3 ms·

You can still do it that way. But instead of raising the rent 12% in one year, you can just raise it by 7% one year and then by 4% the next year. The tenant st

by joshAg 7y ago

You can still do it that way. But instead of raising the rent 12% in one year, you can just raise it by 7% one year and then by 4% the next year. The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year. I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).

mlyle 7y ago
The point is, if you decline an increase now-- and costs increase unexpectedly, you have a hard cap on how much you can do to adjust. This incents landlords to be more aggressive with pricing, because a mispricing now can extend to be mispriced for many years. It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.
avar 7y ago
An increase by 7% followed by 4% is an increase of 11.28%, not 12%. $1000 +7% = $1070, $1070 +4% = $1112.80 $1000 +12 = $1120.
- joshAg 7y ago
  Fine. Increase by 7% followed by an increase of 4.67289719626168224299065420561‬%. The point is that the 12% hike every 3 to 5 years can be accomplished over the same time frame because the max the law allows for is 22.5043‬% in 3 years and 40.25517307‬% in 5 years.
  - cookiecaper 7y ago
    But the reality is that landlords aren't going to want to take the risk that they'll have to spend extra time at a below-market rate, and since there's no way to predict what the market is going to do, there's no guarantee that they'll only be missing 4% of that value for only one year. Landlords are thus incentivized to increase rent by the legal maximum each year to keep the risk minimized. Your hypothetical also assumes that in the next year, the market value will stay the same, when in reality the expectation would be that it would increase another percentage point or two, meaning they'd have to come close to maxing that second year's increase to fully recapture the value. It also creates an effect where now that there's a legal range, the landlord will still feel like a nice guy by increasing rent "only" 4% each year, for example, and that's worse for tenants overall. It strongly incentivizes small-time landlords to imitate commercial landlords and squeeze the tenant for more each year, which other posters have adequately demonstrated is a significant loss to the tenant over a simple periodic adjustment every 3-5 years. These policies may be better justified in high-density areas like San Francisco (probably still net negative), but applying them state-wide is crazy. California is a very large state and they just made things substantially more complicated for both tenants and landlords throughout.
yojo 7y ago
FWIW, this is still more bookkeeping for me (have to track when to raise, how much remaining to raise). I also personally feel like a dick every time I serve the rent notice - it’s a small town and everything feels a little personal. It’s not a lot of work, but my FT job isn’t being a landlord, and we’re talking about a property that nets maybe $8k/year. It’s been a better rate of return than the stock market, but the alpha is small relative to my SWE salary. I guess another possible outcome of this is pushing marginal small landlords out, or pushing them to use property management firms since the fees possibly start making more sense. Neither of these seem like good outcomes to me.

by joshAg 7y ago

mlyle 7y ago

The point is, if you decline an increase now-- and costs increase unexpectedly, you have a hard cap on how much you can do to adjust. This incents landlords to be more aggressive with pricing, because a mispricing now can extend to be mispriced for many years. It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.

avar 7y ago

An increase by 7% followed by 4% is an increase of 11.28%, not 12%. $1000 +7% = $1070, $1070 +4% = $1112.80 $1000 +12 = $1120.

joshAg 7y ago
Fine. Increase by 7% followed by an increase of 4.67289719626168224299065420561‬%. The point is that the 12% hike every 3 to 5 years can be accomplished over the same time frame because the max the law allows for is 22.5043‬% in 3 years and 40.25517307‬% in 5 years.
- cookiecaper 7y ago
  But the reality is that landlords aren't going to want to take the risk that they'll have to spend extra time at a below-market rate, and since there's no way to predict what the market is going to do, there's no guarantee that they'll only be missing 4% of that value for only one year. Landlords are thus incentivized to increase rent by the legal maximum each year to keep the risk minimized. Your hypothetical also assumes that in the next year, the market value will stay the same, when in reality the expectation would be that it would increase another percentage point or two, meaning they'd have to come close to maxing that second year's increase to fully recapture the value. It also creates an effect where now that there's a legal range, the landlord will still feel like a nice guy by increasing rent "only" 4% each year, for example, and that's worse for tenants overall. It strongly incentivizes small-time landlords to imitate commercial landlords and squeeze the tenant for more each year, which other posters have adequately demonstrated is a significant loss to the tenant over a simple periodic adjustment every 3-5 years. These policies may be better justified in high-density areas like San Francisco (probably still net negative), but applying them state-wide is crazy. California is a very large state and they just made things substantially more complicated for both tenants and landlords throughout.

yojo 7y ago

FWIW, this is still more bookkeeping for me (have to track when to raise, how much remaining to raise). I also personally feel like a dick every time I serve the rent notice - it’s a small town and everything feels a little personal. It’s not a lot of work, but my FT job isn’t being a landlord, and we’re talking about a property that nets maybe $8k/year. It’s been a better rate of return than the stock market, but the alpha is small relative to my SWE salary. I guess another possible outcome of this is pushing marginal small landlords out, or pushing them to use property management firms since the fees possibly start making more sense. Neither of these seem like good outcomes to me.