it's counterproductive.
megakwood 8y ago
It impedes market forces that normally act to add more housing. In the case of SF, fortunately, we don’t apply rent control to new construction. But you can’t build new, bigger buildings if you can’t remove your tenants from the existing one. You also can’t afford to, since you’re not earning rent proportional to the actual economic value of your land. It reduces market forces that encourage optimal use of scarce resource. My neighbor in SF lives alone in his 3 bedroom apartment that he’s rented since 1990. If he paid market rate, all 3 bedrooms would be filled, 2 more people would be housed, and the overall housing demand would be proportionally cheaper. It massively restricts mobility of tenants. Once you’re in on a “good deal” you can’t move. And reduced turnover creates all kinds of inefficiencies: people live farther from their jobs, don’t upgrade into nicer units over time (and thus free the cheaper/older units for those who are starting out). It creates massive cost inequality for tenants and massive income inequality for landlords. As a tenant, one neighbor might be paying 50% or 100% or even 300% more than others with the same or similar unit, regardless of whether they can better afford it. A property might generate 1/3rd the income of the building next door simply because the owner has tenants that have lived there for 25 years. Meanwhile costs of gardening, roofing, carpentry, plumbing and other labor have increased and thus one building is in disrepair. The building can’t be sold without the tenants, so the building is worth much less than the neighbors is due to random chance. It places odd restrictions on lease terms, so that many go vacant unecessarily. Because of rent control, if I own a unit built before 1979 I literally can’t make a contract with a tenant to lease to them for a year or two. Any term lengths I put on a lease are meaningless, and the tenant has nearly unlimited rights to live in my house for as long as they want. If I have plans to use a unit for something else, upgrade it, etc I will likely leave it unoccupied.

How is rent control counterproductive?

by TekMol 8y ago

How is rent control counterproductive?

deleted 8y ago

[deleted]

vojta_letal 8y ago

First of all, it does not work. We had it in Prague like a decade ago. I've seen contracts including extra cost of renting keys for as much as the regulated price. Also I guess it could decrease pressure to developers to build new houses since the prices are artificially low.

darawk 8y ago

Rent control disincentivizes construction of new housing, by adding a major regulatory risk to investment in new housing units. First, imagine that you are the owner of a rental building, and the rent control law passes, in let's say SF. You own the building, and as the landlord, you're obligated to pay for things like repairs and general property management. That takes labor. The price of labor (i.e. wages) tends to increase more or less in step with property values. So, now your costs are increasing, but it's illegal for you to raise your rents. The investment you made, with the presumption that you would be able to charge a market rate for rents is now fucked. Now, consider that you are a prospective property developer. Someone thinking about building a new rental building. You're thinking about investing millions of dollars of your own money to do this. But you look at what happened to the last guy, who got fucked by this rent control law, and you think "maybe i'll build elsewhere, or just stick my money in an index fund instead".

pwnguin 8y ago

The California model of rent control limits the amount you can raise rent on a tenant, and the reasons you can evict someone. Surprisingly, you can often transfer a lease to a family member, leading to situations where someone is living in a rented house originally rented to their grandparent. It also leads to situations where an empty nester has spare bedrooms but cannot afford to move into a smaller rental unit, effectively taking bedrooms off the market and making prices higher for everyone. Presumably AirBNB relieves some of this pressure, though I seem to recall some landlords running sting operations in order to evict long term tenants and reset the market rate. Over the past 30 years of SF rent control, this dynamic has created a group of people for whom in-fill redevelopment would be disastrous: they'd lose their rent control, and definitely can't live here anymore. Much of SF is pretty low density, and housing supply would come from building up. Doesn't need to be a 60 tower millenium tower deal. But you'll need to tear up some buildings to make it happen, and the cheapest properties are the ones under rent control. So anyone campaigning on a 'build baby build' platform is more or less running a platform of evicting the poor and/or elderly. At it's core, rent control is treating the symptom of high prices rather than the disease of tight supply.

kjksf 8y ago

Name one example where rent control was followed by decrease in average rent in the city. You can't and that's how it's counterproductive.

megakwood 8y ago

It impedes market forces that normally act to add more housing. In the case of SF, fortunately, we don’t apply rent control to new construction. But you can’t build new, bigger buildings if you can’t remove your tenants from the existing one. You also can’t afford to, since you’re not earning rent proportional to the actual economic value of your land. It reduces market forces that encourage optimal use of scarce resource. My neighbor in SF lives alone in his 3 bedroom apartment that he’s rented since 1990. If he paid market rate, all 3 bedrooms would be filled, 2 more people would be housed, and the overall housing demand would be proportionally cheaper. It massively restricts mobility of tenants. Once you’re in on a “good deal” you can’t move. And reduced turnover creates all kinds of inefficiencies: people live farther from their jobs, don’t upgrade into nicer units over time (and thus free the cheaper/older units for those who are starting out). It creates massive cost inequality for tenants and massive income inequality for landlords. As a tenant, one neighbor might be paying 50% or 100% or even 300% more than others with the same or similar unit, regardless of whether they can better afford it. A property might generate 1/3rd the income of the building next door simply because the owner has tenants that have lived there for 25 years. Meanwhile costs of gardening, roofing, carpentry, plumbing and other labor have increased and thus one building is in disrepair. The building can’t be sold without the tenants, so the building is worth much less than the neighbors is due to random chance. It places odd restrictions on lease terms, so that many go vacant unecessarily. Because of rent control, if I own a unit built before 1979 I literally can’t make a contract with a tenant to lease to them for a year or two. Any term lengths I put on a lease are meaningless, and the tenant has nearly unlimited rights to live in my house for as long as they want. If I have plans to use a unit for something else, upgrade it, etc I will likely leave it unoccupied.