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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 occup
by 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 agoSo then what’s the point of not being able to make those larger adjustments?
- joshAg 7y agoThere's certain hot zones in cities where the rent can increase by much greater than 7% YoY. In those hot zones no one's wages are rising at the same rate, so that law is the only thing that prevents the people previously living there from being forced to move even if they would rather stay. Essentially, it's the policy that is in response to all the stories about retirees being forced out of a home they rented for decades or the stories about the cops and firemen sleeping in their cars because their job is a 20 hour drive from their house and they can't afford anything closer to their job.
- adamsb6 7y agoWhat happens to the people that want to live there and are willing to pay a higher price for it?
- mratzloff 7y ago"What happens to the firemen and teachers?" is a more important question than "What happens to the tech workers?"
- jquery 7y agoWhy?
- joshAg 7y agoThey outbid everyone else on every available unit. They use their money to build new units in that area or entice someone to build new units on their behalf on which they will then outbid everyone else.
- chrisdhoover 7y agoCops and fire fighters are unionized, protected and well paid. For years the argument for higher pay for cops in Frisco was that cops couldn’t afford to live where they worked. That was effective marketing, cops never wanted to live in the city they all live in Santa Rosa. Perhaps using teachers as an example would be better.
- mc32 7y agoI think your argument is contradicting itself at least partially because you say if an LL (landlord/landlady) was already getting market price, they’d price themselves out of the market so the 7% cap is more than enough... so in essence you’re saying the market will tell the LL not to raise the rent... which then means you’re relying on market forces... but you’re saying despite that you need a YoY cap... so something seems amiss...
- joshAg 7y agoNo no that's not my argument here at all. I'm not making any argument about whether the cap is enough or needed. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent by that much every year (ostensibly because they are now planning to do this), and my response is that it's absurd to claim that anything in the law will change things so that you could make that sort of increase now if you couldn't already make that increase before the law existed.
- mc32 7y agoAh, gotcha I see what you are saying. I think what OP was saying was that in an unrestricted market they have wider range (due to discretion) but given this shackle on hikes, they are going to max it out. Maxing it out means there will not be downward adjustments when warranted (economic trends) and will instead ride it out (not make it avail at lower price) because when the economy picks up they’ll more than make the loss up.
- track_me_now 7y agowhat you are arguing is the captured surplus under the supply curve. We can assume that demand is essentially inelastic for a relatively large price range (hence the introduction of rent control) so the extracted value is the area under a curve that changes rapidly over the short term, or a less volatile curve that shifts out 7% every year. I don't see how either of you can be confident in the expected future actuals.
- tolmasky 7y agoWhat in your second paragraph doesn’t apply without rent control? In other words, what makes 7% the magic number? Your entire argument seems based on market forces (if you raise too much, your tenant leaves and if there’s no wealthy people to replace them, you're stuck). How is this not the case without rent control? Do wealthy tenants somehow appear without rent control?
- gnaritas 7y agoGrowth; markets can grow faster than 7% a year, this slows that down so people aren't losing their homes because suddenly their market gets more popular.
- joshAg 7y agoNothing. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent by that much every year (ostensibly because they are now planning to do this), and my response is that it's absurd to claim that anything in the law will change things so that you could make that sort of increase now if you couldn't already make that increase before the law existed.
- pishpash 7y agoThe thing that would be different is the game theoretic situation where every landlord feels compelled to do that so the market rate increases by 7% per annum.
- joshAg 7y agoThey could already do that. Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year. The entire point of the 7% cap is to stop that from happening above 7%, because certain hotzones experience that already, not because of a formal agreement, but because the demand outstrips supply by that much and supply can't (or won't) catch up. However, there's an issue with how you're calculating the market rate: You're assuming that tenants can/will bear that cost indefinitely, so the market rate can be "whatever the landlords want to make it". That won't always be true, not just from landlord defectors who might try to undercut the oligopoly on price, but because the tenants can move elsewhere and effectively remove demand.
- tomc1985 7y agoThis makes me curious... is it the property management company or the landlord that sets the rental price? I recently rented a house and tried to haggle with the PM but they refused to budge on price but were willing to negotiate on other factors (like lease term and property rules), which made me wonder if the PM's hands were tied re: price.
- joshAg 7y agoI don't know exact specifics of typical PM agreements, but usually yeah the PM follows whatever the landlord specifies. If the PM doesn't like the landlord's terms, they will just decline to do business with them, but ultimately they're just the landlord's agent. I'd hazard that the PM charges a percent of the gross rent, but has a minimum irrespective of the rent actually charged, so the landlord will then just tell them that they don't want the PM to rent at a price where the PM's minimum fee is more than the fixed percentage. (or in hard numbers. If the PM requires the greater of 10% or $100, then the landlord will just say "don't rent below $1000")
- ryan_lane 7y agoMost property owners leave rent decisions to their property managers, as they're treating their property as a somewhat passive investment. It's basically the entire point of having a property manager.
- WWLink 7y agoSome PMs will try to act the opposite, but if you're the property owner, you're HIRING the property manager to find you tenants and/or manage the rental process. Their responsibilities are defined in the property management contract. Sadly, their contracts are pretty slimy - they usually absolve the property manager of any wrongdoing whatsoever. Do they hold up in court? KINDA. Unless you're incredibly rich and have a fantastic lawyer.
- deleted 7y ago[deleted]
- vsl 7y agoYou’re missing a few things: - He may be socially responsible and not want to charge through the roof. E.g. likes the tenants, prefers stability etc. - The whole point of the law is indeed to prevent large raises. But what if expenses suddenly skyrocket, or inflation does, and he has to increase more or go bankrupt? That’s the worry here. No, the law won’t react quickly enough. It’s preventing him from being socially responsible. - You assume annual 7% would not work eventually because it will raise the price too much in the market. This assumes free market, but you don’t have it anymore, now you’re regulated. In particular, your missing that everybody else will adopt the same rational self-preserving policy. Approximately the entire market is going to grow 7% YoY now. - nitpicking: 7% before, not after