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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

by bhauer 7y ago

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.

gregs1986 7y ago
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 7y ago
  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.
- baddox 7y ago
  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.
  - eru 7y ago
    Don't those laws usually allow a reset when you switch tenants? (However, your example would still work, if the reliable tenant turns into a nightmare tenant.)
- pmikesell 7y ago
  >>> 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 7y ago
    Maybe more people selling property instead of collecting money forever for winning the land lottery 50 years ago it is a good thing.
    - pmikesell 7y ago
      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?
      - eru 7y ago
        It also takes a tenant out of the market. So the net effect on other renters is pretty slim.
        sct202 7y ago
        In Chicago, a lot of multi-units (2+ flats) are converted to single large SFH, so the net effect could be worse especially if prices were to go down that it would be attainable to do that.
        eru 7y ago
        Interesting! I wonder about the economics of that? Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)
- nitwit005 7y ago
  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.
- rory096 7y ago
  >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/b5c04ae02c17c0b51358411c5c1c55efb3e0.pdf https://pdfs.semanticscholar.org/3848/b5c04ae02c17c0b5135841... [1] DeYoung and Phillips (2009), Payday Loan Pricing https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77ad19b13a881a54a.pdf https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77a...
  - jquery 7y ago
    Fascinating. Makes sense from a game theory perspective.
joshAg 7y ago
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.
- pg_is_a_butt 7y ago
  ... in a vacuum in space
- bzbz 7y ago
  So then what’s the point of not being able to make those larger adjustments?
  - joshAg 7y ago
    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.
decebalus1 7y ago
> 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.
- epistasis 7y ago
  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.
- tolmasky 7y ago
  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).
Causality1 7y ago
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.
refurb 7y ago
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.
jdavis703 7y ago
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.
bsder 7y ago
> 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 7y ago
  Agreed, here in Montreal it's something like 2%.
amahani 7y ago
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 https://web.stanford.edu/~diamondr/DMQ.pd. For a counter, see https://www.housinghumanright.org/wp-content/uploads/2018/11/Diamond-McQuade-EXECUTIVE-SUMMARY.pdf 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 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.
- JackFr 7y ago
  > (2) tie rent control to income. Give one moment's thought to the most likely side effect of that...
john_moscow 7y ago
>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 7y ago
  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 7y ago
    Specifically, it's an attempt to hedge against the possibility of the market rate increasing by more than 7% in a year.
    - deleted 7y ago
      [deleted]
- tathougies 7y ago
  The entire market is going to do this. Legalizing a 7 percent increase basically means mandating the entire market move at this rate.
BurningFrog 7y ago
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.
- deleted 7y ago
  [deleted]
- jeffdavis 7y ago
  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 7y ago
    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?
    - BurningFrog 7y ago
      > It all depends if tenants can afford it In extreme markets, perhaps. Normally one landlord's ability to raise rents is constrained by the prices other landlords charge.
refurb 7y ago
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.
- justinhj 7y ago
  Which is why vacant property tax makes sense for popular areas
  - refurb 7y ago
    So solve a problem created by regulations with more regulations?
    - rileymat2 7y ago
      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.
    - rconti 7y ago
      Rent control (regulation) creates more problem, I agree with that. But I don't think it's fair to say that expensive housing, full stop, is a product of regulation. There are desirably places to live that have housing that goes up at a good enough rate to be considered an investment. As long as there are people of sufficient means, some of them will add property to their portfolio of assets. A home that sits unused on prime real estate is, frankly, more of a drain on that community than $100,000 in cash sitting under a mattress going unused. It's not perfect, and it IS a regulation, but penalizing people for hoovering up housing stock and then not using it, can benefit society.
    - 7y ago
cybersnowflake 7y ago
Also 2. Realize that not everybody in the world needs to or should live in the Bay Area/Hollywood. 3. Don't pass statewide laws catering primarily to the group of people aspiring to do so.
- algaeontoast 7y ago
  This needs to be talked about more. Entitlement was never a core tenant (no pun intended) of the American dream.
  - taejo 7y ago
    It's tenet if you don't intend the pun, by the way.
    - algaeontoast 7y ago
      You have been successful in calling me cheeky on The Internet :)
- namesbc 7y ago
  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.
  - rconti 7y ago
    It's a fair comment. You entirely brushed aside point 3 by using a personal criticism on the parent poster to ignore the fact that rent control is imposing a cost on an entire massive state, in order to regulate a thing that is an issue in a small number of counties.
    - namesbc 7y ago
      Every tenant, regardless of what county they live in, needs basic protections for their home. This law is not targeted at SF per-se because SF already has strong rental protections, this law offers the bare minimum of protection for everyone in the state. The bay area should, and must, pass stronger protections than this statewide law.
zuminator 7y ago
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.
- mike_d 7y ago
  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.
- mactrey 7y ago
  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.
seanmcdirmid 7y ago
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?
- maxsilver 7y ago
  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.
  - seanmcdirmid 7y ago
    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 7y ago
      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-values/ 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 7y ago
        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.
  - 7y ago
pvelagal 7y ago
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)
mayneack 7y ago
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.
PorterDuff 7y ago
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.
novok 7y ago
Thats why cities like oakland allowed landlords to 'store' rental increases if they didn't increase it to the max in previous years AFAIK.
deleted 7y ago
[deleted]
majormajor 7y ago
> 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.
gigatexal 7y ago
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
Railsify 7y ago
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.
lliamander 7y ago
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.
abalone 7y ago
> 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 https://twitter.com/rcmoya84/status/1171972636294840320?s=21 [2] https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-could-phimbys-solve-the-housing-crisis https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-cou...
foobar1962 7y ago
> 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 7y ago
  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 7y ago
    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."
    - cycrutchfield 7y ago
      In a country with freedom of movement? Never. Your wishful thinking won’t change that. But by all means go ahead advocating to build housing where nobody wants to live, and continue your NIMBY policies to price people out of desirable locations.
briffle 7y ago
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...
- cryptonector 7y ago
  Yes: the people targeted by those ads. "Look! We did something for you! Vote for us!"
- epylar 7y ago
  Yikes, 31% (1.04^4 - 1) instead of 25%.
eloisant 7y ago
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.
Jweb_Guru 7y ago
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.
- eru 7y ago
  How does more housing not translate to more affordable housing? Do rich people to afford that extra housing get created out of thin air?
  - Jweb_Guru 7y ago
    The government is perfectly capable of paying for housing if it is so inclined. It is also capable of providing incentives for creating new housing in certain markets, such as discounts; the idea that this can only be incentivized by charging new and existing tenants insanely high rents is the problem. Perhaps it could get some of the money required to do this by extracting it from the tremendous number of wealthy people living in SF, many of whom are probably browsing HN right now. It would likely be easier to do that if their rents weren't so astronomical, of course... As for "does not translate to affordable housing"--right now landlords and property developers have two ways of extracting money from the system: charge high rents, or pass the property on to other landlords. Maximizing profit on either of these requires rents to keep going up, and for the second there's no particular reason to actually have tenants. Beyond that, "market rate" in SF right now is nowhere close to affordable for most people and will not be for the foreseeable future, even if building greatly increases, which means that the people currently protected by rent control--those who can't afford "market rate", like the vast majority of people in the U.S.--aren't helped one bit by the creation of new housing.
  - woah 7y ago
    As amazing as it seems, a lot of far left people in the Bay Area who engage in the housing debate actually don’t believe in supply and demand. Hard to have any kind of discussion on that basis.
eru 7y ago
Wouldn't you lose tenants, if rent goes too high?
andrewla 7y ago
It is the case in New York City, and also in this California Bill (I don't know the case in Oregon) that you can charge a tenant less than the "legal" rent by offering incentives and discounts. In other words, it is totally permissible to increase the legal rent by the officially allowed 7%, but increase the effective rent paid by your tenants by only 2% (or whatever you want). There does not appear to be any restrictions about removing such incentives/concessions/discounts in the future. It also appears that the California law resets as soon as the tenancy changes hands; so as soon as there is a vacancy the landlord is free to increase the rent by as much as they want. This is not the case for NYC rent stabilization; there the increase in the legal rent is a property of the unit, not of the tenancy.
verelo 7y ago
In Ontario the rent control is even worse. It’s set by the landlord tenant board at a number near inflation, this year it’s 2.2%, the last few it’s been 1.8%. Similarly, i tell my tenants that they should expect the minimum increase yearly as i cannot make up for any lost increases nor can i make larger increases if something about the economics of the house changes. The real issue here is the cost to provide housing, and the limited amount that exists. I wanted to finish a basement in one of my places, to do this legally, i owe the city $140k in fees alone. This is around 5-6years of rent. You can probably imagine why i opted to put this money in a bunch of index funds and do nothing instead...
- joelx 7y ago
  This is really bad policy... Treating the symptom while making the root problem worse. The core issue is there is not enough good housing for everyone in California. The real solution is to greatly loosen building regulation and make getting permits much faster and easier statewide. Then entrepreneurs will double or triple the housing supply and drop the costs of renting or buying a home by 80%. You could see rents go from $2500 per month in LA to $1000 a month or less.
  - ericmay 7y ago
    I would argue the core issue is actually overpopulation (or in the case of California too many people wanting to live there but also trying to balance preservation of Nature). And it's certainly much more acute in California. Tokyo is not a desirable way to live, but neither are the suburbs. Too many people means the density gets too high, and poor zoning regulation and poor building incentives get us mcmansions. Every little European city that you've ever been to that was lovely, walkable, and sensible, is the objectively best way for humans to live. You know it and I know it. Loosening building restrictions won't really work if you think that you're going to build single-family homes. It would be a disaster. You have to build entirely new neighborhoods where people can't use cars at all, but I've never seen any level of government in the US allow that. Otherwise you will just end up building suburbs and then the state will build 15 lane highways ad nauseam. Traffic will continue to get worse, it'll be a dystopia. And you build more and more housing, you'll wind up with 4-lane highways to and through Yosemite or something - that's not at all desirable is it? How would you handle the traffic and flow of people? Giant hotels, McDonalds, and huge traffic stops? It's just not sustainable. California's problem is that it's not sustainable for the amount of people that want to live there. I think it's a global problem in general too. Less people, and no cars would be most desirable to me. Sorry for a bit of a discoherent rant.
rudolph9 7y ago
I don’t know if this a direct result of the laws passed but prices definitely seem to have dropped from last year to this year (don’t have numbers, just perception of someone living here)
paulddraper 7y ago
Makes sense. This is the use-it-or-lose-it budget game, landlord style.
adamin1i 7y ago
There's always risk your tenant could disappear, stop paying and lawyer up, and/or trash the place.
pestrov 7y ago
Agree! Here is a great epidose on why Rent Control does not work by Freakonomics. http://freakonomics.com/podcast/rent-control/ http://freakonomics.com/podcast/rent-control/

by bhauer 7y ago

gregs1986 7y ago

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 7y ago
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.
baddox 7y ago
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.
- eru 7y ago
  Don't those laws usually allow a reset when you switch tenants? (However, your example would still work, if the reliable tenant turns into a nightmare tenant.)
pmikesell 7y ago
>>> 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 7y ago
  Maybe more people selling property instead of collecting money forever for winning the land lottery 50 years ago it is a good thing.
  - pmikesell 7y ago
    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?
    - eru 7y ago
      It also takes a tenant out of the market. So the net effect on other renters is pretty slim.
      - sct202 7y ago
        In Chicago, a lot of multi-units (2+ flats) are converted to single large SFH, so the net effect could be worse especially if prices were to go down that it would be attainable to do that.
        eru 7y ago
        Interesting! I wonder about the economics of that? Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)
nitwit005 7y ago
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.
rory096 7y ago
>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/b5c04ae02c17c0b51358411c5c1c55efb3e0.pdf https://pdfs.semanticscholar.org/3848/b5c04ae02c17c0b5135841... [1] DeYoung and Phillips (2009), Payday Loan Pricing https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77ad19b13a881a54a.pdf https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77a...
- jquery 7y ago
  Fascinating. Makes sense from a game theory perspective.

joshAg 7y ago

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.

pg_is_a_butt 7y ago
... in a vacuum in space
bzbz 7y ago
So then what’s the point of not being able to make those larger adjustments?
- joshAg 7y ago
  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.

decebalus1 7y ago

> 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.

epistasis 7y ago
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.
tolmasky 7y ago
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).

Causality1 7y ago

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.

refurb 7y ago

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.

jdavis703 7y ago

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.

bsder 7y ago

> 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 7y ago
Agreed, here in Montreal it's something like 2%.

amahani 7y ago

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 https://web.stanford.edu/~diamondr/DMQ.pd. For a counter, see https://www.housinghumanright.org/wp-content/uploads/2018/11/Diamond-McQuade-EXECUTIVE-SUMMARY.pdf 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 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.

JackFr 7y ago
> (2) tie rent control to income. Give one moment's thought to the most likely side effect of that...

john_moscow 7y ago

>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 7y ago
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 7y ago
  Specifically, it's an attempt to hedge against the possibility of the market rate increasing by more than 7% in a year.
  - deleted 7y ago
    [deleted]
tathougies 7y ago
The entire market is going to do this. Legalizing a 7 percent increase basically means mandating the entire market move at this rate.

BurningFrog 7y ago

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.

deleted 7y ago
[deleted]
jeffdavis 7y ago
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 7y ago
  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?
  - BurningFrog 7y ago
    > It all depends if tenants can afford it In extreme markets, perhaps. Normally one landlord's ability to raise rents is constrained by the prices other landlords charge.

refurb 7y ago

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.

justinhj 7y ago
Which is why vacant property tax makes sense for popular areas
- refurb 7y ago
  So solve a problem created by regulations with more regulations?
  - rileymat2 7y ago
    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.
  - rconti 7y ago
    Rent control (regulation) creates more problem, I agree with that. But I don't think it's fair to say that expensive housing, full stop, is a product of regulation. There are desirably places to live that have housing that goes up at a good enough rate to be considered an investment. As long as there are people of sufficient means, some of them will add property to their portfolio of assets. A home that sits unused on prime real estate is, frankly, more of a drain on that community than $100,000 in cash sitting under a mattress going unused. It's not perfect, and it IS a regulation, but penalizing people for hoovering up housing stock and then not using it, can benefit society.
  - 7y ago

cybersnowflake 7y ago

Also 2. Realize that not everybody in the world needs to or should live in the Bay Area/Hollywood. 3. Don't pass statewide laws catering primarily to the group of people aspiring to do so.

algaeontoast 7y ago
This needs to be talked about more. Entitlement was never a core tenant (no pun intended) of the American dream.
- taejo 7y ago
  It's tenet if you don't intend the pun, by the way.
  - algaeontoast 7y ago
    You have been successful in calling me cheeky on The Internet :)
namesbc 7y ago
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.
- rconti 7y ago
  It's a fair comment. You entirely brushed aside point 3 by using a personal criticism on the parent poster to ignore the fact that rent control is imposing a cost on an entire massive state, in order to regulate a thing that is an issue in a small number of counties.
  - namesbc 7y ago
    Every tenant, regardless of what county they live in, needs basic protections for their home. This law is not targeted at SF per-se because SF already has strong rental protections, this law offers the bare minimum of protection for everyone in the state. The bay area should, and must, pass stronger protections than this statewide law.

zuminator 7y ago

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.

mike_d 7y ago
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.
mactrey 7y ago
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.

seanmcdirmid 7y ago

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?

maxsilver 7y ago
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.
- seanmcdirmid 7y ago
  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 7y ago
    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-values/ 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 7y ago
      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.
- 7y ago

pvelagal 7y ago

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)

mayneack 7y ago

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.

PorterDuff 7y ago

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.

novok 7y ago

Thats why cities like oakland allowed landlords to 'store' rental increases if they didn't increase it to the max in previous years AFAIK.

deleted 7y ago

[deleted]

majormajor 7y ago

> 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.

gigatexal 7y ago

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

Railsify 7y ago

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.

lliamander 7y ago

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.

abalone 7y ago

> 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 https://twitter.com/rcmoya84/status/1171972636294840320?s=21 [2] https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-could-phimbys-solve-the-housing-crisis https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-cou...

foobar1962 7y ago

> 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 7y ago
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 7y ago
  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."
  - cycrutchfield 7y ago
    In a country with freedom of movement? Never. Your wishful thinking won’t change that. But by all means go ahead advocating to build housing where nobody wants to live, and continue your NIMBY policies to price people out of desirable locations.

briffle 7y ago

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...

cryptonector 7y ago
Yes: the people targeted by those ads. "Look! We did something for you! Vote for us!"
epylar 7y ago
Yikes, 31% (1.04^4 - 1) instead of 25%.

eloisant 7y ago

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.

Jweb_Guru 7y ago

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.

eru 7y ago
How does more housing not translate to more affordable housing? Do rich people to afford that extra housing get created out of thin air?
- Jweb_Guru 7y ago
  The government is perfectly capable of paying for housing if it is so inclined. It is also capable of providing incentives for creating new housing in certain markets, such as discounts; the idea that this can only be incentivized by charging new and existing tenants insanely high rents is the problem. Perhaps it could get some of the money required to do this by extracting it from the tremendous number of wealthy people living in SF, many of whom are probably browsing HN right now. It would likely be easier to do that if their rents weren't so astronomical, of course... As for "does not translate to affordable housing"--right now landlords and property developers have two ways of extracting money from the system: charge high rents, or pass the property on to other landlords. Maximizing profit on either of these requires rents to keep going up, and for the second there's no particular reason to actually have tenants. Beyond that, "market rate" in SF right now is nowhere close to affordable for most people and will not be for the foreseeable future, even if building greatly increases, which means that the people currently protected by rent control--those who can't afford "market rate", like the vast majority of people in the U.S.--aren't helped one bit by the creation of new housing.
- woah 7y ago
  As amazing as it seems, a lot of far left people in the Bay Area who engage in the housing debate actually don’t believe in supply and demand. Hard to have any kind of discussion on that basis.

eru 7y ago

Wouldn't you lose tenants, if rent goes too high?

andrewla 7y ago

It is the case in New York City, and also in this California Bill (I don't know the case in Oregon) that you can charge a tenant less than the "legal" rent by offering incentives and discounts. In other words, it is totally permissible to increase the legal rent by the officially allowed 7%, but increase the effective rent paid by your tenants by only 2% (or whatever you want). There does not appear to be any restrictions about removing such incentives/concessions/discounts in the future. It also appears that the California law resets as soon as the tenancy changes hands; so as soon as there is a vacancy the landlord is free to increase the rent by as much as they want. This is not the case for NYC rent stabilization; there the increase in the legal rent is a property of the unit, not of the tenancy.

verelo 7y ago

In Ontario the rent control is even worse. It’s set by the landlord tenant board at a number near inflation, this year it’s 2.2%, the last few it’s been 1.8%. Similarly, i tell my tenants that they should expect the minimum increase yearly as i cannot make up for any lost increases nor can i make larger increases if something about the economics of the house changes. The real issue here is the cost to provide housing, and the limited amount that exists. I wanted to finish a basement in one of my places, to do this legally, i owe the city $140k in fees alone. This is around 5-6years of rent. You can probably imagine why i opted to put this money in a bunch of index funds and do nothing instead...

joelx 7y ago
This is really bad policy... Treating the symptom while making the root problem worse. The core issue is there is not enough good housing for everyone in California. The real solution is to greatly loosen building regulation and make getting permits much faster and easier statewide. Then entrepreneurs will double or triple the housing supply and drop the costs of renting or buying a home by 80%. You could see rents go from $2500 per month in LA to $1000 a month or less.
- ericmay 7y ago
  I would argue the core issue is actually overpopulation (or in the case of California too many people wanting to live there but also trying to balance preservation of Nature). And it's certainly much more acute in California. Tokyo is not a desirable way to live, but neither are the suburbs. Too many people means the density gets too high, and poor zoning regulation and poor building incentives get us mcmansions. Every little European city that you've ever been to that was lovely, walkable, and sensible, is the objectively best way for humans to live. You know it and I know it. Loosening building restrictions won't really work if you think that you're going to build single-family homes. It would be a disaster. You have to build entirely new neighborhoods where people can't use cars at all, but I've never seen any level of government in the US allow that. Otherwise you will just end up building suburbs and then the state will build 15 lane highways ad nauseam. Traffic will continue to get worse, it'll be a dystopia. And you build more and more housing, you'll wind up with 4-lane highways to and through Yosemite or something - that's not at all desirable is it? How would you handle the traffic and flow of people? Giant hotels, McDonalds, and huge traffic stops? It's just not sustainable. California's problem is that it's not sustainable for the amount of people that want to live there. I think it's a global problem in general too. Less people, and no cars would be most desirable to me. Sorry for a bit of a discoherent rant.

rudolph9 7y ago

I don’t know if this a direct result of the laws passed but prices definitely seem to have dropped from last year to this year (don’t have numbers, just perception of someone living here)

paulddraper 7y ago

Makes sense. This is the use-it-or-lose-it budget game, landlord style.

adamin1i 7y ago

There's always risk your tenant could disappear, stop paying and lawyer up, and/or trash the place.

pestrov 7y ago

Agree! Here is a great epidose on why Rent Control does not work by Freakonomics. http://freakonomics.com/podcast/rent-control/ http://freakonomics.com/podcast/rent-control/