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Nothing. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent b

by joshAg 7y ago

Nothing. The parent comment was arguing that because the law now says that rent couldn't increase by more than 7% they were now being advised to increase rent by that much every year (ostensibly because they are now planning to do this), and my response is that it's absurd to claim that anything in the law will change things so that you could make that sort of increase now if you couldn't already make that increase before the law existed.

pishpash 7y ago
The thing that would be different is the game theoretic situation where every landlord feels compelled to do that so the market rate increases by 7% per annum.
- joshAg 7y ago
  They could already do that. Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year. The entire point of the 7% cap is to stop that from happening above 7%, because certain hotzones experience that already, not because of a formal agreement, but because the demand outstrips supply by that much and supply can't (or won't) catch up. However, there's an issue with how you're calculating the market rate: You're assuming that tenants can/will bear that cost indefinitely, so the market rate can be "whatever the landlords want to make it". That won't always be true, not just from landlord defectors who might try to undercut the oligopoly on price, but because the tenants can move elsewhere and effectively remove demand.
  - dragonwriter 7y ago
    > Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year Well, “Nothing” is an unusual way of referring to the Sherman Anti-Trust Act.
    - TheCoelacanth 7y ago
      With the current administration and Supreme Court, it's a very apt way of referring to the Sherman Anti-Trust Act.
  - pishpash 7y ago
    Let me put it more simply, all that rent control does is put a damper on large increases [1], but the rental market will still seek a market price. The only way to do that is to spread the increases to leaner years where the natural rate increase would be lower than the cap. Every landlord would independently conclude the same, no collusion needed. To undercut that this year would mean being below market price in a future year. The only arbitrage would be between present and future prices. Perhaps some subset of landlords only seek to rent out for the front-end years, so they would have a different calculus, but all that would do is to pull down the average transaction price by a little, according to their size in the market. So if the current price demands a natural increase of 2%, maybe the market will clear at 5% instead of the 7% max, but it remains the case that there will necessarily be years where the clearing price is higher than without rent control. [1] This is assuming the government "guesses" it right that 7% is the average rate of increase over the long term. If it is below average, then the market gets severely distorted.
    - joshAg 7y ago
      I'm saying that game theoretic situation you proposed where every landlord raises their price by a similar amount is exactly what the law is working to limit to a fixed ceiling because the situation you described already exists in enough areas that there's political will to do something to limit the maximum yearly percentage increase. And the cap was explicitly set to be below the average rates of increase for many areas because the effects of the higher increases in those areas is what the law is explicitly trying to prevent. Spreading the increase to a leaner year only works if the unit is below the market rate. If the unit is already within 7% or so of market rate, then market won't bear that increase. Instead the tenant will move out to a market rate unit. If the entire city increases in lockstep that means people near the bottom of the market will be literally priced out and either move to another city or resort to sleeping in their cars or become homeless, but everyone else will just downgrade the size of the unit they rent since once the price of the current unit exceeds their ability to pay. At the very top end of the market that will mean units will have decreasing occupancy rates assuming the landlord refuses to compete on price to increase demand and insists on capturing the 7% increase.
  - eru 7y ago
    > Nothing was stopping them from forming an oligopoly [...] You are forgetting about transaction costs. The new law does provide a Schelling point. (But I do agree that it's probably not going to be an important one.)
closeparen 7y ago
Many landlords are not paperclip maximizers. REITs are, but small time families often charge below-market rents to the long term tenants they personally like or can’t be bothered to replace. They feel comfortable doing this because they can always revert to market rate later. With that long-term optionality going away, some will revert to market rate or as close as legally possible right now.
- joshAg 7y ago
  Sure some absolutely will, but there were enough paperclip maximizers relative to the total available rental units that a law limiting their maximizations had enough political will to actually pass through the legislature even though it's blindingly obvious that putting a limit on rent increases encourages all landlords to always increase rent by the maximum allowed.
  - kelnos 7y ago
    If eligible landlords in SF all started raising rents by 7% per year, every year, the city would empty out. As much as housing is crazy expensive in SF, there's no way the market would bear those kinds of increases
    - mlyle 7y ago
      SF already has rent control, which limits most landlords to increasing rent at 60% of inflation. Needless to say, costs are increasing faster than 60% of inflation... In turn, landlords are only willing to write leases at very high prices and the supply of rental units is even lower than it would be otherwise...
- deleted 7y ago
  [deleted]
- jacobolus 7y ago
  So in other words, landlords love to reserve the right to kick a tenant they stop liking out at the drop of a hat for no specific reason, by jacking the rent up as high as they want. As compensation for this power, they are willing to charge well below market rates to help indigent tenants. If they lose this “right”, they insist on becoming pure profit maximizing machines?
track_me_now 7y ago
you didn't have to make that response before the law, as a hot market that drove up rates by 15% could be addressed shortly. If you loose the option to make quick upward decisions and any downward movement is essentially irreversible, game theory suggests you'll try to minimize how much increase you leave on the table.
- joshAg 7y ago
  Downward movement isn't irreversible, it's rate of reverse is capped. And the rate limit is pegged to inflation. And roughly equivalent with expected average stock market returns [1]. https://www.creditdonkey.com/average-stock-market-return.html https://www.creditdonkey.com/average-stock-market-return.htm...
chillwaves 7y ago
These guys going to pretend they did not raise rents out of the goodness of their hearts and not cold hard economic reality. What's even the point except to spread FUD?
WalterBright 7y ago
What has changed with the new rent control law is the risk to the landlord increases, and that means rents rise to pay for the risk.

by joshAg 7y ago

pishpash 7y ago

The thing that would be different is the game theoretic situation where every landlord feels compelled to do that so the market rate increases by 7% per annum.

joshAg 7y ago
They could already do that. Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year. The entire point of the 7% cap is to stop that from happening above 7%, because certain hotzones experience that already, not because of a formal agreement, but because the demand outstrips supply by that much and supply can't (or won't) catch up. However, there's an issue with how you're calculating the market rate: You're assuming that tenants can/will bear that cost indefinitely, so the market rate can be "whatever the landlords want to make it". That won't always be true, not just from landlord defectors who might try to undercut the oligopoly on price, but because the tenants can move elsewhere and effectively remove demand.
- dragonwriter 7y ago
  > Nothing was stopping them from forming an oligopoly or landlords association/guild or whatever you want to call it and raising rent in lockstep by 7% each year Well, “Nothing” is an unusual way of referring to the Sherman Anti-Trust Act.
  - TheCoelacanth 7y ago
    With the current administration and Supreme Court, it's a very apt way of referring to the Sherman Anti-Trust Act.
- pishpash 7y ago
  Let me put it more simply, all that rent control does is put a damper on large increases [1], but the rental market will still seek a market price. The only way to do that is to spread the increases to leaner years where the natural rate increase would be lower than the cap. Every landlord would independently conclude the same, no collusion needed. To undercut that this year would mean being below market price in a future year. The only arbitrage would be between present and future prices. Perhaps some subset of landlords only seek to rent out for the front-end years, so they would have a different calculus, but all that would do is to pull down the average transaction price by a little, according to their size in the market. So if the current price demands a natural increase of 2%, maybe the market will clear at 5% instead of the 7% max, but it remains the case that there will necessarily be years where the clearing price is higher than without rent control. [1] This is assuming the government "guesses" it right that 7% is the average rate of increase over the long term. If it is below average, then the market gets severely distorted.
  - joshAg 7y ago
    I'm saying that game theoretic situation you proposed where every landlord raises their price by a similar amount is exactly what the law is working to limit to a fixed ceiling because the situation you described already exists in enough areas that there's political will to do something to limit the maximum yearly percentage increase. And the cap was explicitly set to be below the average rates of increase for many areas because the effects of the higher increases in those areas is what the law is explicitly trying to prevent. Spreading the increase to a leaner year only works if the unit is below the market rate. If the unit is already within 7% or so of market rate, then market won't bear that increase. Instead the tenant will move out to a market rate unit. If the entire city increases in lockstep that means people near the bottom of the market will be literally priced out and either move to another city or resort to sleeping in their cars or become homeless, but everyone else will just downgrade the size of the unit they rent since once the price of the current unit exceeds their ability to pay. At the very top end of the market that will mean units will have decreasing occupancy rates assuming the landlord refuses to compete on price to increase demand and insists on capturing the 7% increase.
- eru 7y ago
  > Nothing was stopping them from forming an oligopoly [...] You are forgetting about transaction costs. The new law does provide a Schelling point. (But I do agree that it's probably not going to be an important one.)

closeparen 7y ago

Many landlords are not paperclip maximizers. REITs are, but small time families often charge below-market rents to the long term tenants they personally like or can’t be bothered to replace. They feel comfortable doing this because they can always revert to market rate later. With that long-term optionality going away, some will revert to market rate or as close as legally possible right now.

joshAg 7y ago
Sure some absolutely will, but there were enough paperclip maximizers relative to the total available rental units that a law limiting their maximizations had enough political will to actually pass through the legislature even though it's blindingly obvious that putting a limit on rent increases encourages all landlords to always increase rent by the maximum allowed.
- kelnos 7y ago
  If eligible landlords in SF all started raising rents by 7% per year, every year, the city would empty out. As much as housing is crazy expensive in SF, there's no way the market would bear those kinds of increases
  - mlyle 7y ago
    SF already has rent control, which limits most landlords to increasing rent at 60% of inflation. Needless to say, costs are increasing faster than 60% of inflation... In turn, landlords are only willing to write leases at very high prices and the supply of rental units is even lower than it would be otherwise...
deleted 7y ago
[deleted]
jacobolus 7y ago
So in other words, landlords love to reserve the right to kick a tenant they stop liking out at the drop of a hat for no specific reason, by jacking the rent up as high as they want. As compensation for this power, they are willing to charge well below market rates to help indigent tenants. If they lose this “right”, they insist on becoming pure profit maximizing machines?

track_me_now 7y ago

you didn't have to make that response before the law, as a hot market that drove up rates by 15% could be addressed shortly. If you loose the option to make quick upward decisions and any downward movement is essentially irreversible, game theory suggests you'll try to minimize how much increase you leave on the table.

joshAg 7y ago
Downward movement isn't irreversible, it's rate of reverse is capped. And the rate limit is pegged to inflation. And roughly equivalent with expected average stock market returns [1]. https://www.creditdonkey.com/average-stock-market-return.html https://www.creditdonkey.com/average-stock-market-return.htm...

chillwaves 7y ago

These guys going to pretend they did not raise rents out of the goodness of their hearts and not cold hard economic reality. What's even the point except to spread FUD?

WalterBright 7y ago

What has changed with the new rent control law is the risk to the landlord increases, and that means rents rise to pay for the risk.