California Approves Statewide Rent Control | Hacker News Reader

California Approves Statewide Rent Control

nytimes.com

670 pointsdawhizkid964 comments

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.

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.

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.

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.

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.)

>>> 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.

Maybe more people selling property instead of collecting money forever for winning the land lottery 50 years ago it is a good thing.

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?

It also takes a tenant out of the market. So the net effect on other renters is pretty slim.

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.

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.)

> Not necessarily - taxes on property owners don't follow inflation. They may go up greatly compared with inflation.

Except in Cal where they go up much lower than inflation...

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.

>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/b5c04ae02c17c0b5135841...

[1] DeYoung and Phillips (2009), Payday Loan Pricing https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77a...

Fascinating. Makes sense from a game theory perspective.

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.

So then what’s the point of not being able to make those larger adjustments?

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.

What happens to the people that want to live there and are willing to pay a higher price for it?

"What happens to the firemen and teachers?" is a more important question than "What happens to the tech workers?"

Why?

They 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.

Cops 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.

I 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...

No 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.

Ah, 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.

what 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.

What 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?

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.

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.

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.

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.

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.

> 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.

With the current administration and Supreme Court, it's a very apt way of referring to the Sherman Anti-Trust Act.

> 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.)

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.

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.

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

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...

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?

A better way to think about it is that a social norm that constrains landlords will be completely upended by the new legal norm. This legal norm will likely encourage behavior that otherwise wouldn't be exhibited, due to unintended consequences - in particular the landlord's estimation of what other landlords are going to do under the new law.

> 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.

It's disingenuous to pretend like the landlord is the only party with any control. Landlords cannot remove a tenant at "the drop of a hat" by any stretch of the imagination, nor can they arbitrarily increase rental prices. Rentals usually involve a lease that protects the tenant from arbitrary removal and price modifications as much as it protects the landlord from unexpected vacancy. If you're renting, you should know when your lease is up and know that the landlord has the option not to renew and/or to modify the price. (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)

On top of conventional lease protections, virtually every state has default tenant protections written into statute that can't be overridden by lease agreements, and that include a default implicit month-to-month tenancy term, providing at least basic protection from out-of-the-blue demands to vacate.

If an eviction must occur, it has to be conducted as prescribed in state law. Tenants overstaying or defaulting on their leases frequently can't be removed without 3-6 months of legal wrangling, which is no fun.

>>> (If you're in California, you should also know that the new law punishes your landlord for trying to do you a solid and keep your rent stable across lease terms.)

The CA law allows the rental price to reset to market rate for a new tenant, so unless the landlord doing you a solid was planning to stick you specifically with a rent increase down the line to recapture the present solid, they can still keep your rent stable across lease terms.

I am a CA landlord of a single house. Keeping track of “market rate” is an annoying exercise and I tend to just leave the rate unchanged for multiple years (3-5) then bring it up in one go. The last time I did this the rent increased ~12%.

Before, the tenant was happy because they got below market rent for 4 years, and I was happy because I could defer pricing work without long term penalty or risking a move-out during an already busy year. This new law will likely result in my tenant paying more, and me working more at times I don’t want to work.

It’s not the end of the world, it’s just one more annoying piece of red tape that doesn’t seem to help anyone.

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).

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.

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.

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.

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.

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.

Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants. A smaller annual increase will give them time to adjust to market conditions and choose over a longer period whether or not to move and to save up to do so.

You are doing no one any favors except short-term renters who never get an increase. In other words, your so-called benefit is actually a detriment to long-term renters.

I have done this twice with the same tenant without complaint or moveout. My tenant was presumably getting basic inflation based increases at work, which offset most of the delta.

Unclear on why doing it all at once is worse than doing it regularly and extracting more rent in the period in between. Is the theory that they will be unable to adjust their budget in 60 days?

It's beyond me why people would think this is worse for the tenant. Can I move to CA and be your tenant? You're basically giving your tenants free money.

Let's say the rent is $1000/month (for simplicity). That's $12000/yr in the first year. If you increase the rent by 12% ever 4 years they'll have 3 years of paying $1000/month, followed by a 4th year of $1120/month and so on.

If you instead raised it yearly by 2.87%, which give-or-take is the same as a 12% one-off increase we can calculate the net rent paid over the period in the two scenarios:

    $1000*12*3 = 36000

    r=1000;x=1.0287;
    (r*x^1*12)+(r*x^2*12)+(r*x^3*12) =~ $38106

The result is that by deferring rental increases you've given your tenant a benefit of $2106, and we can safely assume the rent is a lot higher than $1000/month. I.e. every month of the rent not keeping with market increases is more money for the piggy bank.

Not only that, the money saved in the short term (those 4 years without a rent increase) can be allocated however the tenant chooses. It can be frivolous spending, or the tenant can choose to turn it into long-term investments for compounding effect. I love being a tenant in these scenarios.

I think people that are arguing bigger rent increases that happen less often are bad are assuming tenants are stretching their housing budget to the max and won't be able to afford the large hikes. In which case they wouldn't have been able to afford it with smaller increases either.

Getting a surprise bill for 48 months of interest free credit is still a surprise bill. The landlord in question admits both to deferring out of disinterest in tracking market value (which as a trend is simply not hard work to determine) and to increasing the rent enough to recoup the rent lost by deferring the increase. During this time a tenant has no idea there is a claim on some undisclosed portion of their budget and has every incentive to set their operating budget accordingly.

It is well known that most people can not afford significant sudden expenses. I think the inability of some folks here to recognize how bad a 4 year rent hike can be have the privilege of not being in that group.

Renters generally understand that rent can be changed when the lease runs out and should be braced for the possibility that there will be a moderate increase. If the renter doesn't understand that, they probably haven't rented much before, and they'll learn it the first time their rent increases. If you are lucky enough to go multiple years without any adjustment, you should expect that the landlord will want to correct the differential at some point and budget accordingly.

Note this works both ways. If the market goes down, if no one wants to live there anymore, tenants have a lot of room to negotiate. Vacancies are expensive and the hassle of getting a new tenant is not something many people want to handle even in good conditions.

To clarify, when I increase, I bring it up to market rate, not over market rate. So my losses on missed rent are not recouped.

I also contend that not all markets make this easy. I rent a single family home in a town of 4,000. This is not a super liquid market. There are not a lot of good comps - my house is a block from the town’s best park, and walking distance to the small downtown. On the other side, it is a substantially smaller lot than the average house. There are essentially zero houses that are equivalent, and I have to do a lot of digging (including calling up other folks I know that are landlords) to figure it out.

My tenant is not on the verge of financial collapse. They’re a manager at a local business, they probably spend about 20% of their gross pay on rent. They have demonstrated an ability to absorb the bump without issue.

Could the tenant not save the amount of money the rent was not going up to be prepared for the day when rent did go up? The tenant could have saved 5%’s worth of increase, invested it in an index fund for the day that the rent eventually did rise. A 12% rise after 3-5 years would be no big deal since the tenant would have been prepared.

> Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants.

No, the market kicked out most tenants. The tenant should be expected to also monitor market prices for their rental and know automatically when they're getting a deal or when to expect an increase.

If I own a house or an apartment complex, my costs are relatively fixed -- that is, after all, the primary argument for owning rather than renting -- which means that if I am leasing that house or units in that complex to someone else, there is nothing requiring me to raise rents to keep up with "the market" rather than merely keeping up with my own actual costs. I can choose to make the same absolute amount of net income year after year. If "the market" is increasing faster than inflation and property tax, I can choose to take advantage of that.

"The market" is not an entity with its own volition, and speaking of it as if it were obscures the reality that it's comprised of individuals and collectives making individual or collective choices about what to charge and what to pay.

Sorry, didn't mean to ehumanize it. In the aggregate, it could be viewed as having its own volition.

Two viewpoints, one tree.

More like a household renting to a family friend, a student, an artist, someone who helps with child- or elder-care, etc. Homeowners put situations like that on the "market" in large part because they're allowed to change their minds later when the lease is up.

Dude, they own the property. This is OK.

The landlords own the building. They don’t owe the tenant anything beyond the lease.

Landlords love to reserve the right to increase their prices.

Maybe inflation gets crazy, maybe taxes increase, maybe maintenance turns out to be more expensive, maybe they realize they've been underpricing, maybe they sell the property to someone who has the same reasons.

If you tell them that you will limit their freedom to choose the rent price, they will try to retain as much freedom as they can.

It's like a use-it-or-you-lose-it budget game.

You can still revert to market rate if your tenant leaves. As a landlord who values consistent occupancy over maximizing profit, I am fine with this. And I agree with above comment, if you are raising rent 7% every year then you or your prop manager lowballed your rent, that’s not the fault of rent control.

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.

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.htm...

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?

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.

This 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.

I 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")

Most 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.

Some 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.

You’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

> 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.

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.

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).

There's some weird legal implications that I know that I don't understand.

I see this all the time where a large ownership company will leave apartments or commercial real estate totally unoccupied rather than allow a cheaper rent.

I don't understand what they gain.

Losses on rental, including depreciation and fixed costs like property tax can be counted against profits on other units. These losses can be carried forward and applied against future taxes indefinitely in the US.

So, leaving an apartment empty that could be rented for $X isnt quite a straightforward loss of $X, since you also gain the ability to offset future taxes.

I believe part of the explanation for this is that big landlords have more ways to make money off property than just collecting rent over long periods of time due to the way buildings are valued in the commercial real estate market. Building net operating income has a direct relationship to market value; the ratio of these things gives you the capitalization rate, which tends to be known for a given type of building in a given market.

If the unit sits vacant for a while but they do eventually succeed in growing building revenue through rent increases, they don't have to wait out the full breakeven timeline to make money since they can sell it on to the next buyer at the newer higher price indicated by the latest year's financials.

Let's take an example building where the local market has apartments trading at a 3% cap rate. If there are 30 units renting at 1.2k with no vacancy, that's $432k in annual rent. Let's say running this property requires a $80k property manager, $80k in property taxes, $40k in utilities, $40k in insurance, and $25k in miscellaneous expenses for a total of $265k/yr in expenses. The net operating income is $432k - $265k = $167k/yr. The market value of this building to a prospective buyer would be $167k/0.03=~$5.56M

Renting the 30 units at $1.7k (41% rent increase), gross rents would be $612k. Expenses constant at $265k/yr (taxes would go up, but this is napkin math), the NOI is now $347k and the building is worth $347k/0.03=$11.56M .

In this example, a 41% rent increase more than doubled the value of the building. For an investor with deep enough pockets, the $6M of equity created by renting units at the higher price is enough to cover the cost of a long vacancy / rehab process. But they can't get too greedy or the units will never rent and they're just stuck holding the bag on a high-vacancy underperforming property.

These dynamics amount to what is basically a slow-motion flip playing out over 4-10 years. Some REITs do this across their entire portfolio to achieve healthy annualized returns.

Alright, that makes sense. But can we all agree that it's a problem?

When I said there needs to be some level of control (and apparently nobody agrees), I was referring to something like the taxes put in place by local governments against foreigners buying up property, keeping it unoccupied thus creating scarcity and driving prices up.

In this particular case, the local government practically gave away building permits, changed codes, the whole town was at the developer's feet (roads closed, free traffic enforcement, less green space, redesigned roads to deal with the forecasted traffic, etc..) under the promise of building plenty of 'affordable housing'.

But when after you build it (tons of this crap https://www.bloomberg.com/news/features/2019-02-13/why-ameri...) you raise the rent for no reason and practically drive people away (I'm not saying it's gentrification, I'm saying it's well-off young professionals who are now choosing to move to a different city), the local market stops being competitive, you sit around with empty apartments, somebody went wrong somewhere. All new developments are under the ownership of two or three giant entities which have a vested interest of keeping prices very high as opposed to competing among themselves. The management companies who own these also made sure to buy a lot of the existing (crappy) apartment buildings.

The argument I was trying to make is that more housing does not necessarily solve the rent price problem, especially if the new housing is governed by a handful of large corporations. And that is usually the case.

This tends to happen with new apartment buildings for the first 2 years or so, and its an artifact of real estate finance. For finance purposes, the building is valued on the theoretical sum of its leases when its at full capacity. If you have a 100 unit building where each unit rents for exactly 2.5k/month, then your building is valued on a multiple of of the $250000/month it generates. That value is used as capital for the real estate company that owns the building to use to get a loan to build another apartment complex. Where this gets tricky is that the max cashflow a building can generate is decreased when you lower rents in leases for for finance and accounting purposes,but when you give someone 1/2/3 months free rent the "max theoretical monthly rent" remains the same as if you hadn't given them the free rent. Thus, while the 2 months free rent is an effective ~18% rent decrease for the tenant, it doesn't impact the ability for the development company to borrow, and thats why it is widely used.

This seems about right. Also, there is a time frame when a new complex after completion transitions from a short term builder/construction loan to a long term permanent loan. For that loan as mentioned above the building is valued at theoretical sum of it leases by the bank. Thus for that loan it is better to show high actual rents and extrapolate to secure a better loan value / term.

Nobody says the rent will go down. That's not the argument.

Increasing supply simply ensures tomorrow's rent is lower than it would be otherwise.

Perhaps it's similar to the economics of retail gasoline prices at gas stations.

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.

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.

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.

> 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.

Agreed, here in Montreal it's something like 2%.

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. For a counter, see 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). 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.

> (2) tie rent control to income.

Give one moment's thought to the most likely side effect of that...

Keep in mind that CA has been operating with a variant of rent control since 1978 and the broader populace expresses wild support for it.

In Montreal we've had universal rent control all my life, and it actually works quite well. The rents are comparatively low. We have a decent tech scene, but it's still an affordable, left-leaning city, where even struggling artists can scrape by if they want to dedicate themselves to artistic work. I'm sure some people would argue that apartments in Montreal are less well-maintained as a result of universal rent control, but I've lived in the bay area, been to San Francisco many times, and uh, a two-bedroom San Francisco shithole which rents for over 3000 USD/month would rent for about 700 CAD here (~550 USD). If you go to the 800USD/month+ range, you can find very nice apartments.

Funnily enough though, I would say that Montreal has less of a supply problem, despite being on an island with no room to expand into an infinite suburban sprawl like the bay area has. Construction still seems to happen here. People are bitching that too many condos are being built, but I think more supply is good.

Anyway, I think rent control can work pretty well, as exemplified by this Canadian city. At the very least measures to prevent surprise rent tripling while someone is renting an apartment are very much a good thing. Sidenote: I think that rent control can also help prevent property price explosions. It makes no sense to buy an apartment for over a million dollars when its rental value is only 1000/month.

Montreal has a large supply of old housing stock. Its population growth has also been much slower than Vancouver and Toronto's over the last few decades:

https://www.theglobeandmail.com/news/national/how-does-montr...

>>Montreal is not shrinking, but it is growing slower than other big Canadian cities – driving down rental demand in the process. From 2013 to 2014, despite gaining nearly 43,000 immigrants from other parts of the world, Montreal tallied a net loss of 10,000 residents to other provinces.

If either Vancouver or Toronto had had more stringent rent control in place over the last few decades, the housing situation in these cities would be much worse than it is right now.

The effects of rent control have been heavily studied and are well-known:

https://www.econlib.org/library/Enc/RentControl.html

A note: EconLib appears to be run by the Liberty Fund, which is a group that certainly has a slant of its own[0]: an essentially anti-regulation stance in the name of personal liberty. I have attended a colloqium put on by a Liberty Fund-sponsored think-tank, and can attest to that slant.

I'm not saying the contents of the article is wrong, but just be aware of its source/publisher.

[0] https://en.wikipedia.org/wiki/Liberty_Fund#Criticism

Yes you should definitely judge the content on its own merit and not blindly trust the source. The article is well sourced and even cites "left-wing" economists (yes they exist) and political figures.

the reason rent control works in that case is because the difference between the rent control the amount dictated by the free market is very close. In that case, efffectively, the rent control doesn't really do much at all and hence isn't interfering with the pricing signals and incentives to build. In CA, the rent controlled prices are currently so far lower than the current cost of building it makes it pretty much impossible to build.

Another thing to consider is that rent control can depress interest in building more housing units. Why build if you won't be able to make the profit you'd expect due to price controls? More generally, this is an effect of price controls, especially those that can't easily be worked around.

>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.

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?)

Specifically, it's an attempt to hedge against the possibility of the market rate increasing by more than 7% in a year.

The entire market is going to do this. Legalizing a 7 percent increase basically means mandating the entire market move at this rate.

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.

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.

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?

> 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.

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.

Which is why vacant property tax makes sense for popular areas

It’s not so easy, how do you prove this?

What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.

Well, what you do is get rid of prop 13 and do yearly appraisals. Then you just tax the property on what it's worth, and if a landlord refuses to rent, then the tax is now a vacancy tax.

The real problem is we're not taxing these properties at the true value they could provide to society, so a massive market inefficiency exists.

You are pure evil.

My landlord's building is worth $5 million ($5,000k) and he pays $3k a year in property taxes. He can evict all tenants and wait for someone to pay him $10 million for the property. He can wait for generations and never pay more than $4k a year because of how prop 13 is structured.

But you do you.

Sure but you also want to force anyone who has recently managed to buy a home and doesn’t have a huge extra income out of it and out of the area.

Your landlord may be able to evict one building’s worth of people, but your goal is to evict many more than that.

Your landlord is harmless by comparison.

Who said eviction? I said to charge to the property tax as it's valued today. Put a lien on the property and collect at time of transfer. There's no reason to evict people based on property taxes. Texas handles this just fine.

What happens when the tax liens outweigh the value of the property?

I'm trying to understand: are you saying landlords should be able to not pay property taxes on the current value, not get their property seized by the state if they don't pay property taxes, collect market rate rents from tenants, and also keep all of the profit from property value gains once they sell?

But ignoring that absurdity - property taxes are usually 2% of the property value. So you'd need to what... Not pay any property tax at all for 100+ years for that scenario to play out?

But let's say we allowed that to happen, and we're somehow sympathetic to that owner. You still don't evict anyone over property taxes. The next buyer will just have to work it out. See Detroit and its $1 homes with $20k in back taxes.

I guess the problem here is I don't see housing as something anyone should expect a guaranteed profit from. I view it just like anything else - there's real risk, and if you're going to privatize the profit, you damn sure better privatize the risk, too.

Nobody is guaranteed a profit from housing.

Just like any other asset you can pay too much, buy something unsuitable, or mis-predict market forces.

Are you against private ownership of property outright?

Do you favor being taxed on the value of other things you own, how about your laptop, stove, etc?

I'm very much for private ownership of property, not sure why you would think otherwise. All I've said is to do what just about every other state does: if your property is worth $200k, you pay $2k that year in property taxes. If it's worth $2 million, you pay $20k. This isn't hard, and it isn't controversial.

Edit: just to appeal to authority: every single legitimate economist agrees with me on this as well.

Why is a home different from everything else you own?

Other states may do this, but many other countries do not.

Why shouldn’t you be taxed on the assessed value of your laptop and car each year too? How about your savings account? Shouldn’t that be taxed?

A vacancy tax is indeed a bit more complicated.

You hint at the easier solution: repeal prop 14 and increase property taxes. A lot. Problem solved.

(If you want to be a bit more sophisticated, look into land value taxes.)

I know that was a typo but CA Prop 14 is maybe the only thing worse than Prop 13 that CA voters ever passed.

If the fact that allowing landlords race-based leasing won the vote isn't enough to convince you that direct democracy is a stupid idea I don't know what is.

https://en.m.wikipedia.org/wiki/1964_California_Proposition_...

Repeal prop13 and landlords will just pass the additional taxes on to their tenants. You'll only succeed in displacing a different group of people. And you won't be the one buying those homes at a sweet discount. Assuming some real estate mogul, rich kid, tech bro doesn't out bid you, you'll be paying all those mega property taxes every year too.

The real issue is that there is no central authority at the CA State or even Bay Area level planning growth holistically.

A company can hire 5,000 people tomorrow and they'll all just move here and look for a place to live, regardless of whether the city their employer is based in has any housing or not. That drives up rent. It creates the absurd traffic that we now get to enjoy every day of the week. It drives up the costs of goods and services.

Bay Area leadership and California leadership need to sit down and have a discussion with employers and cities about how to effectively and responsibly grow, and then move towards developing new infrastructure to support the plan that comes out of those discussions.

What if someone’s on vacation or has mail being delivered there etc. or comes in once in a while or Airbnb’s it’s much harder to impliment I think than it sounds.

If you're putting the place up on AirBnB more often than not, the unit is not your primary residence and shouldn't be afforded benefits as such. If the goal of a vacancy tax is to increase rental supply, AirBnB does pretty much the opposite.

In California, and most of the US, property assessments are done by elected officials on an annual basis. In California the rate of increase is severely capped, but you're free to apply for a reduction if the value of your property decreases. If you're legitimately on vacation (or whatever), apply for an exemption. It's not that complex.

So solve a problem created by regulations with more regulations?

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.

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.

I'm not sure I'm in favour of rent control in the first place, but as a Vancouver renter I have seen vacancy tax really help with both house prices and rental availability. It also seems to be a fair tax, you are being taxed on a luxury that affects other people negatively.

Vacancy rates in San Francisco are very low compared to the rest of the state and the country. Rent control in SF is problematic not because it leads to vacancies but because the allowable increase is far too low, way below inflation.

yea, vacancy rates in SF are 2 - 3%, way way below the national median, and way below the california median as well

What units go into the vacancy rate? The comment seems to be saying these units aren't even listed as available. Would they still show up in the vacancy calculation? How do they get in there?

Vacancy rates are empty units that are available as a percent of all units available for rent. It doesn’t typically include units that aren’t available for rent.

The estimate is there are 100,000 empty homes in the SF area.[1]

I’ve seen an estimate of 20,000 for SF proper.

This [2] report to SF Planning states the number of empty units has doubled over time.

[1]https://www.sfgate.com/realestate/article/An-estimated-100-0... [2]http://ternercenter.berkeley.edu/uploads/CR_Final_2.3.19.pdf

It's low no matter what measure you look at.

You'd also have to consider all the people that would be happy to rent out their in-law but decide not to because of rent control.

Not saying it would solve the housing crisis, but adding another 20,000+ units onto the market would certainly help.

> I’ve seen an estimate of 20,000 for SF proper.

Even if that was added to the vacancy rate, that would still leave SF with around the national average (~7%) vacancy rate, and that's without counting the off-the-market housing anywhere else in the average (and not double counting actual on-the-market vacancies everywhere else, either.) Anyway you cut it, SF has a low vacancy rate/rate of empty homes.

Yeah, but 2% to 7% vacancy rate can mean the difference between rents that are $2000 per month and rents that are $4000 per month.

SF added 2,000 jobs in 2019 alone. If those were put on the market even in a huge lump sum, there's no way it would cut rent prices in half. Maybe it would keep the prices from rising for a year or so?

As a landlord this doesn’t make too much sense. The value of the property is net operating income divided by cap rate, so vacancies would lower value. It doesn’t matter what the gross scheduled rent is in that calculation.

If you have a tenant paying $1000 per month when market rate is $3000, an empty units drastically increase income and thus the value of the property.

It also opens it up to people who want to buy the building and move in.

You can also look at the value as discounted future cash flow. And in that calculation, an empty apartment that the buyer is confident they can fill quickly and rent for $5k is worth more than a full one renting for $4k.

Also, if you take your reasoning to the extreme then an empty apartment building has a negative value.

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.

This needs to be talked about more.

Entitlement was never a core tenant (no pun intended) of the American dream.

It's tenet if you don't intend the pun, by the way.

You have been successful in calling me cheeky on The Internet :)

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.

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.

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.

"There just isn't an option for everyone to move away from the bay area and still have work."

>>>>>>>>>

If you can't afford to live in a box in San Jose, obviously staying isn't an option either.

>>>>>>>>>>>>>>>>>>>>

"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."

>>>>>>>>>>>>>>>>>>>>

Oh I don't live in the Bay Area. Theres an entire nation outside of San Francisco, large parts of which are better than the bay area in every objective fashion other than this weird cult obsession with having to live in the poop filled streets of Silicon Valley.

Bay Area is one of the most productive parts of the USA. (And one of the most productive places on earth.)

Excluding people from work in productive areas perpetuates poverty.

Why do people NEED to work in san francisco/LA? You may think you're contributing something valuable being a barista or adjunct ethnic studies professor in the Bay Area but if you can't survive there maybe the others don't agree. Move to a house bigger than a shoebox with less traffic, less filth, and less crazy politicians, and lower costs. Whats the hangup? I don't understand these people who watched pirates of silicon valley and now they have to live in a shack on location.

You are right that it is a bit weird and hard to understand why productivity differs so much.

But that labour productivity (eg measured in salaries the market can bear) differs so much is a fact. Whether we like it or not.

That puzzle is mostly about productivity differences for tech workers. For the baristas in the Bay Area relatively standard explanations like the Baumol effect do most of the explanatory work.

The productivity is higher because you have one of the highest concentrations in the world of big companies at the top of the field employing the best people and most resources. Not rocket science.

This has nothing to do with people that think they deserve to work there (which I frankly don't get what the big deal is, you're not a teenager scoping out the best colleges anymore) but obviously the marketplace disagrees.

I'm not sure it has much to do with anyone deserving anything. It's just good for the economy if more people work in more productive places.

So if the best companies could employ more people in those places and pay them high salaries, those people would also pay high income taxes that could finance public infrastructure for the rest of the country.

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.

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.

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.

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?

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.

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).

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-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)

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.

It really depends on the landlord. I just renewed my lease on a single-family home in a relatively hot market with no price increase. Of the 7 or 8 different units I've rented across 4 different states, only 2 of them had landlords that routinely nudged the rent upward at lease renewal. My personal experience is that unless someone is really working to maximize profit per unit, they're usually content to leave well enough alone, and only raise rates when the unit goes empty. I know multiple people who've rented for 15+ years with no increase in rent.

Indexes and aggregations may show something, but it's important to remember that they're lossier than many people appreciate. You'd have to dig into the data to learn how representative it may or may not be. Since small-time landlords are hard to collect data from, most of these city rental indexes are probably relying on large-scale apartment landlords who are constantly trying to squeeze maximum price-per-unit. I'd say you'd do well to take it with a grain of salt.

Before Mountain View landed rent control a few years ago, my rent was being increased 10% year over year - I had enough after 3 years and moved to Sunnyvale where my rent was $50 more a month for an extra bedroom and 300-400 sqft extra.

Interestingly, my rent has remained stable ever since moving - guess it's possible to have much better luck with smaller landlords.

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)

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.

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.

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

> 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.

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

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.

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.

> 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

[2] https://www.kqed.org/news/11731580/forget-yimby-vs-nimby-cou...

> 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.

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.

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."

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.

I hear what you're saying, but can do without the NIMBY rhetoric. The discussion about "build more houses to reduce housing cost" is exactly the same as "build more highways to reduce traffic congestion" in that it doesn't work for long.

What needs to happen is effort put in to make other cities and towns attractive. This could mean encouraging commerce and industry to re-locate or set up new factories or offices. It certainly means ensuring city-level standards of health care and education, something that is a good thing to do anyway

Lastly there needs to be a campaign to encourage people to move to these places. Australia already has migration programs that require people to live anywhere other than the main capital cities.

Australia has a scarcity of fresh water, and low rainfall. Our inland rivers are dying because water is diverted to irrigation for farming; Sydney's water supply is pretty stretched and the option to build more dams is neither environmentally desirable nor possible, because all the rivers have already been dammed, and most are less than full due to low rainfall.

So without resorting to calling NIMBY, at what point can we say "we cannot support any more people"?

There are key differences between building more highways and building more dense housing.

I suspect induced demand is more of an effect with highways than housing. People can change their driving habits from day to day more easily than they can change their living habits.

Expand a highway, and more people in the area start taking more car trips on it.

Add housing, and more people don't instantly come into existence to occupy it. (Maybe, over a few years, people stop cramming themselves into crowded roommate arrangements as much, and over decades they have more kids.)

But if I granted that induced demand applied to both...

Driving is a means to an end. People stuck in traffic are suffering.

Having a home is an end in itself. People need shelter, and living near your community/job/family is a huge quality of life improvement.

Plus, when you expand a highway, strictly more mileage is created. It's not like the additional car trips in this city are taking the place of car trips in another state. It's a net loss for society and the environment.

Whereas, when you add housing, even if it induces more people to move into that city, they're moving out of some other city, easing the demand in the housing market there.

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...

Yes: the people targeted by those ads. "Look! We did something for you! Vote for us!"

Yikes, 31% (1.04^4 - 1) instead of 25%.

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.

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.

How does more housing not translate to more affordable housing?

Do rich people to afford that extra housing get created out of thin air?

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.

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.

I believe that, on average, housing prices increase when housing is limited and decrease when it is not. I don't believe this relationship is nearly as linear as people imagine, especially since not all "demand" for housing comes from people wanting to live in it (thanks to rampant speculation in the market). I also don't believe that even a tremendous increase in available housing will cause the price to decrease enough that rent is actually affordable for the people who currently depend on rent control, and I am not willing to treat those people as "collateral damage" in the quest to lower housing prices in SF.

If we built lots more housing, there are two mutually exclusive possibilities (though honestly, they are on a spectrum):

A) Housing becomes affordable, or B) housing stays expensive.

The latter means we added trillions of dollars to the national wealth.

By the way, please go ahead and do tax property a lot. Ideally, you'd only tax the unterlying land with a land value tax. But even a naive property tax is OK.

That way foreigners buying up local real estate for speculation means foreigners paying for local services.

> "More housing" does not automatically translate to "affordable housing"

Imagine two hypothetical cites, each with one million residents. The first one has half a million apartments, while the second one has ten million apartments.

Which city would have cheaper apartments?

What city are you imagining where ten million apartments would be built with no demand for them? I'm assuming the city with ten million apartments and half a million residents is economically depressed, since that many apartments were clearly built for a much larger number of people.

Here's a better question: under a realistic model of building, where building slows down when landlords and property owners feel they have maximized the profit they will get out of it, by what date do you think housing prices will be low enough that current residents who rely on rent control to stay in SF will be able to live there again? 2025? 2035? 2050? What is your recommendation for those people in the meantime?

Nobody is entitled to live in posh neighborhoods. That is a false argument.

You don't see any reason why it might be worse for someone who lives in an area, and already has a life there, to be kicked out, than it would be for someone else not to be able to move in?

The biggest bargaining chip a renter has is the ability to leave. If the housing market is functioning correctly then renters should have the upper hand and these issues don't matter.

Nobody is "kicked" out because nobody has an intrinsic right to live in a particular neighborhood. Arguing such a thing is in complete opposition to a free market.

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

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.

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...

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.

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.

Counterpoint: Paris is denser than Tokyo (by almost a factor of 3! 21k persons/km for Paris vs 7k persons/km for Tokyo, only a little higher than NYC). While I’ve never heard Tokyo referred to as “undesirable” (though I have heard “crowded”) in the first place, to say Paris is “undesirable” is to objectively fly in the face of mass media and popular perception of society’s regard for the “city of love”

Density does not automatically mean low quality of life, and in fact could just as easily enhance it: what matters is good city planning and design, and I’d very much argue that in e.g. LA (where I live) the vast majority of single family homes in the city are in areas where it makes no sense for them to be, lowering the quality of life for even those that own and live in the home (e.g. single family homes right next to highways and commercial corridors? why?)

In my opinion, the idea that California is “full” is immensely dangerous. Especially considering the fact that SF and LA are losing net population yearly — and yet the rents are still increasing and our suburbs are still sprawling further and further out. Density is the solution, not sprawl and not limiting who can come here.

Tokyo is a fantastic city, I spent two weeks there and loved it. It is extremely clean and safe, loads of good restaurants and entertainment, and good outdoor spaces. If I could speak the language and work there, I would move in a second.

California is in no danger of being overpopulated... The issue is as you say - single family homes are a brain dead way to live. Every homeowner has to spend hours a day maintaining his house... We stopped running our own internet servers after the first ten years of the web. Why can't we do the same with housing? Convert everything to medium (4 story buildings) or high (10+ story) density housing. You would completely get rid of suburban sprawl and everyone rich and poor could live within a mile of the ocean or mountains, walk or ride a five minute train to work, and solve climate change at the same time.

I don’t think high rises are ideal either. Amsterdam or somewhere like that is more ideal to me.

Your on the right track but there's a ton of regulation we need to get rid of before we can truely increase the supply with new innovations in housing production.

I got out of renting out a place I owned in CA a few years ago for this very reason. The company that bought it eventually turned it into a parking lot. I’m just glad it’s not my problem anymore.

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)

Makes sense.

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

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

I'm shocked at the ideological fervor here and the fact that virtually no one seems to have looked at the details of the actual bill. This is nothing like the rent control ordinance in SF that has caused $3000 units to get stuck at $500 rents. That will never happen under this law. The allowable increases are so much higher than "normal" rent control laws that any given unit will catch up to market rates in a matter of years, at most. Whereas the laws we love to hate result in units getting stuck far below market for decades or even generations.

The difference with this law is that a 20% rent hike will take 3-4 years to be implemented instead of 30 or 60 days. That difference, while not enough to allow all families to remain in place, will allow families time to adjust or move within a reasonable time frame.

This law is different. If you want to complain about rent control in SF or NYC or elsewhere, have at it, but know that most of your complaints do not apply to this law.

This should be the top comment. The upshot is that if you are a family that is renting, you won't be forced out of your home on short notice.

Try - for a moment - to imagine you are living close to your maximum expenses and your landlord increases your rent by 20% next year.

This happened to a family I know, except it was 50%. The building was purchased, "refurbished" and the rent was reset to a very high number.

> The building was purchased, "refurbished" and the rent was reset to a very high number.

And if someone was willing to pay that number, then that's what the place was worth.

That doesn't help the housing issues... which is the whole point of this article and the comment your replied to.

While what you're saying isn't false it's not going to solve anything. Unless you don't think there is a housing issue.

Yea but moving as an individual is stressful and 10x moreso for families. We’re trying to keep people off the streets and from having to make bad decisions without hurting the landlords ability to capitalize on their investment. This is a compromise.

Not to mention a sudden, unexpected expense in a situation where renters are on a tight budget and likely don't have much or any savings.

What are you talking about... One of the nicest things about being a renter is being able to choose to live in a place where you can get those savings.

Spoken as if many people have a true choice about whether or not to rent.

That’s it. That’s all this is. The law is just regulating shitty behavior. But you always have those who say “well I can legally raise blah and if I don’t less money.”

Well now they can’t. Good. We’ve made it slightly hard to be a major cunt.

It's interesting to compare what happened under rent control in medieval Europe. Under the feudal system, land rents were permanently fixed. They could never increase or decrease by any amount. This had the advantage that everyone knew what they were.

...sort of. What actually happened was that lords meddled with the size of units. The dues for a plot of land may be fixed at 3 bushels of grain, but if you can make the bushel bigger you can pass a rent increase anyway. So a major concern of European peasant movements was stable and uniform units.

True, but if someone is already using it, it's shitty to increase the price that much. It makes it a bait-and-switch: offer for a reasonable price first, and once the family is all settled, jump a massive price increase on them. That's absolutely something that needs to be banned by law.

It's bad behaviour all right, but that doesn't automatically mean a law is the best fix.

Tenants could ask for contract terms that forbid such raises.

Or, if landlords are not forthcoming, they could take out insurance.

And yes, such insurance would need to have its terms written carefully. And it probably doesn't exist as a product at the moment. But eg sponsoring the development of such insurance would be an easier to justify action by the government than a law. Also less likely to backfire.

In any case, the underlying problem is lots of pent up demand for building, and permits only being given out in a trickle. If there was more building, landlords couldn't pull those tricks, at least not profitably.

To me, it's working against reality (and will have unintended consequences) if the price of rent is being held back from market price.

If I were a landlord, this just means that rather than charging a higher rent following renovations, I'd have to front load my raising of rent while they were being planned / ongoing. It might become more standard practice to raise rent closer to that limit proactively in the state.

Proponents might argue that's fine--at least it gives a family more time to adjust or move out. In practice, though, it may just make it easier for that family to weather through the first bump and be in an even worse situation when they absolutely can't afford it next time around. They might have been better off moving with more money available when a bigger hike comes later.

But hey, we've never known California to shy away from band-aid legislation.

I'm not sure what insurance is going to accomplish here. Tenants could negotiate it in the contract, but most people are not lawyers who will understand and negotiate the finer details on a contract.

The law is not automatically the best fix for all kinds of bad behaviour, and in many cases it clearly isn't, but I think this is one of those cases where it really is. Dramatically raising rent prices on someone who is already living there, is taking of a situation where the other party cannot simply refuse the offer, because moving every year gets really expensive quick. With many other kind of subscriptions, if the vendor suddenly doubles the price, they're easy to cancel. But not when it's the place where you live. It's taking advantage of a kind of vendor lock-in. A kind of monopolistic abuse.

And it's exactly the kind of thing that many countries do try to protect tenants from.

And no, the problem here is not pent up demand for building. That would be a likely cause when it's the initial rent for a new tenant that's too high. That's a sign there are simply not enough houses and too many potential tenants. But when the initial price is low, the landlord clearly does want to rent it to you. And when they then dramatically raise the rent, they're taking advantage of the power they have over your living situation. Preventing that by law is entirely reasonable.

Individual people would likely not negotiate themselves directly, because they are not lawyers. But they would take contract terms into account when comparing places to rent.

"700 USD per week" vs "800 USD per week and rent increases limited to 7% a year" are relatively straight forward things to compare.

You are right that landlords have a limited monopoly power when people have moved in. (And depending on market conditions tenants also have limited monopsony powers, because it's a bit of a hassle to find a new tenant.)

But those kind of longer term engagements are pretty common in the commercial world. And they are often solved with contracts.

What's keeping people from coming up with those terms themselves?

Note: I am not suggesting that landlords agree to those terms out of the goodness of their heart. They would offer such a ceiling on the increase eg in return for a higher starting rent. They are essentially selling a call option.

If they price the option premium right, they would make money. Just like any other kind of extended waranty you can buy.

A lot of units require seismic retrofitting and that’s super expensive. If you can’t pass that cost on a lot of these buildings won’t be retrofitted

As counter-intuitive as it seems, this should happen. People should not look at rental property with no rent stabilization provision as a stable housing arrangement. If there is a sudden shortage in housing, we need prices to suddenly reflect that shortage, in order for people to be suddenly incentivised to and compensated for building housing to fill that shortage.

Shortage is pain and rent control simply distributes that pain in a different way than the market would and does so in a way that reduces the ability of the market to gradually alleviate that pain.

The more the government intervenes in rental contracts to mandate that they be like a lifetime lease agreement, the less incentives and sustenance there is to build a rental property overall. Society is better off having more rental units that have prices that are not legislatively stabilized than have a smaller supply of rental units with mandatorily stabilize prices.

If someone wants stabilized rental prices and they should sign a lease agreement with the landlord that gives them that at the price of a slightly higher per month rental rate. These kinds of things should arranged by actors in the market rather than having the government ban all alternatives in order to force people into stabalized rent contracts.

Well,

It's not entirely unreasonable to think landlords somewhere in the state will take this "5% + inflation" as automatically what's called-for. Conceivably a few landlords who otherwise would have held the line will do this. But given this was more or less already standard for the large landlords and given the landlords who have been really, really gouging, this sad collateral.

So ... you are arguing rent control is good? Or that this isn't rent control? Or that some rent control is good, but more is really bad?

The point was that this CA statewide bill is quite different from places like SF.

New state law: 5% + inflation

SF: 60% of inflation. This has has never been over 2.9% a year since the law changed in 1992 from a fixed 4% [0].

I think one could sanely argue that allowing increases of up to 5% plus inflation is a suitable restriction, while limiting increases to significantly below inflation is not.

[0] https://sfrb.org/sites/default/files/Document/Form/571%20All...

What if the market clearing price increases at greater than 5% plus inflation?

This isn’t a free lunch, the tradeoff of a price cap is under provision of a good.

We currently have a drastic under provision of a good to the tune of 3.5 million homes in CA alone.

This under provision is not because building new homes isn't profitable, it is because realtors, landlords and homeowners are actively blocking new supply in order to extract above market rents from desperate people.

Adding a rent cap of MORE THAN DOUBLE inflation will have no affect on supply, it is ridiculously profitable to rent out your property right now.

CA would have to do something like cap rents at less than $500 per bedroom before profit margins would affect supply.

> it is ridiculously profitable to rent out your property right now

I'd be curious if you can share specific numbers on where this is true?

Where in CA can I buy a house/apt and rent it out for more than the mortgage+insurance+taxes+maintenance? A link to the MLS listing would be appreciated.

Every now and then I look at housing costs vs. rental income to consider buying some investment property. But the numbers never work out, I'd always end up loosing money to rent it out.

renting is profitable if you can rent for more than

interest_on_mortgage+insurance+taxes+maintenance-raise_in_house_valuation no?

If your formula was the one, renting would never make any sense...

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

> Every now and then I look at housing costs vs. rental income to consider buying some investment property. But the numbers never work out, I'd always end up loosing money to rent it out.

'Maybe' in the case of buying a new property now to rent. But it's clearly the case for many or there wouldn't be places to rent.

"Where in CA can I buy a house/apt and rent it out for more than the mortgage+insurance+taxes+maintenance?"

Anecdata for sure, but I know of more than a handful of landlords in SF that charge more rent (and get more rental income) than mortgage+insurance+taxes+maintenance. Moreover, that equation ignores the increase in value of the property. You are confusing cashflow with making money, which are two very different things.

My current landlord just bought our entirely rent-controlled building three years ago. As part of the sale/marketing, gross income from the building was made available at a very granular level. It is certain that our landlord is losing money in terms of income-(mortgage+insurance+taxes+maintenance). However, it is equally certain that the landlord has profited greatly. First you have the fact that the building itself has increased in value by about 20% over the last three years. Accordingly, the landlord has made a profit in the low seven figures. Second, you have the straightline depreciation, which is a massive tax benefit if you have other appreciable income.

Market-wide price increases of 5%+inflation are rare; sustained market-wide price increases of 5%+inflation are very rare.

This forces landlords to do two things:

* When there is a sustained rise in fair market rent, they will need to implement that increase over time instead of falling behind, and then raising it all at once 5 years later when they realize they're leaving 20% on the table. This allows people being priced out advance warning.

* When there is a spike in fair market rent, like the 8-10% spikes of '14-'15 in the Bay, they will need to spread that rise over multiple years. Since this doesn't affect the profits of new units brought onto the market in response to the demand spike, it should have minimal if any effect on supplier behavior.

(And what happens when market clearing price does increase at 5%+inflation for years on end? Then housing will come to dominate the CPI, and the "inflation" term will more and more closely track housing prices.)

This will still affect new units as it changes the forecasted rates over the lifetime of the loan (usually 10 year balloon) so instead of being able to forecast market rate increases the max value is now 7%. And maybe less if all units aren’t filled right away and you miss a year of increases. It’s not a huge impact but it does put a cap on the upside profits against potential huge losses

> sustained market-wide price increases of 5%+inflation are very rare.

No sane investor forecasts an increase in rent of over 5% over a decade.

> if all units aren’t filled right away and you miss a year of increases

If a unit isn't filled, then you don't miss out; when it is filled you can immediately charge market rates.

It is still rent control. The problems you see will not be fixed by the law.

>I think one could sanely argue that allowing increases of up to 5% plus inflation is a suitable restrictio

Based on what data?

And no, it's not a 'sane' argument:

1) if 5% + inflation is above market rates then this rent control is either a no-op or detrimental because it may incentivize landlords to hike rent to maximum because they won't have have the flexibility to do that in the future if the market changes.

2) if it is below market rates, then it's just rent control and it comes with all the same baggage and detrimental effects we always see.

Rent control does not work. I don't understand the appeal to continue experimenting.

> [...] because it may incentivize landlords to hike rent to maximum because they won't have have the flexibility to do that in the future if the market changes.

Relatively unlikely to have a big impact. Even without such a law they already have an incentive to raise rents as how as possible: profit.

Mostly the law should be a no-op.

I'm not sure what the argument is for why freedom of contract can't provide the "increase < inflation + 5%" provision voluntarily?

>Mostly the law should be a no-op.

Mostly? Uh huh.

Sorry - then why are we wasting time with this law in then? Because OP and supporters certainly don't think it's a no-op. California doesn't think it's a no-op.

>Even without such a law they already have an incentive to raise rents as how as possible: profit.

That is such a shallow, nonsensical argument. By your logic explain why Starbucks isn't charging $5000 for a coffee ... because after all: profit.

I'm sure landlords would love to raise prices to astronomical levels. I'm sure tenants would love to live in the apartment for free. So tell me, why doesn't that happen? Why is it that prices in a market will tend to stable point?

>I'm not sure what the argument is for why freedom of contract can't provide the "increase < inflation + 5%" provision voluntarily?

They can. That's called a 'lease'. It's common.

> I'm sure landlords would love to raise prices to astronomical levels. I'm sure tenants would love to live in the apartment for free. So tell me, why doesn't that happen? Why is it that prices in a market will tend to stable point?

I'm not sure we are disagreeing?

> They can. That's called a 'lease'. It's common.

Indeed. And I'm saying that if people want what the law is providing, they can negotiate it voluntarily. So there's no good orthodox economic argument for the law. (Basically, no argument from market failure.)

(And, if you have a sufficiently clever financial derivative structurer, you could probably get around the law as well, if you really want to. Basically, you'd construct a swap between a fixed rent and a variable rent. Similar to an interest rate swap.

One big problem with such an insane scheme would of course be transaction costs---ie too much hassle to set up complicated derivatives or repo agreements etc for a private tenancy. Especially since a court might not allow a normal unsophisticated person to be bound by such a complicated contract, even if they wanted to. Tenants are treated like children.)

> 1) if 5% + inflation is above market rates then this rent control is either a no-op or detrimental because it may incentivize landlords to hike rent to maximum because they won't have have the flexibility to do that in the future if the market changes.

It incentivizes landlords to even out their rent increases over time, and to avoid sudden jumps. Especially for lower-income people, price shocks are devastating; having warning of an expected rise in prices, so that you can move or downsize with a year or two of notice, is a boon, and this kind of measure forces landlords to do that work.

>It incentivizes landlords to even out their rent increases over time, and to avoid sudden jumps.

No. It doesn't 'incentivize', it mandates.

Also, I have no idea why you're arguing this point, this is rent-control. This is how rent-control works. It sets a cap on what you can charge for rent.

>Especially for lower-income people, price shocks are devastating;

Rent-control is devastating for lower-income people.

Price shocks are a result of spirling supply in face of rising demand. THIS DOES NOT FIX THAT. Rent control does not fix this problem and you can't just wish it away. Rent control makes it worse. In a normal market, prices stabilize. Landlords don't just spike prices over a month because either a) there's a lease agreement which sets these terms out, b) they won't be able to rent the unit out at the higher prices, or c) Good tenants are hard to find and finding tenants takes time and is expensive while your apartment sits there not generating income.

Rent control that permanently keeps units below market price is devastating for lower-income people. Rent control that simply smooths out price increases, and loses landlords perhaps a year of the new price during sudden spikes, is pretty innocuous.

> No. It doesn't 'incentivize', it mandates.

Well, they always have the option of not keeping up with market-rate increases. Not that I think anyone will take that option.

> Price shocks are a result of spirling supply in face of rising demand. THIS DOES NOT FIX THAT.

The point isn't to "fix" the increase in price. It's to give renters a year or two to adapt to the change, either by moving out, finding new sources of income, or getting roommates.

> Landlords don't just spike prices over a month

#NotAllLandlords. But enough do to create a serious public policy problem

>Rent control that simply smooths out price increases, and loses landlords perhaps a year of the new price during sudden spikes, is pretty innocuous.

Says who? You're just making things up now.

>they always have the option of not keeping up with market-rate increases. Not that I think anyone will take that option.

No you're just distorting words. Rent-control is a mandate. Saying it isn't a mandate because you can just drop the rent is dishonest. Why are you playing these word-games?

>The point isn't to "fix" the increase in price.

But that's what it does. You're capping what rent can be and your only argument that somehow it isn't rent-control and won't suffer the same consequence as every rent-control policy is that isn't as disastrous as something that San Francisco did.

>But enough do to create a serious public policy problem

Serious public policy problem? What are you even talking about? Housing shortage and homelessness is a serious public policy problem. This is a non-problem that if solved through this measure actually magnifies those real issues.

You're also making up the reason why this policy was put in place. It was put in place "to deal with housing crunch"[1], and not deal with the 'serious public policy problem' of some fictional landlord spiking rent for fictional renters. We know from hundreds of studies that rent-control does not actually solve either problem..

[1]https://www.reuters.com/article/us-california-rent/californi...

The essential feature of this bill is that the rate of increase allowed is well above long-term market trends. This is qualitatively different from a rent control policy that aims to keep rents perpetually below market rate.

The "housing crunch" is a very general term; the specific symptom addressed by this bill is drastic increases of rent on, for example, a change of ownership of a building. See https://www.latimes.com/california/story/2019-09-05/how-cali..., which has actual references to advocates of the bill.

> Supporters of the measure have pitched it as a way to prevent sudden increases in rents at levels that could drive people from their homes as the state experiences a surge in housing costs.

Assembly members in favor of the bill talked about "providing certainty", not about keeping prices low.

Also "some fictional landlord spiking rent for fictional renters"? The article I linked describes sudden increases to rents during changes in local housing markets:

> In Boyle Heights, apartments without rent controls saw rents increase from a median $1,200 a month to $1,700 between 2016 and 2017.

The OP references this area:

> Sandra Zamora, a 27-year-old preschool teacher, lives in a one-bedroom apartment in Menlo Park, Calif., a short drive from Facebook’s expanding headquarters. A year ago, Ms. Zamora’s building got a new owner, and the rent jumped to $1,900 from $1,100, a rise of over 70 percent. Most of her neighbors left. Ms. Zamora stayed, adding a roommate to the 600-square-foot space and taking a weekend job as a barista.

This rent control bill would force the new owner to spread that increase over several years.

>The "housing crunch" is a very general term; the specific symptom addressed by this bill is drastic increases of rent on

Right ... except the bill aggravates the "housing crunch". Again, you're trying to solve a small problem by magnifying the major cause of the problem you're trying to solve.

Your linked articled quotes an economists who says this will hurt people who "are upwardly mobile, striving families who are middle-income or lower-income in Irvine, who can’t afford to buy a house but where renting might be in their reach,", because:

1) "landlords who might have held rents for existing tenants at below-market rates with the knowledge they could increase them at any time might decide to hike rents every year."

2) "restrictions on rent hikes encourage owners to convert their apartments into condominiums, which removes properties from rental stock"

So, this policy makes rent broadly more expensive, and it lowers housing supply - which makes rent more expensive. Come on man.

What if you California introduced legislation that targeted the underlying cause of the rent spike ... i.e. the 'housing crunch'. This way, you can solve both problems, the housing crunch and rental spikes.

Why does someone have to be arguing anything? They wrote what happened and described it adequately with no disclaimers or partisan copy-pasta to assign favor to any mob.

Are there any provisions for periods of high inflation in the market?

The limit is 5% plus inflation.

> I'm shocked at the ideological fervor here

Really? This is pretty common on HN. This is IMO one of its weaknesses.

There are certain topics that bring out political rants. One is regulation and another is housing prices in the bay area. This story brings out both.

>> I'm shocked at the ideological fervor here > Really? This is pretty common on HN. This is IMO one of its weaknesses.

HN is heavily focused on the Bay Area. This fervor seems like a persistent feature of that region's culture and not HN in particular.

Plastic, climate change, and identity politics also bring out radical behavior.

Also, privacy and anything somehow related to Google or Facebook.

The rent control laws in NYC aren't even nearly as bad as SF, despite how much they get demonized here on HN.

In NYC units that might be _actually cheap_, as in rent controlled and not stabilized, number roughly 17k units _in total_. And only about 1/3 of those are significantly below market or in desirable neighborhoods. It's almost insignificant and the number of rent controlled units has gone down by roughly HALF in the last 5 years, because the tenants in them are dying and income limits on any descendants usually kick the units out of being controlled into stabilized.

NYC has a much larger number of rent stabilized units, which is somewhere near 1/3 of all available units that are renting at or below $2700 (twice the national average, btw). The overwhelming majority of these are within a few hundred dollars of market rate.

There are about 4.2M housing units in NYC with roughly 30k being added every year. The "cheap" rent-controlled units are a rounding error.

That is not anything like the situation folks in SF are rightfully railing against.

The rent control laws in SF aren’t even as bad as HN comments would have you believe.

Rent control doesn’t apply to new construction in SF. It also allows a regulated annual increase, and rent automatically jumps back up to market upon a number of different conditions - not the least of which is that the owner can push you out to renovate the building!

HN commenters are usually just repeating stuff they heard somewhere, and have no idea what the laws actually say.

Moreover, while there are indeed lots of publications on the theoretical impacts of rent control, few of those publications consider laws as they actually exist, or if they do, the scope of the impacts is rarely communicated when translated into HN talking points. Every study I’m aware of has shown, at worst, diffuse, long-term negative impacts to housing costs. Meanwhile, many of them do exactly what they set out to do: stabilize short-term prices for vulnerable populations.

These laws are simply not the boogeymen that comments here make them seem.

Rent control in SF really is that bad. Rent increase limits are 60% of CPI, so it can’t even match inflation. If your costs go up (utilities) or you want to do capital improvements, good luck getting the rent board to approve a pass through. Want to prevent other people than the tenant from moving into a 1 bedroom? Tough, can’t say no to that, it just has to be under 3 people. Want to move into your own house? Sure, just pay the tenant a few tens of thousands in “pay off”.

SF rent control is absolutely onerous and definitely shrinks the pool of potential landlords and thus potential units.

Why should I care about the woes of landlords as opposed to renters?

Because shrinking the number of landlords shrinks the number of units available, raising rents, _hurting renters_.

are these vanishing landlord eating their properties or just throwing them into the sea

No. They let population growth take care of that while they decide not to invest in rental properties.

Your flippant argument can be flipped around too. If there is a housing shortage, by what mechanism does rent control conjure new housing units?

who the what now

my point is, vanishing landlord or no, the units remain

>my point is, vanishing landlord or no, the units remain

Still wrong:

1) Apartments get converted to condos, or re-purposed because the property has value, but renting doesn't.

2) The population keeps growing meaning that your same number of units don't meet the needs.

3) Rental supply also drops as people opt not to move and sit on their rent-controlled apartments, limiting the supply for those looking.

This is why rent-control has the effect of making housing worse, even if the rental supply is maintained.

> Still wrong:

ah, ok, they eat them. thanks for clearing that up

You do realize there is a second, third, and even a fourth line (and more) after this first line.

oh yeah, I see them. thanks for clearing that up

No, just leaving them vacant while the value increases.

SF Metro vacancy rate is below the national average for large metro areas.[0]

[0] https://www.sfchronicle.com/realestate/article/An-estimated-...

And if those markets were the same except for the rent control rules, we could conclude that rent control doesn't increase the vacancy rate. But they aren't.

Cool- next up, a tax on vacant properties. Maybe they will have to sell.

Perhaps the people can again seize the means of production (part of that being stable housing).

I’d far rather know another 100,000 units are owned by the people that live in them than 100 landlords owning and profiteering from those units.

If this “disrupts” the entire rental industry, that’s fine with me. Didn’t bring much value anyway

That’s worked great everywhere it’s been tried!

> I’d far rather know another 100,000 units are owned by the people that live in them than 100 landlords owning and profiteering from those units.

I'd rather have that too! But it's not the result of these patchwork rules. Fix it properly instead.

Also it lowers incentive to build new units if renting them out becomes too much of a hassle.

That reasoning works on land. (Hence a land value tax can't be passed on to tenants.)

But it doesn't work on the houses on top of the land. Because we can build more or less of them. Or higher.

Because landlords start being unable to afford repairs, and you get a bunch of decrepit buildings falling apart all over the city (with all the dangers that implies, not just to occupants, but to nearby buildings as well). It happened in my home town, and it wasn't pretty.

Landlords are not social security. It's probably better for the city to forcefully buy them out and create a new management model of the buildings than to impose strangling limits on prices.

Rents are growing insanely fast in SF compare to anything else. The idea that landlords can't afford to make repairs because they aren't extracting maximum rent from the property is completely ludicrous on the face of it. Do you actually believe these arguments?

Are you talking about all rents, or controlled ones? The post above wrote that rent control rules in SF limit increases to "60% of CPI, so it can’t even match inflation". If that's false, then my post doesn't apply, sure.

Rent is far above its CPI-inflated average right now, so saying that rent increases must match inflation makes no sense. The time to do that would've been long ago. But in any case I'm pretty sure rent increases are capped at much higher than inflation.

One possible scenario is if a landlord purchased property at a price factoring in assuming certain increases in rent, then they’re constrained by the debt payments.

Then they were taking a gamble by purchasing a property they couldn't actually afford, and lost. If you want risk-free investments, try bonds.

I know a few landlords and that’s exactly what’s happening. I’m not sure why you find it hard to believe.

When you have a 3 unit building and everyone is paying less than 1/3 the market rate, it’s not worthwhile in the least for a landlord to fix up the building beyond the absolute minimum. Contractor rates have skyrocketed in SF, so even just repainting the building might cost $15k, which might represent several years of profit.

The skyrocketing rates for services are directly tied to the skyrocketing rent increases. The cost of performing these services does not change substantially from city to city, or else landlords renting to people in cities with more reasonably priced units would not be able to repair them. The big difference is the cost of living for the contractors, which gets passed to the people paying for repairs--and by far the largest component of cost of living in SF is rent. Like I said in the other comment, this is a largely self-imposed problem.

Not sure how big an impact that is. There aren't many contractors moving into the area like tech workers. Most of them are locals who have lived here for decades, so either have a rent controlled place or bought a home when prices were more reasonable.

Yup, our three floor building was 40k to repaint and fix a few custom windows (with plastic instead of custom wrapped glass) . Hadn’t been painted in over 20 years though.

You assume the rents are actually going to and staying with the landlords. In reality, landlords also have bills --

big bills (mortgages, property taxes) and bills that move [upwards] dynamically (gas, electricity, water, repairmen).

Property taxes in California are miniscule. Mortgages are only as high as they are because people assume they can extract ridiculous rents from tenants, so this is a self-made problem that should go away with sufficiently stringent rent control. The other bills do not vary significantly enough from city to city to justify the absurd rent differences between them.

So no, I'm not assuming anything of the sort. Beyond that, landlords are extremely notorious for spending much less money on repairs than they should and saddling their tenants with the bills.

Do you think contractor costs and material costs are going down?

Do you think they are going up faster than rents in SF have?

Perhaps... I don't know. Thats why I asked.

No. They haven't.

According to https://www.sfchronicle.com/business/article/San-Francisco-p..., construction costs in SF rose 5% last year (2018). Also according to the SF chronicle (https://www.sfchronicle.com/business/networth/article/After-...), rents increased 3.7% year over year.

According to https://www.curbed.com/2018/12/17/18144657/construction-home..., San Francisco's high construction cost is mainly driven by the high cost of construction labor. It is disproportionately driven by labor cost when compared to all other cities.

So we have some data now, rather than just pithy statements, and I don't think it agrees with what you want.

That crosses into personal attack. Please don't do that on HN.

https://news.ycombinator.com/newsguidelines.html

Because if it is uneconomical to rent out, there are few units available to rent and the few that are are super expensive. And the property won't be maintained properly. These unintended consequences ultimately hit tenants.

In Paris there is a similar impact of bad regulation. It has become so hard to expel a tenant that has stopped paying that landlords will demand extraordinary guaranties: bank credit lines, guaranties from relatives, sometimes even medical exam, etc and will be super picky. I knew of a foreign investment banker, high salary, not allowed to get in financial dispute because of his profession, who just couldn't find a place to rent in Paris because he couldn't provide some of those.

Because it is hurting the would-be renter group even more?

I personally know two people who are renting rent-controlled apartments in SF and don't live in them. Their lives have moved elsewhere and they don't need the place anymore. One uses it as a weekend getaway and the other one visits rarely.

Thanks to rent control their rent is so cheap that it's worth hanging on to it even though they don't live there.

So these two units are off the rental market effectively forever, sitting empty most of the time.

Because landlords supply housing and renters don't.

Why should I care about the woes of you opposed to me? Why should I care about the woes of the poor opposed to the rich?

Ok. Then care about the tenants. Do you have one shred of evidence that rent control, broadly, helps tenants? Because every economist I ever heard on this topic, left or right, argues rent control is bad for tenants.

Rent control is good for politicians getting elected. No point in analyzing farther than that.

Because the result is that small landlords who can't deal with the fixed costs hassles simply sell out and consolidate into larger ones with more clout with politicians to weaken renter rights and legal resources to fight pesky tenants whom they simply don't want, or create shared blacklist databases like has been done in New York. If you're going to gird up for class warfare, realize that tenants are probably going to lose as long as zoning restricts your options

My experience has always been that dealing with a large PMC like IMT or Greystar is far preferable to dealing with some guy who's renting his property out.

Wow, I literally belly laughed.

If a renter can't find a landlord to rent from, then what?

"Why should I care about the woes of water treatment plants as opposed to water drinkers?" Do you want drinkable water, or not?

Unless you have the capital to build your own house or apartment, you need landlords to put up their own capital to do that. It’s not like landlords are just assigned houses for free from the government to then lord over renter peons.

... But Prop 13 guarentees every landlord in the state that they won’t have to pay their share, and they get it even on >1980 construction, unlike rent control.

It seems fair to me that if you’re going to protect landlords (and companies !) you need to protect tenants as well.

A lot of what you're saying in here is blatantly incorrect or misleading. Water is frequently covered in utilities, but other utilities generally are not. Leases are very specific on the number of people in a unit for rent controlled apartments and is one the few things a tenant can be evicted for. The board frequently approves pass throughs. Increases tend to be higher than inflation.

If you lease out your house and you want to take back ownership, yeah, you need to pay out the tenant and that's completely fair. You're upending another family's lives, and they may not be able to afford to stay. You're paying them moving costs and covering a period of time of adjustment for them. If you think this is unfair, you have poor morals.

Also, for good measure: fuck the landlords.

You need to do more research.

The rent increase law is 60% of CPI. Look it up.

SF introduced a new law a couple years ago that additional people can live in a unit even if they are not on the lease. They only instituted caps on how many. Google search it.

Plenty of apartments have not only water, but also heating included in the rent. If that goes up drastically, the rent board will likely tell the landlord “tough”.

And I’m not against buying out tenants. I am against them having to pay $100,000 or more.

----

Sources:

This amount is based on 60% of the increase in the Consumer Price Index for All Urban Consumers in the Bay Area, which was 4.4% as posted in November 2018 by the Bureau of Labor Statistics.[1]

Legislation that went into effect November 9, 2015 allows tenants covered under rent control to add occupants, if reasonable, despite restrictions in the rental agreement.

[1]https://sfrb.org/sites/default/files/Document/Form/571%20All... [2]https://www.sftu.org/roommates/

You need to exaggerate less.

The maximum rent increase rate is 60% of the trailing twelve months CPI in the bay area. But landlords’ costs do not scale with the CPI. Mortgage rates are fixed (if a landlord has a mortgage at all), taxes are independent of CPI, and principal+interest+taxes are the vast majority of a landlord’s expenses. Maintenance is typically a small fraction of that number.

Landlords are not obligated to pay your heat or water under rent control. Mine certainly never did.

The roommate law changes you mention are not rent control, but tenant protections applicable to all rentals in SF. The 2015 change brought rent controlled units up to par, because landlords were evicting people for doing things like getting married or switching roommates (horrors!) Basically: preventing predatory landlords from being scumbags.

I’m going to go with the GP on this and say that if you think people should have their rent hiked for getting married or changing roommates or having a kid, you have poor morals.

In essence, you don’t like being told what you can do, you have a theory that it hurts the housing market, and you’re inventing reasons to justify your theory of reality.

Exaggerate? I said it was 60% of CPI and it is. Yes, the mortgage is likely fixed, but expenses such as maintenance and other associated costs are not - renovation cost have gone through the roof the last 10 years. Maintenance is generally 1% of the value of the building, so in SF that can be tens of thousands per year.

No, landlords are not obligated to pay heat or water (I never said that!), but many buildings (all the ones I lived in) do not have separate meters for water and sometimes heating, the landlord just pays the bill. Rent to a single person and they have two other people move in and use 200% more water? Tough shit says the rent board!

And the other problem with allowing additional people to live there is that if those additional people can demonstrate that they were an "established tenant", then they get full rent control and tenancy even after the original tenant (only name on the lease!) leaves. Show the rent board the lease they signed? Tough shit says the rent board.

It sounds like you aren't that familiar with the tenant laws in SF, so I'm not surprised you don't think it's a problem. Suffice to say being a landlord in SF is not a very attractive proposition, so it shouldn't surprise anyone that we have a housing shortage.

Well, now that you’ve agreed with everything I wrote, you’re stuck with arguing trivialities: landlords are failing en masse because of maintenance, water, roommates, etc.

Math lesson: If my mortgage is $X (which I more than cover with my rents, since to do otherwise would indicate that I am a phenomenally stupid real estate investor), and I pay .05X per year in maintenance, the total annual increase in costs is currently CPI x .05 x X.

I don’t know if you noticed this while you were becoming an expert on SF landlord tenant laws, but 0.6 x CPI x X is bigger than that number. The annual increase in rent is literally 12x larger than the thing you’re complaining about. Room left over for taxes and evil, deadbeat babies, even.

In other words: as long as maintenance, water, taxes remain a small percentage of the mortgage+principal, the allowable rent increases more than cover the inflated costs. It’s almost like they designed the law that way!

Again: you’re just trying to find reasons to justify your opinion, and you’ve done a bang-up job of demonstrating what I originally wrote: people irrationally demonize rent control in SF.

>Rent control doesn’t apply to new construction in SF.

Conveniently, SF doesn't allow new construction either.

I think rent stabilized apartments can go a lot higher than $2700. Lots of luxury buildings are taking tax abatements in exchange for rent stabilization and setting aside a number of rent controlled units.

Nope. Units deregulate at $2700. Also there's no such thing as new rent controlled or rent stabilized units since 1970.

There's other housing programs like Mitchell-Lama, some that are like what you mentioned, but that's a completely separate thing and a small amount of units. "Rent controlled" and "Rent stabilized" are technical terms in NY.

Your information is correct in general, but there are many exceptions that prove the grandparent correct. My apartment was built in the last 10 years (i.e., after 1970), rents for close to $4k, and IS rent stabilized. See information here:

https://www1.nyc.gov/site/rentguidelinesboard/resources/rent...

Specifically:

"Also, some newly constructed buildings may be stabilized due to a 421-a or J-51 tax exemption even if the rent is $2,000 or more."

A program that a significant number of developers have taken advantage of.

Do tell me how your $4k apartment rental, at nearly 3 times the national average rent and above market for most of NYC, is the scourge of housing markets, forcing rents up for everyone and preventing new construction.

Because that's what rent regulation's detractors are arguing, even though your empirical evidence (and mine) suggest the opposite. That's the context we're discussing this in.

OP and my apartments are actually new developments benefiting from these breaks.

Missing the forest for the trees.

I'm not sure you even know my opinion on rent control from this interaction. You asked a very specific question:

> is the scourge of housing markets, forcing rents up for everyone and preventing new construction.

The tax abatements obviously fuel new construction and bring in a new class of rent control to NYC. Is that a good thing? Or a bad thing?

I don't claim to know, but this type of apartment definitely filled a need for myself and others who want decently managed apartments without worrying about spontaneous jumps in rent (i.e. if Amazon had moved out here). And obviously, we're not the crowd of people totting around kids, barely making ends meet but at the end of the day, I still have to go to work to pay rent or I'm screwed with the rest of them...so it's nice to at least know that my taxes (tax breaks) bought me some stability.

PS: these buildings are also required to set aside a number of units for lower income residents, which again, I'm happy to pay taxes towards.

Anyway, what was your point?

I guess the sarcasm missed you completely.

I didn't care about your specific opinion on rent control because you didn't express one, I'm saying that your comments to give counter-evidence to what I was saying didn't even have any context in the discussion and will be used as fuel for the anti-regulation people that I said don't know what they're talking about.

You basically injected a non-sequitur into the discussion and are using it to start an argument, which is silly, because I believe rent regulation is a necessary evil.

/edit never mind, I get it. I actually think you're taking this a little too close to heart. I may be guilty of having missed your sarcasm, but I was addressing a point you inadvertently made. That's not the same as looking for a fight.

Hey no worries. Sorry, I do take this very close to heart as I grew up extremely poor and I owe a lot to the fact that I had rent control growing up. This is a pretty inflammatory topic on HN in general and I have a long history of being flamed into oblivion every time it comes up.

Lotta contempt for the poor on here, but this thread has actually been a rare exception. Might be the only set of posts that don't have 30 downvotes attached to them.

I'm right there with you man. As a mildly successful adult, I'm more than happy to pay taxes for all those things I took advantage of growing up.

Yup, that's exactly what I was thinking about. Same deal here, rent is nearly $4k but I know it can only go up by guideline amounts.

NY State repealed high-rent deregulation in the Housing Stability and Tenant Protection act of 2019. https://www.nysenate.gov/legislation/bills/2019/s6458

I live in a rent stabilized apartment in NYC and my rent is 3400.

The Urbanist has an article on how modern rent control proposals differ from older ones, and the ramifications thereof: https://www.theurbanist.org/2019/08/05/the-case-for-rent-con...

I agree with you. I’m renting out a previous condo, and as a landlord, this law strikes me as reasonable and measured. The market will still find its natural level. These controls merely dampen short-term shocks, allowing tenants and communities time to adjust as market conditions change.

To take the other side of the argument here I'm completely against this change but I'm happy that it passed. The reason is simple: without data we're all just speculating. If I'm correct, now I will have real bias-free (since we're looking at this exact location as opposed to other locations where rent control has had... issues) data to support my views.

And of course only a fool would cling to certainty on issues this complex. It's very possible my views are wrong. And if they are then that's a great outcome. If they're not? Well the cost of this experiment is not going to be that big, and it can be reversed relatively easily.

The one thing I think both sides often fail to do though is to set falsifiable metrics before running such an experiment. Take a group of qualified individuals against the program, and those for the program. And have them sit down and work out their expectations of the program. So for instance homelessness. The pro side probably expects this will cause it to decline, the neg side probably does not expect it to have much of an effect. Why not convert those views to numbers collected in a mutually agreed upon fashion, which can then be regularly published - alongside results? And let's see who's right, with accurate data. Of course there are confounders. If we hit a major recession, homelessness will increase regardless. These factors could be mentioned alongside such data.

Instead without doing things beforehand both sides are simply going to spin arguments entirely in their favor, such as with the case of minimum wage increases. Did minimum wage increases collapse the economies? No. Did they cause some economic damage? Yes. Did they bring about a great life for low earners? No. Did they improve the quality of life of some low earners? Yes. And so both sides just create disingenuous arguments painting themselves as 100% correct, which informs nobody and divides everybody, since both sides come back with 'told ya so!'

"Did minimum wage increases . . . cause some economic damage? Yes."

Citation needed. My admittedly cursory review of the latest results suggest no damage at all.

There's a reasonable related article here [1]. It discusses two different studies on the effects of Seattle's minimum wage increases. The first is from Berkeley and based on limited data. It suggested there was mostly just a small reduction in employment with an overall positive effect. The other study was from the University of Washington and had access to detailed low level data on hours worked, salaries, etc. It found numerous very negative affects, many of which were worse than even minimum wage critics generally suggest might occur. This included an overall gross decline in overall wages due to declines in hours being worked - overall wages rose 3% while the number of hours worked declined 9%.

The reason I mention the Berkeley study at all is because this now led to arguments based on after-the-fact retrofitting. In particular increase supporters have now tried to argue that Seattle was in a unique boom phase and so the study was comparing against a local max, and thus there was actually no damage - but just Seattle 'regressing to the mean' if you will. But the Washington study also considered this possibility and contrasted it against other control cities within Washington that did not increase wages, and found that they did not experience the negative effects. And so on back and forth it goes.

And so who do you believe? Probably whoever you want to be right. This is why I'd suggest laying out metrics beforehand. If Seattle was in a unique boom phase before the minimum wage increases then this is something everybody could agree on beforehand. When you do after-the-fact analysis, you risk peoples biases getting in the way of things. And because of the complexity of systems such as these, it's always going to be pretty easy to prove X and also prove not X after the fact.

[1] - https://www.nytimes.com/2017/06/26/business/economy/seattle-...

At a basic level I would not have any issues with these laws if they also limited expenses. In other words, if you are going to use force to limit income then landlords ought to have the right to limit expenses proportionately. For example, make tenants responsible for wear and tear on the property, just like you pay for mileage on a rental car and are responsible for damages.

As it is, they are using force to limit income while expecting the landlord to offer the same product and services and foot the bill on unlimited expenses.

How about legally limiting salary increases while requiring the same or more work? And, when you change jobs, you are only allowed to make 10% more. Oh, yes, but you have to spend thousands to renew your credentials.

And how about truly severe penalties for tenants who destroy or damage property?

Anyone who has been a landlord for with more than a handful of properties knows how much of a nightmare it can often be.

Try running 10, 20 or 100 units and see how quickly you are going to bug out once even this mild form of rent control rears it’s ugly head. Because you know, with almost absolute certainty, that this is the proverbial slippery slope. And nobody wants to be the guy waiting for the last seat out of the Titanic.

Oh, yeah, unintended consequences: If Airbnb is more profitable than conventional renting...

No one should own 10, 20, or 100 units of housing.

When people finally realize that, there will be hell to pay.

Why not?

At a maximum 5% increase per year, it takes 37 years for a $500 unit to catch up to the $3000 market price. So this law doesn't help that much with that particular case.

I think the example was that this law will not create such a scenario, in the way that previous rent control schemes have.

The example given is of a 500% increase in rent, by definition no rent control law should make such an increase possible in a short time frame.

Some reasonable law might allow that.

Eg a law could allow any increase up to some benchmark, and up to 5% per year when above the benchmark.

(No clue whether that would be a good idea or not.)

Well said. It is weird to see so many people jumping out to lay the accusations of 'uninformed!', 'never works', etc...

In fact, the CA, especially in bay area, the rent is already top among this country. 7% on top of that is still a quite sizable increase. And it is hilarious to see those (aspiring) landlords playing the blame-the-game-not-the-player rhetoric here to blame the government not allowing more houses to be built, while themselves being one of the biggest opponents to such initiative.

It is uninformed. Note that in a survey of economists ~80% of economists disagreed with the statement below and only 2% agreed:

> Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them. [0]

The negative effects of price controls, especially when it comes to rents is the most unifying issue in economics. Rent control isn't a new idea, but there is agreement that it's a bad idea. It's not the landlords who say this, its the people who study this stuff. Paul Krugman wrote about this in 2000 [1].

Putting in arbitrary controls on prices to fight cost increases is about as effective as putting arbitrary controls on thermometers to fight global warming.

[0] http://www.igmchicago.org/surveys/rent-control

[1] https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...

Your quote is completely irrelevant to this discussion, because increasing "amount and quality of broadly affordable rental housing" is not the goal of this law as described by your GP.

The law is supposed to give families enough time to adjust or move away and find affordable housing elsewhere, without becoming bankrupt in the meantime.

A completely different goal. Quoting opinions on something that is at best tangentially related does nothing.

How is "economists broadly agree that rent control is bad" irrelevant to a discussion of rent control?

The intention of the law is what's irrelevant. What matters is what the law will actually do. Economists broadly agree that rent control will drive down supply. Are they right? Is this law different? Time will tell. But there's every reason to be skeptical.

This is not really an apples-to-apples comparison. Yes, it is a form of rent control, but it's not the "rent control" that people typically think of or was referenced in that quote given its link to SF and NYC. While there are some increase limits, they are large and not on a scale likely to have a material limiting impact. What is definitely impacted is the timeframe in which the changes are applied.

> Is this law different?

Yes, it is, both in intention (i.e., to give people time to move vs. enabling them to stay where they live) and in details. I think this will certainly reduce investment groups buying properties though, which I personally think is a great thing overall. I think that clearly something needs to be done, I'm glad California is trying to find a middle-ground here. Not to say they shouldn't also find ways to increase supply as well, but to me the two are not mutually exclusive.

But hey, maybe I'm wrong and totally off-base. I think it's a worthwhile bill though, and look forward to seeing the impact one way or the other.

Saying "7% on top of that is still a quite sizable increase" is not a fact, it's an opinion. Furthermore it's like my employer telling me "you should take this 7% raise and be happy even if the market dictates a 20% raise. It's still a quite sizable increase".

Then you make an ad-hominem argument about landlords being hypocrites which isn't relevant. Landlords act in the best interest of landlords.

I don't yet know what I think about the bill so I'm reading the HN comments to form an opinion. The points you're making aren't very convincing.

It’s fair to say that 7% is faster than wages increase for many people on average. Why should my rent outpace my income?

> Landlords act in the best interest of landlords.

That is the point. Landlords will gather information or their side of evidence to push for their arguments, as well as ones that called for rent control.

All players are just playing our own shares in the game here. Is rent control necessarily good or bad in this particular case? Only future number can verify that. But because the landlord-just-be-landlord arguments, it is probably not good for the renters to take the other side of stories for granted.

Let the bullet fly for a moment.

"blame-the-game-not-the-player" is so typical of polite SF (and greater CA). A lot of homeowners are quietly rubbing their hands knowing their houses suddenly got more valuable.

My experience with SF rent control is that it's really only valuable if you've got limited resources. I lived there for 5 years, saw market rent double, and my landlady politely asked me to pay a "generous discount from market", which was about a 50% increase and I declined - it would have busted my budget.

Then eviction proceedings started: completely made up, and I lawyered up. I was threatened with OMI (there's no defense if they actually do move in), and I negotiated a settlement. Because if I'd won I'd have a super hostile situation ending in OMI, and if I'd lost I'd have killed a substantial portion of my savings.

If I'd had nothing to lose, I'd have hung on for dear life.

This has been tried in several countries, and it failed miserably. Rent control never worked. In Sweden you have to wait 20 years to get a flat with rent control. The only solution for the people is to increase the offer, how? by deregulating and allowing others to build more.

But this is not what the new bill is about. It doesn't cap total costs, it allows 5% per year increase, it doesn't apply to new homes, etc.

If there is any attempt to rent control is what I mentioned, not any particular point of the bill. The truth and I don't get it why people downvote me for just plainly state a fact, any kind of rent control and construction regulations just bring housing problems. Making caps (control) will not ease the crisis. Areas like SF or NY are very crowded and need more offer, not caps.

> It doesn't cap total costs, it allows 5% per year increase, it doesn't apply to new homes

If you tell everyone that you cannot increase more than 5% a year, this is used as a signal to all landlords to increase 5% a year. It's a coordination mechanism. And it helps hedge for years in which the market rent has increased by more than 5% and the landlord is unable to adjust. A commenter who is a landlord confirmed this as well.

And this will increase the incentive to build new homes. This could be good but new homes tend to be more expensive and serve the high end. Much like the median price of a new car is significantly higher than the median price of all cars on the market.

There are entire industries in New York that focus on buying units and converting them from rent stabilized/controlled to market rents through any means (direct payment, intimidation, legal, etc). To think this will somehow lower what people actually pay for housing is naive.

New homes being nicer is not a problem. It's good. (See https://www.planetizen.com/blogs/100293-how-filtering-increa... ) It's how we upgrade the national housing stock over time.

Landlords already charge as much as the market can bear. Coordination isn't really necessary.

> Landlords already charge as much as the market can bear. Coordination isn't really necessary.

This statement doesn't mean anything.

Consider a game where you try to maximize revenue. You play along with other players with the same goal. If you set your rent too high, other players undercut you. You set the price too low, you leave money on the table. Now consider a rule that says you can at most raise the prices x% a year and the same is true for all players. Now you're anchored to this increase and an equilibrium is more likely to emerge such that every participant increases prices by that amount every year. Much like a minimum wage gives a signal to employers who rely on low cost labor to pay the minimum wage allowed. If you look at distribution of wages, you'll see a huge spike at the minimum as employers essentially use that value to coordinate among themselves.

[0] https://pbs.twimg.com/media/DBkn94UVoAEqBey.png

With rent if the increase is above what the market accepts, units will stay empty. That limits price increases to what the market will accept.

The cost of moving is always a factor, rent will be at market the first year then above market thereafter until it rises to the point that the cost of moving is worthwhile.

If you allow new players to enter the game or existing players to expand their supply, the coordination strategy you outline invites defection.

Yah - all you have to do is deal with the super awesome and efficient state government every time you want to do anything with your own property that you're responsible for. The responsible agencies will never let feature creep create ever more strangling regulations based on this law, and ever more byzantine procedures to interact with them.

The lack of affordable housing always has been and always will be a supply problem. When demand for homes outpaces the number of homes being built, prices go up. Plain and simple.

Homes that are built for renting (mainly apartments and condos, but some houses, too) are built for profit. If you make it less profitable to build, fewer will be built. If fewer homes are built, the problem is compounded, not rectified.

If you want to make housing more affordable, make it as cheap and profitable as possible to build new homes. Get rid of the fees that can push over $100,000 for a single family home in some counties, before the builder even buys a nail or 2x4. In most states you can build a home for less than the price of permission to build a home in some California counties.

Not American, so my knowledge on the matter is limited. Is it that expensive even outside SF and LA areas?

Also, AFAIK, these two areas (and surroundings) are very, very stressed in terms of traffic, and more housing means more people, and more cars. Can those cities deal with more traffic?

> more housing means more people, and more cars.

More housing in SF requires design that supports fewer cars. That's not as true in LA, perhaps, but it would still be the best way to do it.

Remember the US is a federal system so costs vary greatly depending on state/municipality. California regulatory costs result in high prices even though the state is less dense than many others like Ohio with far cheaper housing. https://finance.yahoo.com/news/house-costs-500000-build-sell....

Very expensive. When you leave a lot of major metro areas, housing costs way less. There are 3+ BR homes on ½ acre of land (approx half an American football field or half a soccer pitch) in the South roughly 15 minutes from downtown areas for $125k - $175k USD. The cost of living in areas like SF and NYC are very high compared to the rest of the country. Housing is a major part of that cost of living hike.

> Homes that are built for renting (mainly apartments and condos, but some houses, too) are built for profit. If you make it less profitable to build, fewer will be built. If fewer homes are built, the problem is compounded, not rectified.

Arguments like this continue to be made for more and more aspects of our market: pharmaceuticals, heathcare services, elder care services, and now housing. Everywhere you look the markets seem ill equipped to handle the needs of people.

Maybe the problem is markets then? Maybe the problem is expecting our entire society to work based on profit motive? I don't deny it's served us fairly well for awhile, but it seems like we're hitting the wall a lot lately.

Markets are hardly perfect, but in this specific case it should be the most efficient solution to the problem - if you could fix the zoning and other laws that distort it so badly that it's dysfunctional. And your still going to want to add incentives for things you value but the market does not - perhaps like lower income housing. In some of the other cases you mentioned markets are not necessarily the best solution. Canada benefits greatly from having a single buyer for pharmaceuticals - that concentrates the negotiating power and we get better prices because of it.

What are the zoning laws you see as the problem? Serious question, I'm not in that area and don't know much about SF's zoning issues.

There are severe restrictions on density and heavy parking requirements just to start. It’s much much more complex than that, but to simplify - people who lived in a given area want it to remain the same.

SF Bay Area is creating 3+ jobs per new unit built (any unit). So the gap is growing rather rapidly, resulting in demand far outpacing supply.

Most of the peninsula cities/towns do not want any growth and want to remain single family home neighborhoods. However, based on demand, they should probably evolve more into either denser row houses or apartment/townhome type.

The way to restrict this from happening is to require more land per sq.ft. of housing and require more parking per bedroom and guest parking for Multifamily housing. All this makes land use less efficient and therefore more expensive, deterring development.

You could make the opposite argument as well, that if the market was "freer" or less regulated or whatever then anyone could build and supply would better match demand. It's a situation where you can skew the message whichever way you want to benefit an agenda since most of our systems are neither pure free-market capitalism nor pure socialism. Obviously zealots from either side are going to say our shortcomings are because we've given too many concessions to the other.

The reason that supply is not meeting demand is because the market is not free to expand to meet the needs of the people.

Kind of. It's improper regulation. You need some regulation or people die, but when regulation is bad it can sometimes be worse than no regulation at all.

In the SF/Bay Area (and possibly CA as a whole) there is more space allocated for businesses than there are for houses. Likewise, zoning is spread out so people have to commute to work. This is why, eg, the greater Los Angeles area has some of the worst traffic in the US, only beaten by Texas and DC.

The history behind these bad regulations comes from racism. In the 50s suburbia was created in such a way to isolate residence selling safety. I don't want to go into the details here, but it's a fascinating piece of US history.

When businesses and commercial are interwoven with residential people stop fighting for the few places close to work, which stops spiking up the price of those areas. Likewise, when the ratio is right there stops being a supply problem, even if it is the same amount of houses. In CA's situation it could mean less business buildings or more urban housing.

Well sure; I didn't mean to imply that there should be no zoning/housing regulations, only that it has gone too far in some areas, which has stifled development and caused prices to skyrocket.

Right instead of a society in which everyone behaves accorsing to their own free choices, and incentivized to make a socially helpful choice via some kind of personal reward (profit), we should instead have a society in which people are incentivized to work for others because of what? Force?

I used to think so too. Now I'm on the fence. High interest rates means people can borrow less, and has a dampening effect on house prices, low interest rates means people can borrow more, so house prices go up.

Our current environment of low interest rates means that borrowing is cheap - which has pushed up prices, as now people can now afford larger mortgages. This has come at the same time as a withdrawal of mortgage finance from first-time-buyers, so effectively people who have bought before can buy another house, while those who haven't can't get on 'the housing ladder'. This is according to economist Ian Mulheirn, and is very much based on the UK (although similar arguments might apply elsewhere). Supply is part of the problem, but according to him, the smallest part.

https://housingevidence.ac.uk/wp-content/uploads/2019/08/201...

> low interest rates means people can borrow more, so house prices go up.

Sure, but they go up by the amount of money you saved on the mortgage, the net price is the same. The amount homebuyers can afford to pay doesn't change with interest rates.

> The amount homebuyers can afford to pay doesn't change with interest rates.

The amount people can afford to pay doesn't change, but the cost of the house does change.

Assume a 30 year mortgage. If the interest rate is 2%, and I spend 1.5k a month on my mortgage, I can afford a mortgage of 406,000 and own the home at the end. However, if interest rates are 10%, even if I'm still earning 1.5k a month, I can only afford a mortgage of 171000 in order to pay it off by the end. You can double check my figures using this calculator - https://www.bankrate.com/uk/mortgages/mortgage-repayment-cal...

Given that deposits are usually at a minimum 10% of the house price, it's very hard for first-time buyers to gather that amount of money - while people who have purchased before can sell their existing home.

The issue the paper describes is that interest rates have gone down, so house prices have gone up, _and at the same time_ it's harder to get your first mortgage (i.e. you need a larger deposit) - which most new buyers cannot afford.

The error in your logic is assuming the bank is going to want the same % down payment for a 2% and a 10% mortgage.

A down payment is usually a percentage of the value of the house (typically 10-20%). If the house is worth more, the down payment is higher. As I said before "effectively people who have bought before can buy another house, while those who haven't can't". A higher downpayment is yet another barrier. However those who have houses already can use their existing previous equity as a downpayment and therefore can sell their home and buy another.

This underscores the view I was promoting - that interest rates play a large part in the difficulties besetting new buyers.

But it results in a higher overall level of societal leverage despite consuming the same quantity of housing.

Thats incorrect - not all land is equally valuable, so just building more buildings doesn’t mean that housing is solved.

Infrastructure around the builds also matter, which means just building denser isn’t a solution.

Complimentary services like schools, stores, pubs, churches, skate parks, parks etc change the value of a location as well, and change it differently for different demographics.

So making it cheap and profitable only makes it profitable to build - it does not solve the problem of affordable housing.

> The lack of affordable housing always has been and always will be a supply problem.

Yes, but in the expensive parts of California the limiting supply factor isn't how much people want to build but how much they are allowed to build because of zoning and other constraints, so there is a fairly large range where reducing the incentive to build will have no effect on actual results.

But, anyway, does this really reduce incentives for new construction? It seems to me rent control and eviction restrictions of this type increases the expected profits for new construction, because it doesn't limit existing rents, and doesn't allow high-end demand to be met by bouncing tenants out of lower-end units and renovating them and raising the prices. So, it reduces the competition new units face from existing ones at the top of the market while leaving the rents that can be charged initially for those new units unrestricted. (And, by limiting the ability to bounce unprofitable tenants in favor of new ones, if it doesn't spur new rental-focussed unit construction and housing demand remains the same it creates a greater incentive to build for sale as owner-occupied housing where, again, prices are unrestricted.)

The real danger isn't lack of incentive to build, it's lack of incentive to maintain existing units instead of milking what remaining profits can be made in the short term, then letting them fail in isolated, judgement proof, limited liability business enterprises by not reinvesting because you can't recover reinvestment with rent increases, while reinvesting the extracted profits elsewhere.

Doesn't zoning fall under the same category as high permit prices when it comes to roadblocks for new units? Even when you say

> It seems to me rent control and eviction restrictions of this type increases the expected profits for new construction

Zoning and high fees will still be a problem, new units can be rented/sold at a premium but then we have the issue of it being affordable in rent or credit. My guess is that the new rule protects(temporarily) whoever is already in the game, any new comer will still get screwed.

Prop 13 also plays a huge part in why vacant areas don't get developed.

> If you make it less profitable to build, fewer will be built.

.. and fewer will be speculated on, driving up the underlying price, which is then translated into rent.

this is my problem with simple smithian models of real estate - they ignore the wider capital market impacts.

not a fan of rent control, but also not a fan of fund fueled real estate bubbles, and both influence the cost of rent.

Lack of supply is a problem, but is it caused by an inability to turn a profit? It seems like developers have no trouble making money from new construction. The difficult part, and the part that limits supply, is getting permission to build.

They aren't unrelated. The more hoops a developer has to jump through to get permission to build anything the more outside returns are required to get people to push to do that. The people who thrive in this environment aren't the most ethical of business people and you'd get more ethical developers if there were clear rules allowing certain things to be built and less outsized returns. But better that than nothing getting built.

You’re totally right. It just looks like the current situation in places like SF is almost entirely due to difficulty in getting permission. Remove rent control entirely and the supply wouldn’t increase much. It’s different in various other places.

> Get rid of the fees that can push over $100,000 for a single family home in some counties.

It depends on what outcome you wish to achieve. Single family zoning is backwards policy in urban environments.

https://www.citylab.com/equity/2018/11/single-family-zoning-...

Given the booming demand and restricted supply for homes in San Francisco, the market rate for rent could easily outstrip inflation by 3% per year. That means it would take a decade for a rental rate that is currently 20% below market rate to catch up.

For those like me who do not subscribe to the nytimes, the text of the bill is here: https://leginfo.legislature.ca.gov/faces/billCompareClient.x...

There is no functioning market to begin with. Housing prices and rent are through the roof in California, yet supply is not rising to meet demand, largely because existing owners oppose new construction.

Turnabout is fair play. If owners organize politically to control supply, tenants can organize politically to control prices.

Let's just not even talk about the fact that regulation is the reason why housing is scarce, let's just assume California is 100% at capacity. How the hell does rent control increase turnabout? It just let's people who got in at the right time have their status as a resident enforced indefinitely, when there are plenty of people who are willing and able to pay far more in order to live there.

> Let's just not even talk about the fact that regulation is the reason why housing is scarce, let's just assume California is 100% at capacity.

AKA ignore the entire foundation of the previous poster's point?

Edit: upon re-reading your comment I think maybe you don't know what the phrase 'Turnabout is fair play.' means.

https://en.wiktionary.org/wiki/turnabout_is_fair_play

Thanks for that, I didn't know this term. However I disagree with the idea that two wrongs make a right. Forcing the suffering around like that just creates more problems than it's worth.

In this case two wrongs may not make a right, but at least it shares some pain with the rent-seeking property owning class and may in time cause them to accept change.

It's a bit fatalistic but if we're going down anyway, we're going down together!

I hate that mentality. It achieves nothing good in the long run.

If they are making less money, they certainly won't allow more construction to deflate prices even further. Rent is already below mortgage in California, so I am not sure what kind of deal people are looking for. As others have said here in various ways, it seems more like lashing out at someone because it sucks life is so expensive where you live rather than dealing with the root causes.

How would you deal with the root causes?

Impose relaxed zoning rules at the state level instead of imposing rent control there.

I would completely agree with that, but for some reason it isn't as politically do-able as this rent control legislation was.

> I would completely agree with that, but for some reason it isn't as politically do-able as this rent control legislation was.

The reason is that landlords know exactly what rent control does.

Landlords know that the tenants with the strongest interest in local housing costs are the people who already live there and plan to continue to do so indefinitely. Rent control is a method of buying them off without actually solving the problem in general, so that overall rents and housing costs remain high but the subset of people most likely to be politically active in doing something to correct that gets a bribe to stop objecting while overall housing costs continue to rise faster than inflation.

What it is, then, is not a step on the road to a real solution, it's a roadblock preventing that from happening by weakening opposition to the status quo by just enough that no actually effective reforms can be enacted.

So how would you solve the root cause?

The policy solution is known -- ease restrictions on increasing the housing supply.

If you're asking how to get that passed, well, that's an education problem. You need people to understand why rent control is not a solution so that they are not willing to accept it over something that actually works.

What I’m getting at is that’s policy and doing are inextricably linked and frankly people have had enough of sneering technocrats telling them the optimal solution that they’re powerless to peruse. Rent control is a bad idea... but sometimes the only way to bring good ideas in to the realms of possibility is to do bad ideas first.

Hanlon's rasor: Some idiot naively thought up this legislation and a bunch of people voted it in because it sounded "good". This was most probably brought into being by a bunch of bumbling fools trying to do good without due diligence rather than by a cabal of elite landowners.

It's hardly ever a cabal or some group of elites conspiring in a smoke filled room. Landlords in general know that people are clamoring for something to be done about housing costs, most of them know that easing supply restrictions would be more effective in actually lowering rents than rent control, so they each on average fight hard against the actual solution and less hard against the ineffective one. Then the ineffective one is the one that passes.

It's the sort of false compromise that happens in politics all the time. Instead of solving the problem, you enact some alleged solution that really does nothing or makes the problem worse, but then politicians get to go tell the voters that they've done something. Then, when it doesn't work, they get to go back and pass another ineffective bill to "solve" it again in the next election cycle, meanwhile we get another four years of young people not being able to afford housing.

Most landlords I know want to ease building restrictions so they can build more rental units, and have a less expensive higher quality building than buying an old beater that they stitch back together again.

It hurts the owners who would be receiving the wealthy newcomers' money.

It doesn't solve anything directly, but it's an attack on the prosperity of the people who are maintaining artificial restrictions on new construction.

A laissez-faire approach to both construction and rent would probably be a better option. But that's already not happening, and it's not going to happen without pressuring homeowners and landlords to stop opposing construction.

Do you really expect a place like California to reduce regulations? Their solution is a new regulation!

Construction isn't easy anymore. we've taxed and regulated it into a luxury.

Lots of developers choose to build luxury buildings because it can take several years for the construction to be approved. We could build more starter homes like we used to, but it's hardly worth it for developers.

Maybe, but construction may not even be necessary. Shipping containers can now be easily retrofitted into stylish apartments. They can easily be stacked eight stories tall.

95% of the work can be done in overseas factories and is subject to the same globally competitive downward price pressure as every other manufactured good. Build them in Shenzen at a wholesale cost of $30,000 per pod, ship them to San Franciso for $2000, stack and install them at a cost of $8000. At 320 square feet, that's $120 per square foot. The same cost as new homes in rural Texas.

All the California legislature needs to do is pass a law zoning everywhere in the state for multi-story shipping container apartments. Then watch prices plummet. Even for single family regular construction homes, because the shipping container apartments will suck so much demand out of the market.

Who the fuck wants to live in a shipping container?

A shipping container is 320 square feet. Two pods can be joined into a single 740 square foot unit. That's a total cost of $80,000. Let's round to $100,000. Assume a rental yield of 12%.

$1000 a month for a brand new 740 square foot apartment in the middle of San Francisco. Plus with modern finishes that are frankly much nicer than anything you'll find in the low-end SF rental market. I'd imagine quite a lot of people would sign up.

I don't think shipping container housing is the panacea the marketing makes it out to be. The savings aren't as crazy as you might think because of all the retrofitting involved to make them pleasant for human occupancy. Square feet are a nice shorthand for certain aspects of habitability, but floor area is not the only relevant factor.

This is mostly from an NYT article, so perhaps it's just one school if thought among many, but I found it convincing on the merits. https://www.nytimes.com/2019/08/14/opinion/shipping-containe...

That seems like a lot of money compared to existing prefab options. For the same or less money, why not use something designed to be a dwelling to begin with?

Why do you think construction price, and not land price, is the limiting factor?

I'm in a high-demand city in Canada. The house I'm in right now is worth about $70k. The land it sits on is worth $900k. Shipping containers aren't going to help with that.

It will if you stack them eight stories high.

Don't know where you live, but I doubt it's more expensive land than San Francisco, where the average acre of land costs $3.2 million[1]. Taking that acre of land, save half the area for green-space and courtyard. Use half the footprint for shipping containers. Stack the containers 8 high.

You now have 242 double-pod units. The amortized land cost per unit is $13,000. Assuming a generous rental yield of 12%, the land cost only adds $130 a month to the rent. That's hardly anything for a 720 square foot apartment.

The lesson is that even San Francisco land costs are no match for the power of high-rise high-density housing.

[1] https://www.6sqft.com/study-shows-huge-disparity-in-u-s-urba...

Same ballpark ($2-3 million/acre) - and yeah, you're not wrong that if you can get approval for 250 units in an acre you can have reasonably priced housing. But the hard part in that equation is convincing whoever controls zoning to allow for it - once you do that, whether it's shipping containers or traditional construction you can have affordable housing.

I know many people who would rather live in a shipping container than where they're currently living.

Well, in Amsterdam students:

https://www.studenten.net/artikel/wonen-in-een-container

The kind of people who move to San Francisco from new york or connecticut, or wherever, to get rich then immediately start complaining that San Francisco isn't like wherever it is they immigrated from.

I genuinely can’t tell if this is sarcasm or not because there are definitely people with this level of economic illiteracy.

In zoning-restricted markets like the Bay Area, housing supply is extremely price inelastic. The coefficient is at least 2.0 if not higher.

If cheap, abundant, shipping containers pull 25% of the demand out of the low-end multi-family segment, that's a 50% drop in prices. Low-end housing is a substitute good with mid-end housing for at least some of the demand.

The prime example are people who live with roommates in mid-end housing, who with cheap enough low-end prices, would get their own place. A 50% price shock to low-end multi-family at the very least would pull 10% of the demand out of the mid-end. That would lead to a 20% drop in mid-end multi-family prices.

Just the same there's at least some substitutability between mid-end multi-family and mid-to-high-end single family. A prime example are empty-nesters looking to downsize. With a 20% price shock to multi-family, that would suck at least 5% of the demand out of the single-family segment. That's a minimum of a 10% price reduction.

Hence a positive supply shock in the form of cheap, abundant shipping container homes would reduce the price of mid-high-end single family homes by at least 10%. This is all micro-econ 101.

Prefabricated easily moveable homes are already a thing. You can go on https://factorydirectmobilehomes.com/ right now and buy a home larger than a shipping container for less than $30k.

Modular apartment buildings also exist and can be thrown together quickly and affordably.

Not to be rude, but the problem is likely going to take a bit more to solve than throwing shipping containers at it..

Oh my god. When Hacker News begins literally suggesting the Stacks from Ready Player One as a solution to anything it's time for me to close my browser.

Pernicious attacks on landlords because of some perceived collusion amongst them is ugly. The landlords aren't any more to blame for the lack of supply than their tenants or the politicians.

There's obviously money to be had in leveling a block of houses and increasing the population density by 10-30 times the amount. The market demand is extremely high. Real estate developers would jump at the chance to do so if they thought they could get through all the red tape. The landlords owning those houses would certainly sell for the right price.

The entire society is abandoning free market principles in favor of social engineering. If they're not careful, they'll kill the goose that lays the golden egg.

They may not be some grand cabal, but if biggerpockets.com posts are anything to go by, I have no qualms with any pernicious attacks against them.

Ruthless capitalism and fundamental human needs do not mix well.

"Capitalism" doesn't mean profit motivated action. Advocating for government restrictions on private property rights, in order to restrict supply growth and increase profits, is not capitalism. It's cronyism.

Ruthless capitalism and fundamental human needs do not mix well.

I dunno. I don't have much trouble finding reasonably priced, nutritious, and tasty food (cooked or as ingredients) anywhere I've visited in the world. Yet food is governed by ruthless capitalism, no? Surely we wouldn't argue that farm subsidies are all that's standing in the way between people getting a decent meal and chaos?

What about...petroleum? Like it or not, it's necessary for survival today. Absolutely ruthless capitalism at play, and at the hands of a lot of people we don't like. And yet...the system works pretty ok, I think? The last major oil shock we had was in the '70s -- not bad, considering how many financial crises we've had since then.

I don't get what is your proposed alternative to "ruthless capitalism" for housing. Are you proposing "single payer housing"? Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market, where the means of production^W^W^Whousing stock is owned by The People but decisions about how to employ the housing stock is made by the government?

Neither food nor oil actually make your point, since both are heavily subsidized by the US government.

But surely they're not subsidized for the entire world by the US government?

To refresh the point that I am making: OP said "Ruthless capitalism and fundamental human needs do not mix well." The implication being, housing should not be subject to ruthless capitalism. And I use the ready and cheap availability of food and oil as a counterargument.

Your point seems to be that food and oil are beneficiaries of subsidies in the US, therefore are not "ruthless capitalism".

The US government pays $20B/yr in farm subsidies. HUD has a budget of $40B, and the mortgage interest deduction is a $110B/yr subsidy to homeowners.

If food in the US is subsidized such that it is not "ruthless capitalism", then on this basis it would seem to me that housing has been subsidized well beyond the point of "ruthless capitalism" as well. Yet OP (and you) seem to think that food is subsidized to a far greater degree than housing. I challenge you to make a concrete case that this is true, either in the US or globally in general.

I wrote

Yet food is governed by ruthless capitalism, no? Surely we wouldn't argue that farm subsidies are all that's standing in the way between people getting a decent meal and chaos?

Are you in fact arguing that US farm subsidies are all that's standing in the way between people getting a decent meal and chaos?

Petroleum is literally exhibit number one of the failures of ruthless capitalism in that its negative externalities have led to the possibly irreversible destruction of our climate. This is not a good start to your argument.

> Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market, where the means of production^W^W^Whousing stock is owned by The People but decisions about how to employ the housing stock is made by the government?

Basically yes. The “progressive” position on affordable housing generally calls for major government investment in housing. This is not a new idea; in the U.S., much of the big buildout of middle class housing last century was heavily subsidized by HUD.

Oh really? I didnt realize it was the petroleum companies who forced people to buy petroleum and not the fact that fossil fuel based transit and energy is technologically superior and easier than any alternative.

The concept of negative externalities just completely flew over your head.

No it didn't. The responsibility of negative externalities due to petroleum does not belong to the oil companies. It mainly rests on the shoulders of the vast majority of people who demand oil, cheaply and widely available.

Demand for petroleum is not explained by capitalism, but rather by humanity's collective laziness

You're saying that the system we have for oil would work but for the fact that governments don't attach a price to oil's negative externalities?

This does not seem like much of an argument against a capitalist system! I would call this a win for capitalism then, and a loss for governments sidestepping their obligations to, you know, govern.

I am the first person to agree that oil companies have used their money and influence to buy favorable regulations, putting the whole world in danger. On the other hand, this again seems like a failure of government rather than a failure of capitalism. Indeed, the powerful using their influence to protect their interests is something that has happened under every economic system ever tried, no?

>> Or a "guaranteed public option"? Or is the idea to have more of a "centrally planned" housing market [...] > Basically yes.

Are you familiar with the notion of "the projects"? I wouldn't say this turned out well for anyone...

The good news is that the major driver of cost in places like SF isn't actually the cost of building per se but instead is the cost of absurd regulations, causing it to take many years of fighting with NIMBYs just to get a permit to build anything. Solving this morass would be a huge effective subsidy to developers and would cost the public literally nothing. If you're in favor of subsidizing housing development, I hope you're in favor of starting with this?

That is only true if you assume the housing market under rent control is otherwise efficient. In reality it is painfully inefficient. Scarcity due to rent control (due to existing tenants holding on to leases) allows landlords to price gouge on everything from open units to parking to laundry.

If you play that dynamic forward you end up in a situation where everyone is overpaying compared to a more fluid market, even those longer term tenants.

Getting back at owners for opposing new construction by instituting rent control is cutting off your nose to spite your face. Rent control adds even more people who have no financial incentive to reduce the cost of housing in their neighborhood, thus making new construction even more politically difficult.

I highly doubt that. At least in LA county, this place was built up in a giant friggin profit-motivated hurry.

Now, if we're talking about planned cities built in the 80s in orange county, maybe we have a point! Maybe.

SF has a similar story of sorts. Building code regulations were heavily relaxed after the 1906 earthquake in fear that people wouldn't rebuild otherwise.

Businesses will build whatever is most profitable. If it's more profitable to de-regulate and unzone everything, then they would be lobbying like hell to get that.

Many parts of California are already beyond 100% capacity for certain pieces of infrastructure like transportation, schools, water, and sewers. So I only support more housing in those areas if building permits are directly coupled with equivalent infrastructure upgrades.

There are places in California where infrastructure can't help. There is just not enough water for more people.

That's not really true except perhaps on the shallowest level. There's a lot of environmental issues, pre-1914 water rights, short-term climate issues like ENSO and MJO, and crop choices that have caused California to experience water shortages. Maybe in some cases we can put crops under solar panels to save water[0], or reclaim more water through toilet-to-tap programs. You know, through infrastructure.

Reductionist statements like yours never really reflect any real-world policy environment. The real world is messy and complicated.

[0]: https://arstechnica.com/science/2019/09/crops-under-solar-pa...

To push in a different direction, there isn't enough water for more people while keeping the amount and types of agriculture in California constant. Prioritize residential water use over agricultural rather than aggressively doing the reverse, and you'd probably see improvement. Singapore and Hong Kong are very strong arguments to me against the idea that California couldn't handle more.

Lucky for us, none of these “at capacity” areas are in high cost metros like LA, San Diego or the Bay Area

No that's not correct. Have you used the transportation systems in those areas during rush hour?

Getting in at the right time is a big part of free markets and capitalism. It's the same as someone complaining that Zukerberg or Henry Ford just got in at the right time and didn't deserve their wealth.

Regulations and taxes drive developers away.

It's worth considering California building code in the cost of new construction.

California building code is really not that different from anywhere else in the US, since almost all states base their code off the IBC. it costs a little more to build in a seismic zone or a high fire risk zone, but that is inevitable. The code does help keep people alive and healthy, and protect against more costly damage than otherwise in case of natural disasters.

In California, 25% of a new SFR is land. Another 25% easy goes to permits and municipal utility connections. 40% construction costs (including paying the boss a salary), and if you are lucky, 10% profit. Simply reducing permitting costs and streamlining the process to reduce holding costs (without even easing restrictions, just being more efficient/faster at the municipal level) could shave 20% off a new home price. That would drive down all home prices to some extent and open up a large number of people to get out of the renters pool.

So CA government is the major player to blame for housing costs, and these laws are in place of just doing their jobs well. This might drive prices down too, eventually, but not nearly as quickly or fairly as bureaucratic reform would.

Do they require fire suppression systems and solar panels in the rest of the US? I honestly don't know.

Fire suppression is required everywhere AFAIK. Solar is not yet required, but will be next year. So it has had no effect on current Ca housing. That is a stupid rule and should have exemptions for areas that don't receive enough sun due to fog/trees/etc. But solar will still be far, far cheaper than permits and will add value/decrease ownership costs for most homes.

  supply is not rising to meet demand

How will that aspect not worsen with added rent control?

We are so very very far above market equilibrium rents. Even if CA did something drastic and limited rents to say $500 per bedroom it would still be profitable to build more housing.

Lack of profit incentives is NOT what is blocking housing construction in CA right now.

This very minor, way above inflation, rent cap will not affect housing supply.

> yet supply is not rising to meet demand, largely because existing owners oppose new construction.

So when over-regulation drives up prices, the appropriate response is to introduce new regulations to fight the other regulations? Because that’s exactly what this is. It won’t even improve the problem. The problem is that there are more people who want to live in California than there is housing. The reason for that is because regulations prohibit the market from increasing supply at a rate that comes anywhere near keeping up with demand.

> So when over-regulation drives up the costs, the appropriate response is to introduce new regulations to fight the other regulations?

Yes. The effort to reduce regulations on construction has failed. As such, retaliating against the beneficiaries of those regulations with counter-regulations is appropriate.

It's not pretty or efficient, this is a fight between different interests, not a group problem-solving effort.

If over regulation drove up prices, what exactly do you expect from more regulation?

To expand the set of people suffering to include landlords and owners, instead of having own group of people benefiting from regulation (in the form of restricted supply) and another not.

EDIT: to be clear, not suffering for its own sake, but to pressure owners to stop supporting the current regulations.

As long as demand for housing continues to outstrip supply, especially if demand continues to grow at a rate exceeding the growth in supply, then there will always be money to be made in housing.

This law in California allows for 5% annual increases after inflation. It’s hard to see how this will even hurt landlords. Creating a pretty clear incentive to perform a maximum increase ever year doesn’t seem great for renters though.

It is possible for regulation to lower the cost of some things. For example, currently the regulatory environment in many California real estate market lowers the cost of holding rental property. In a more competitive, less regulated market, the opportunity cost of buildin developing now housing would be lower, so landlords would have more cost (indirectly through decreased rent or directly through more frequent renovations).

Hopefully this move leads relaxed zoning laws and regulations, allowing new development... People who want such things will gain political clout because capital will want return on investment, and rent control shifts the calculus for good ROI in the real estate market toward new development (marginally).

I'm sure hundreds of economists have written thousands of papers about this subject, each going its own idiosyncratic way, so maybe I've actually been proven wrong in this particular case, I don't know, but I have to say that the idea that regulation only ever increases costs is silly.

> rent control shifts the calculus for good ROI in the real estate market toward new development (marginally).

It does precisely the opposite. It reduces the value of rental properties, which makes investing in constructing them less competitive against investment in constructing new housing in some other state or country, or constructing commercial properties rather than residential ones, or any other competing investment securities.

Talking about "regulation" doesn't really say anything. All laws, good and bad are regulation. There is regulation passed by businesses, and very few passed by citizens. When you cry about regulation, it is similar to crying about the water being wet or over having to breath. In modern society, very few things are done without regulation. Even basic rights that we take for granted, such as freedom of speech, are guaranteed in the US because there is a piece of regulation, passed more than two centuries ago, called "constitution".

I’m not sure what this is supposed to contribute to the conversation. Regulations make it simply impossible for housing supply to keep up with demand in California (and lots of other places too). This point in particular is not even contentious as far as I can tell. If you want to fix the problem, the only way to do it is to relax zoning and permit regulations. Trying to fix over-regulation with more regulation will only ever make things less efficient, requiring even more regulations, ad infinitum. This has been California’s long standing policy, and not only has this never solved the problem, it’s never even been able to stop it from endlessly getting worse.

As I said above, they don't even need to ease the regulations, just work faster for permit approval and charge less for them, and the problem could largely sort itself out.

The cost of compliance is really a minor factor here. The problem is that zoning laws simply prohibit building enough hosing to meet demand. The zoning laws in LA, the Bay Area and elsewhere will ensure an ever-worsening and never ending housing shortage for as long as they exist in their current state.

There are many lots that don't get built on because the cost of construction is higher than the value of the home once built. I have done the math on a number of such lots, and the permitting fees have been roughly the amount to tip the scales. Add to that the one year minimum build time due to at least 4-6 months of bureaucratic delays, and it just becomes unfeasible.

> This point in particular is not even contentious as far as I can tell. If you want to fix the problem, the only way to do it is to relax zoning and permit regulations.

This has already been proposed by Scott Wiener as SB50. It was opposed by local councils and never put to an actual vote, and it never will be, unless political pressure is applied in the form of counter-regulation.

> Turnabout is fair play.

The biggest myth is that this kind of stuff actually helps the less-powerful. In reality, it just means they are hurt twice: government artificially suppressing supply, and government manipulating prices which has bad side effects for mamy even if its good for a few.

Also, in reality, the powerful often don't get hurt, and arbitrary market manipulations just introduce new ways for them to get an advantage somehow.

> manipulating prices which has bad side effects for many even if its good for a few.

There are way more renters than owners. Prices have been going up more than 5%. Owners are most definitely not the "less-powerful" here.

So in reality the gov't might be artificially surpressing supply (though it's mostly due to owner pushback), but the "manipulating prices" (trying to keep rent growth from getting out of control) is helping less-powerful.

I get the point about how this can default owners to just increase prices. Well they were going to be doing that anyways! Especially with surpressed supply!

Arguing that "overall price increases with this law" > "overall prices increase without this law" is non-intuitive and probably just not true.

(thought experiment: if raising 5% every year with the law made sense, why would it not make sense to raise it 5% every year without the law? This law doesn't prevent other owners from offering _lower_ rents, if the market calls for it)

> thought experiment: if raising 5% every year with the law made sense, why would it not make sense to raise it 5% every year without the law?

If you don't raise it now then you can no longer do it later in the event that taxes or mortgage interest rates or some other cost increases. That creates a major risk for the landlord, which most of them would prefer to mitigate by raising rents even if it means apartments going vacant longer. And when they're all similarly situated, they all do the same thing, which means the tenants can't avoid the rent increases by moving to another apartment, which allows for more of the landlords to get in on the rent increase without incurring vacancies.

Having an actual number on the books shared by all creates an expectation. It's an anchor. If everyone agrees a 5% increase is reasonable, then everyone will do it. Now you don't need a reason, you're just keeping up with the market.

Give me a break. Until suppression of building new units stops (by poor, helpless owners), this is the only recourse. I agree wholeheartedly that the real solution is to build more homes but that doesn't appear to be in the cards. So the idea that rent control doesn't actually help lower income people is _completely_ nuts. I know of many people off the top of my head that no-way would still be living in San Francisco if there weren't rent control (including my elderly aunt and uncle).

If there weren't rent control, market rents would certainly be much lower, so it's really hard to say whether your aunt and uncle could afford it or not. Surely you weren't basing your statement on the current market rent in their neighborhood? On what basis are you making that claim?

> If there weren't rent control, market rents would certainly be much lower

source?

Here's the latest: "... while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law." https://web.stanford.edu/~diamondr/DMQ.pdf

Previously: "Rent control policies generally lead to higher rents in the uncontrolled market, with rents some-times substantially higher than would be expected without rent control (i.e., between 10 to 25 percent higher). Over time, if rent control does not apply to new construction, there is some evidence that the impact on uncontrolled rents diminishes." https://www.nmhc.org/globalassets/knowledge-library/rent-con...

It also follows from supply and demand. Owners are more likely to sell rather than rent out their places, and tenants are more likely to stay in their below-market rent units, both of which reduces supply for new (i.e. market-rate) tenants.

Rent control is another form of pulling up the bridge behind you.

Except renters aren't accumulators in anything like the same way as investors and don't tend to be the ones agitating against development because they're not invested the property and have no incentive to drive it up by limiting housing stock. Guilting the least financially secure for having any degree of predictability and stability is an emotionally manipulative rather than a substantive argument.

> Until suppression of building new units stops (by poor, helpless owners), this is the only recourse.

In the spirit of furious agreement, yes the best option would obviously be not to suppress construction.

Just because one interest group wants stupid things to happen that benefit them in the short term doesn't make it a good idea to go open season on stupid things. The goal should always be to improve the state of affairs; not to spread the pain around.

Everyone bar no-one needs institutions stuffed with people who make sensible long-term decisions. The best way to get that is to always pressure them in that direction. Bending to political expedience encourages people who make bad decisions; not a good strategy.

> I know of many people...

Visible benefits; invisible costs. Great politics.

Who you don't see are the people outside looking in that want an apartment but can't find one, or can't afford one, or need to sign a new lease at a very high rent.

Rent control doesn't unequivocally help current renters. It also keeps them stuck in one place for a long time, even when it's not a great fit for them.

And pretty much every economist says rent control raises rents and lowers quality overall, hurting those trying to move in.

Think of it as landlords having to share some of their Prop 13 savings with tenants. Now both owners and renters can both enjoy the protection of not being forced from their homes due to an increase in cost.

That seems like a really clumsy way of pretending to be in a free market.

Few markets are really free, and that’s a good thing. Free markets tend to be very ugly in reality.

You're right. Tight nationalistic control of all markets is the only rational way to ensure sanity.

California is also one of the most taxed and regulated states. Do you think that is a coincidence?

California has also been creating high paying jobs at a fast pace, could that be a coincidence?

D.C. is probably a better example here. California is 1/6th of the US economy. It's not really creating "good" jobs relative to its size.

And D.C. is only doing that because it's just one city. Cities are the winners in the current economy. They happen to be liberal. Cities in Texas and Tenesee happen to be conservative, and they're doing swimmingly also.

Despite how much people get worked up, policy doesn't have a huge macroeconomic effect.

> Cities in Texas and Tenesee happen to be conservative

I don't know anything about Tennessee, but cities in Texas are not conservative. See these maps of 2012 and 2016 election results by county:

https://www.chron.com/politics/election/local/article/Map-co...

That's a very recent development -- starting around 2008. Even still -- beside Austin -- they are barely liberal. You do realize places like SF, Los Angeles, NYC, Philadelphia, Boston, Chicago, Seattle etc vote democratic at rates close to 75% for like 30 straight years.

Even most southern cities like Atlanta, Jacksonville, Tampa, Orlando, and Miami are well into the 60s.

Even if Dallas, Houston, and San Antonio are like ~52% for the last 8 years, they're a bit of an outlier as far as major cities go.

Houston hasn't had a single Republican mayor since 1982. I'm a Houston native so I know that the city has skewed liberal since long before 2008, and while I can't speak to other cities in as much detail, for Houston specifically this shift is not as recent as you're trying to portray.

Time to let half of Rome burn.

That’s just not true, of course there is a functioning market. It’s disingenuous to say that just because the market has problems that means there isn’t one at all and to justify taking away what little freedoms are left.

> tenants can organize politically to control prices.

That's fine for existing renters, but think about people who would like to move there to pursue a job, or live in a state friendlier to gay people or for whatever reason. They're going to find it harder to find a place to live, in all likelihood.

Yes. Price controls are a race to the bottom.

> Turnabout is fair play. If owners organize politically to control supply...

It's frequently renters talking about gentrification that oppose new housing around me.

This is the best argument I've seen to support these price controls. They're a bad idea on their own, but as a response to another bad idea (landlord opposition to construction) they make political sense.

Sometimes the system has to break down before progress happens.

One thing I have noticed as I have become more aware is that many of our laws are aimed at trying to freeze a moment of time, often by piling on contradictory policies on top of each other.

Subsidize home loans Ban new construction Ban rent increases

It is no wonder why housing prices/rents continue to rise in these markets.

In software engineering sometimes conclude that a rewrite is necessary. How can we completely rewrite our regulations?

So are you saying that landlord should be able to double your rent like that?

Prices should increase in the case of increased demand. Prices must increase in that case if you want the supply to increase, which is the only way to actually meet demand.

It's how the market works ffs.

The market is not working when actors frequently intentionally cause trauma and unexpected financial and life emergencies to tenets. The 'market' is not some divine thing that cannot go wrong; rather, trying to make the 'market' work is exactly why we have runaway climate change and incredible wealth disparity that's causing unnecessary pain and upheaval in the US today.

There's no need to swear at people, this is an interesting and complicated topic with many valid points to debate.

The reason the market is not working is because of onerous regulation by the government in the first place.

Not all regulations are equal. Merely because some past law was bad does not mean all future laws will be bad. Saying that rent control is bad because past zoning (or other law) was bad doesn't make sense.

Rent control has never been good anywhere. Yet places keep trying it expecting something different.

Supply and demand is one of the simplest concepts in economics and yet rent control does nothing to increase supply. In fact, it decreases supply by not shifting prices higher to induce more production.

> Supply and demand is one of the simplest concepts in economics

That's what makes it one of the weakest. The housing market does not follow a standard supply-demand curve for a number of reasons.

> Rent control has never been good anywhere.

Citation needed. Rent control has helped a lot of people find stability in a time of need, enabling less trauma, stress and improving chances of class mobility.

> In fact, it decreases supply by not shifting prices higher to induce more production.

Is this a real effect that you can measure in the real world? Has this ever happened in reality before? Or is this a theoretical concept? One that you assume plays out under ideal circumstances and that I assume are never met in real life?

>The housing market does not follow a standard supply-demand curve for a number of reasons.

That would make it the first in history. Extraordinary claims require extraordinary evidence.

>Rent control has helped a lot of people find stability in a time of need

So has the lottery. Doesn’t mean it’s not bad overall. The massive portion of people that don’t hit the rent control lottery (I.e. anyone who has to move) get screwed and the whole middle and upper class gets screwed by a poorly incentivized supply.

>Is this a real effect that you can measure in the real world?

Yes. Look at any place where there is rent control and you will find it still has unaffordable prices often far above the national average. It has never been a net good for society. It doesn’t increase housing supply and the pigeon hole principle should be simple enough for you to understand what that means.

Obviously, but part of that is having your property taxed at those market rates, businesses and landlords got together to pass an amendment to the CA constitution that prohibits any part of CA from increasing the assessed value of your property at more than 2%.

You can't have it both ways: saying you should have free reign in determining the value of your property, while also claiming the government can't tax you according to that value.

I don't want it both ways.

In fact a land value tax could replace property tax in a revenue neutral fashion, and would incentivize development of property and density, rather than disincentivize those like property tax does.

How do you distinguish land value from property value - especially given that the resource and service usage is not determined mostly by the amount of land, but rather the property on that land.

If you were to tax on the basis of land value the immediate impact would be massive increases in taxes payed in rural areas as a byproduct of the necessary increase in tax rates on land.

That's not what happens. Here's an example of when it's been tried: https://www.strongtowns.org/journal/2019/3/6/non-glamorous-g...

I guess it shows how out of touch you guys are. When I moved here EVERYONE told me to find a rent controlled place. After hearing some horror stories I think you would be crazy to live in a non-rent controlled place.

Heck, I’ve never heard of non-rent control before moving to the US. No surprise there’s so many homeless people.

PS: look at what your free market did to the US healthcare.

Of course everyone told you to get a rent controlled place. The government is mandating your landlord gives you money, so why not take it?

The point still stands that rent control is a terrible way to keep rent down, it causes a ton of problems.

Gives me money? What?

So arbitrary rent is a much better way to keep rent down? Come on...

Arbitrary rent? No, the market rate.

And yes, if you’re living in a rent controlled place and paying $1000 per month when the same place is going for $3000, it’s virtually a cash transfer from the landlord to you every month.

That’s why you hear about massive ($100k+) buyouts in SF.

This is wrong. Because the landlords are still making money. If they were renting at a cost they would have sold their places a long time ago.

No, if they stopped making money they would convert to owner occupied as imputed rents are not controlled. Which is what happened.

I know several landlords who are net negative on their rent. Why did they buy? For the expected appreciation.

And that’s why housing shouldn’t be an investment

It's only fair to pay market rate rent as a tenant if the landlord pays market rate property taxes. Why should the state subsidies the landlord and not the tenant?

It's mind blowing how landlords forget that the reason the vast majority of them can afford to be a landlord is because they don't pay market rate property taxes.

I think that’s a bit hyperbolic, land lords are not paying tenants even if they are operating at a 33% deficit.

These laws are not reducing rent, only slowing the increase yr/yr

Do you really think healthcare in the US is a free market?

If you do, you couldn't be more wrong. Healthcare is the most regulated, least free market in the US.

> No surprise there’s so many homeless people.

Pretty sure rent controls would have no effect on the amount of substance abuse and mental illness that plagues so many homeless.

Yeah sure. Let’s blame it on the drugs and the mental health it’s easier right?

When every scholarly piece of research cites those as reasons for homelessness (along with the price of housing), then yes, it's easy to repeat what the experts have already said.

Rent controlled places are great for the person living there. But, they’re bad for the supply of housing, which compounds the need for rent controls in the first place.

I live in a city where there are more residential properties than families. Prices are a tiny fraction of what y’all on the coasts cite. Apartments under $1000/month in trendy neighborhoods is common here. I’ve rented small apartments here for $500/month.

Rent controls may slow price increases, but encouraging supply decreases price. You can’t fix the problem until you treat the root cause rather than the symptom.

The US healthcare system is not a free market. In many parts of the country building a new hospital requires government permission. Pharmaceutical drug companies are allowed to set prices at higher prices here than the rest of the world and block imports. Most customers get their healthcare from their employers (due to tax law), so they do not shop around for the best price. Doctors are heavily regulated and it is very difficult for qualified foreign doctors to immigrate to the US.

Not in isolation. But if building restrictions and zoning restrictions were lifted, and supply could meet demand, then rent control wouldn't be necessary, because the landlord wouldn't be able to get away with doubling rent.

If that's what demand has done to pricing then yes. Where are rents increasing 100% per year?

Have you looked at the rents in SF? It is pretty insane.

Are they more insane than the real estate prices?

SF has extremely harsh rent control laws. In SF you are seeing the result of rent control run amok (amongst other factors).

It usually comes from a recession or a depression were rewrites are finally deemed necessary. Unfortunately unless people with common sense participate in government and we vote in selfless people a generation will suffer the consequences of our inactivity.

>It usually comes from a recession or a depression...

Don't forget crime and violence. Historically speaking those get laws changed quick. That said, I don't think rent control is going to have a very direct effect on crime and violence.

Stop making housing an investment?

I've seen this argument before. Why shouldn't it be an investment?

1. Land is a limited resource. 2. Property improvements last for a very long time, and are incrementally improved. 3. The buy-in price is relatively high, so only very interested parties get involved. 4. It's a home for goodness sake, why would you not call it an investment?

Housing cannot be both affordable and and a good investment. The definition of a good investment is a piece of property that has a price that increases over time. The nature of exponential growth means that eventually housing will become unaffordable if it is perpetually a good investment.

Society's expectation that housing is a good investment results in people taking on significant debt to buy increasingly expensive homes. The consequence is that homeowners have a huge incentive to suppress the construction of additional housing, to inflate the values of their homes. And when housing prices do fall, people's financial lives are ruined. Contrast metros like SF, Portland, and Seattle with places like Tokyo where homes can be bought for < $400,000. A big part of this is that housing is expected to be a depreciating asset: https://www.youtube.com/watch?v=iGbC5j4pG9w

You’re conflating “an investment” with “an exponentially growing investment”.

That's sort of the classic interpretation of investment. AFAIK, the first question most people ask about investments is "what is the expected rate of return (relative to the risk)?".

I would not describe my car as an investment, since it's basically guaranteed to depreciate. Housing could be expected to behave in a similar manner (although that would likely require a decrease in population growth).

The value of the structure does often decrease over time. The land might be a different story, if it’s a neighborhood where people want to move. Location, location, location. You can get property that decreases in value too, just move into a neighborhood in decline.

A good investment is an exponentially growing investment. Any investment with consistent year over year growth % is growing exponentially. Any investment that does not grow exponentially will eventually be outpaced by inflation and is thus not a good investment.

Who made the land?

What contributes most to increased value?

What are economic rents?

What is the perfect tax?

What is the land value tax?

Is it? As I remember, real prices only started climbing sometime after 2000.

You cannot rationalize with Ayn Rand fetishists when it comes to sensible housing policies, and sadly, that makes up about 80% of Ycombinator people.

rm -rf regulations/

... like Idaho did with its regulatory reset.

A reset could be after the big one hits and we have to rebuild cities.

"In software engineering sometimes conclude that a rewrite is necessary. How can we completely rewrite our regulations?"

A currency collapse or a successful invasion perhaps.

Even 'freezing a moment of time' is kind of a suspicious thing. People don't understand the present time and they sure as heck don't understand previous ones.

While fixing the plane while it's in flight is hard, I'm trusting our upcoming robot overlords to understand tax or criminal law. Accreting everyone's good ideas for a century or two was bound to result in a hairball.

When working with legacy code, one first writes automated tests.

Rent control is about housing security for existing tenants. Even a perennial 7% increase can be better than discovering your rent will jump 300% next month.

But rent control in the absence of housing supply increases will undoubtedly exacerbate the problem, and at a steady 7% inflation would also slowly price out existing tenants.

Many parts of California already had rent control that was based on building age. Theoretically this could have been the best of both worlds--improved housing security for the majority of existing tenants, but an incentive for new construction, which would be excluded from rent control. Of course, the price of housing security would be marginally higher rent prices up front, but in the real world that's a reasonable tradeoff. Security and predictability are at the top of most people's hierarchy of needs, whether they admit that or not, and regardless of whether they'd willing pay for it. (Healthcare being a great of example of people predictably making irrational decisions, requiring government intervention to mitigate the consequences.)

Unfortunately, new construction in California is extremely costly for entirely unrelated reasons. I think most developers in California would have bargained statewide rent control for development as-of-right. That California permitted rent control again without doing anything substantive about lowering the costs of development is inexcusable. I'm sure lawmakers told themselves that they were buying the acquiescence of NIMBYs and local control advocates regarding future development as-of-right legislation, but they're just lying to themselves.

> I think most developers in California would have bargained statewide rent control for development as-of-right.

In fact, that was more or less the deal—until Anthony Portantino torpedoed it.

>> But rent control in the absence of housing supply increases will undoubtedly exacerbate the problem

You can virtually guarantee that rent control and NIMBYism go hand in hand.

I'm a renter in Oregon and I've been outspoken about this long before the laws were passed. From my experience, people who support heavy laws, regulations and taxes don't spend enough time considering potential side effects. They feel like with enough support, they can just force anything they want to happen, while completely disregarding the market.

I feel like an amount of the general public just wants Big Daddy government to come in and authoritatively force everyone into an unnatural framework, which is pure ignorance.

That’s definitely the general mentality in Portland, so I’m not surprised.

I fear Portland is close to some kind of serious breakdown, and I feel like they're not going to learn anything from it, only blame others who don't vote for hyper-progressive laws.

>> From my experience, people who support heavy laws, regulations and taxes don't spend enough time considering potential side effects.

This is basically everyone. On today of all days, we see what the PATRIOT ACT USA has done to this country decades later, and people are quick to point that out but not consider it for laws that have not yet passed.

YMMV, but in my experience people who use phrases like “Big Daddy government” and accuse everyone else of “pure ignorance” are typically not arguing in good faith.

This is a fair criticism, but attacking his credibility is irrelevant. He had no credbility to start with, this is an anonymous forum and nobody knows who that guy is.

A strong counter here would include a counter-argument, and ideally even some support for that counter-argument.

He's also not making an argument that requires any credibility:

> I feel like an amount of the general public just wants Big Daddy government ...

He's just stating how he feels personally. I would think most humans are for the most part qualified to analyze and describe their own feelings.

Well, i disagree with your opinion. Silicon Valley has been attracting a lot of people from lot of states, who all need housing. Remember , size of California is fixed. Housing in Silicon valley doesn't grow at the same rate as number of people coming here. Added to that, foreigners living in foreign countries ( who have never visited USA, who have no intention of living in USA) are able to own land/houses in silicon valley , and do that purely for monetary reasons, ie get more money out of the property , jacking up prices even more. An ordinary American who wants to live in California is suffering as a result of this. rent control or low income housing are essential tools to make ordinary Americans’ lives better.

The solution is more housing, not deincintivizing apartment construction.

> Housing in Silicon valley doesn't grow at the same rate as number of people coming here

Bingo. And why not?

Bingo. And why not?

Because California property owners don't want it to. The artificial scarcity drives up property values. Take a look at Brisbane, they fought residential development tooth and nail claiming that people should just work in Brisbane but live in San Francisco.

Not true. We have a house and commercial rental property in Sunnyvale California. I’d love to tear down my commercial building and build something with an additional story but zoning won’t allow it. And is welcome all single family zoning being upgraded to 2 family zoning. I’d build a second unit in a heartbeat.

Existing homeowners don't want their living space turned into downtown Manhattan because there's a temporary exorbitant demand for ad click optimization and pic sharing networks.

There's a whole spectrum between single family homes and "Manhattan". It's not a binary!

The Bay Area's population has grown by 8.5% in the last 10 years. [0] Please, that's not "Manhattan". That's one person on your block converting their garage into a rentable unit.

Those "existing homeowners" are really messing things up for everyone because they don't want Bob to turn his garage into a rental? Somehow I think there's more to it than that.

[0]: https://www.kqed.org/news/11741275/map-the-bay-area-leads-ca...

Full quote: The population of the nine-county region grew by over 600,000 people since 2010 — a nearly 8.5% increase — outpacing the growth rate in any other part of California, according to U.S. Census Bureau data released Thursday.

600k people is about as much as Seattle proper. Which happens to span 83.94 sq mi. In less than 10 years. That's _a lot_ of construction.

Huh? 600,000 people in the Bay Area's 7,000 square miles -- I don't see how the Seattle comparison of "83.94" square miles is related.

No residential neighborhood in the Bay Area needs to turn into "Manhattan" to house 600,000 extra people. If every block added a house we'd have extra housing to spare. Zoning prevents a ton of development, and everyone pretends they're fighting "Manhattan".

At Manhattan densities, the Bay Area would house 468 million people. That's not what's happening, and no one is advocating for that.

We don't need to build Seattle in the Bay to house everyone. We just need cities to stop dragging permits out years and every planning committee to stop saying "no" to any small increases in density.

How much construction it is isn't super relevant -- if it's profitable, it will happen!

Then they shouldn't vote in the office space?

Unfortunately for you San Francisco hasn't been a sleepy little fishing village for nearly 200 years. Its popularity isn't a temporary trend.

Of course I wouldn't mind becoming more like Manhattan in some ways. Compared to how pedestrian hostile the Bay Area is, Manhattan is heaven.

Housing in California is fixed because of zoning and construction regulations. Also, more people can't move here than can be supported...and how does putting arbitrary limits on maximum rent increase the amount of people that can live here if we're already dealing with the limitation of too many people wanting to live here? That will just increase the demand...

Otherwise, there is a natural equilibrium. Many people want to live here, housing scarcity goes up. Prices go up, less people want to live here (this is already happening). What you're left with is the price reflecting precisely the degree to which people are willing to pay to live here.

Housing in California is fixed because of zoning and construction regulations.

And who decides these zoning laws? Typically cities and counties. Unfortunately Prop 13 has incentivized building out retail properties (sales tax revenue) over all else. So let's start by doing away with Prop. 13 protections for everything but primary residences. Then, change the statewide zoning laws to encourage/require available housing before non-residential property can be built. Want 2,500 office units? Fine, but if you don't have 2,500 residences available those need to be built first. Or maybe have the state keep 75% of the property tax revenue of new developments until the housing requirements are met. That money can then be used to subsidize affordable housing.

I mostly agree, but we should get rid of prop 13 completely. Just put a lien on the property rather than having the state seize the property if the "concern" is that we don't want people kicked out of their homes for property taxes.

> Housing in Silicon valley doesn't grow at the same rate as number of people coming here

To be clear, the population is growing faster than the housing stock.

> Rent control or low income housing are essential tools to make ordinary Americans’ lives better.

How exactly does this address the problem that there are more people than housing? It addresses it for some (the select few low-income residents who were lucky enough to get a below-market rate unit and people already renting), but squeezes everyone else into even fewer units. It doesn't even help "ordinary" people; it helps two specific groups.

>Remember , size of California is fixed

Yeah, fixed at ~164 thousand square miles (~400,000 km^2). Are you for real? Los Angeles and New York City proper (not the metropolitan areas) are interestingly nearly identical in official area at around 468 square miles each. But LA has a density of around 8000/mi^2 while NYC is well over 27000/mi^2. If LA merely matched NYC that'd cover another 10 million or so population by itself. The size of freaking California is not remotely a limiting factor, the limiting factor is not enough high density buildings.

While your are technically correct, there are significant issues getting water. Just because there is a spare part of land also doesn't mean it's not in the middle of one of our huge deserts or is connected in any meaningful way to roads. Empty land doesn't equal inhabitable land.

Nope, as long as almonds are still being grown in CA, there is plenty of water. Residential water consumption is nothing compared to farming.

The market is simply a tool. It's not infallible. It is a very powerful framework, and enables amazing things. However, left unchecked, it will also create undesirable outcomes or side effects. Negative externalities are a real thing.

In this specific case, perhaps you are right, I can't say.

But your wide-sweeping declarations and general tone reveal your own harmful ignorance.

We’re talking about rent control, a system designed to attempt to dictate that supply and demand doesn’t exist via a law. A system with no economic foundation that creates worse housing everywhere it’s implemented.

What constitutes a natural framework?

IMHO, there is nothing "natural" about land ownership. Land ownership in the USA isn't actually what most people think it is. It's not an inalienable right and is largely at the pleasure of the public by way of legislation that can be changed.

The natural framework of relevance is more to do with housing as a good or service than with land.

You know I was neutral on this stuff, studied economics and some business law, have actually read Adam Smith rather than just little excerpts. When I was younger most of the 90s working as a tech in and around the financial sector, so while I don't consider myself an expert I do think I'm quite well informed. I spent about 25 years giving market economics and the investor class the benefit of the doubt.

I've changed my mind.

Why?

Because of the problem described in this story and discussed in this thread, among other things. I feel like that would be the obvious inference to draw.

I'm not following you... What did you believe, and what has it changed to?

I believed in giving market economics and the investor class the benefit of the doubt and now I don't. You can interpret this in the context of the larger discussion and the news to which it is a reaction.

Rent control is abused in SF. Every engineer I know, who has been living in SF for over 5 years is currently paying an absurd amount compared to their monthly income. I even sub-leased an apartment from a friend who took off a sabbatical, and he didn’t want to lose his rent control.

I don’t know who rent-control is supposed to benefit, but it seems broken. Eventually these places end up in the hands of people who know how to game the system. Just build more housing and the incentive will go away.

Abused? When I moved here I heard horror stories of rent increasing suddenly. I did what any sane person would do. I looked only for rent controlled places before moving in.

Certainly it gets abused. People keep their apartments even though they're not living in them, because otherwise the rent would go up. I know someone who did that for 20 years with an apartment on Russian Hill. She would sublet the place for a year or two and then come back.

I know several people that do that: luck into a sweet rent control deal even though you were wealthy enough to afford market rates anyway, never, ever give up the lease even after you've essentially moved away anyway and then sublet the unit out at market rates yourself.

I don't know the same people that get mad at a corporation for allegedly "cheating the system" in some way don't find this sort of thing offensive, but weirdly they don't seem to at all.

> I know several people that do that: luck into a sweet rent control deal even though you were wealthy enough to afford market rates anyway, never, ever give up the lease even after you've essentially moved away anyway and then sublet the unit out at market rates yourself.

If this is in San Francisco, report them to the landlord or the city so they can be evicted. Tenants who abuse the system worsen the housing market for everyone.

Nice negligible anecdote

Your comments in this thread have been breaking the site guidelines. Can you please not do that? It poisons this place and weakens your arguments.

https://news.ycombinator.com/newsguidelines.html

> She would sublet the place for a year or two and then come back.

That's generally illegal, unless the subtenant is paying no more than the tenant is in rent. Every tenant who does this in San Francisco can be, and ought to be, immediately evicted. There is zero economic/social justification for abuse of rent control.

It’s illegal, period. The unit has to be the tenant’s primary residence. Obviously the litigation to prove this in an anti-landlord town like SF is messy and often not worthwhile.

If you report the sublet, that tenant is likely getting kicked out. So now someone has to find a new place to live.

Yes, subletting for more than main tenants rent is illegal, but considering how hard it is to find apartments, most subletters just let it be.

Rent wasn’t that much cheaper 5 years ago, if at all, save renting one of the luxury high rises.

When I was interviewing for jobs in the Bay area I noticed entry level salaries (even at smaller shops) were in the range of 100-120k and rent was like 35-40% of your salary after taxes. Certainly higher than the recommended 30% but it's not that different from somewhere like LA or NYC, even Chicago and Miami aren't much cheaper.

Are my numbers just totally off?

$120,000 comes out to around $6k/mo. A mediocre studio in SF is pretty close to $3k.

After taxes it's a bit under $6,900 so 40% of that is ~$2,700. Browsing Zillow/Apartments.com/Padmapper shows several thousand listings for studios under $2k and single bedrooms around $2.2-2.7k, depending on area. SF proper seems pretty tiny and the most expensive, is everyone just trying to cram in there? Do people try not to commute?

It's closer to $6,600, and that's without spending a dollar on retirement or benefits.

> Do people try not to commute?

Spoken like someone who's never tried to commute in SF. Public transportation options are extremely limited, owning a car is extremely expensive.

I mean I'm being open here and saying I don't understand why CoL is so high in SF, since researching it from afar doesn't make it look that much pricier than what I've seen living in other cities.

And I commute in LA, it's not exactly enjoyable or cheap. But it's cheaper than living within walking distance of my office.

The other thing to remember is that when rent is that high as a percent of median income it has a rippling effect on the cost of everything else.

Since I moved to Seattle I pay 1/2 as much for groceries, 1/4 as much for the gym, 2/3 as much to eat out. So in the end rent isn’t the only problem. All your costs add up. Add state income tax and the problem compounds further.

You are right that most casual analyses overstate the real cost of living in SF. A Bart commute in the Daly City direction, or Oakland, or a drive in from Pacifica all get you much more reasonable cost / commute trade offs for jobs in the city. Certainly in absolute prices remain absurd.

I can confirm that as of December-January it was possible to find a decent 900-1000 sq ft house with two bedrooms in southern SF (Visitacion Valley or Crocker/Amazon, say) or Daly City, near BART, for $3000 a month. Still more expensive than than the comparable in New York, where a two-bedroom apartment in Jersey City with a comparable commute to lower Manhattan was $2300.

The rent figures are an exaggeration. I lived in a mediocre studio for between $1.8k and $1.9k. $3k will get you a mediocre 1 bedroom or a pretty good studio.

Remember to factor in taxes. You will only see 6k a month cash on 120k a year after maxing our your 401k. A tiny studio will go from 2.5 to 3.5k last I checked.

It benefits the politicians who buy votes in favor of a one-time lump sum wealth transfer to renters.

> a friend who took off a sabbatical

Perhaps you don't realize how good you have it out there.

This rent control is a result of populism - plain and simple.

Rent control works for those already renting - and that is about it!

Everyone else suffers: those moving to the area, the landlords and those wanting to build more.

Rent control is a thing world wide. It’s not populism.

It’s the same concept as free healthcare or free education. It’s here to ensure people can still find affordable places to live.

You can’t make everything an investment if you want a healthy society.

> It’s here to ensure people can still find affordable places to live.

Rent control does the opposite. It radically reduces choices and increase on price on people looking for a place to live.

Rent control chooses a small handful of existing renters to be winners. And it makes everyone else a loser. Except it's also shitty renters, because it traps them in place. Sure it gives them a home somewhere. But it denies them opportunity to move to another city, or even the other side of time, to pursue opportunity.

That’s FUD. It works great in other countries and if strict can give equal chances to tenants no matter your background.

Anything you can cite?

The US economy is the driver of the world economy, and has been for quite some time and it's why we see so much innovation of entire new sectors in the US. (Yes, you can see sustained higher growth for a time in some other places, like China, because starting from a lower level allows for piggybacking in the same way the US economy grew with regard to Europe in the 19th century.)

The reason mature European economies do not come close to entrepreneurship and the rate of innovation in the US economy is because widespread govt regulation and taxes across the board stifles economic options for investors.

It is simply not true that housing and employment laws in other places "works great", it's a tradeoff, and if the US follows that path the world will become a less good place for everybody because Europe and Asia will no longer have an innovative capitalist petri dish to follow and leverage from.

You probably live in a bubble. Have you visited the bible belt in the US?

ycombinator, where standard econ theory gets downvoted by people who've never taken econ. Here's a challenge, explain the history of the US stock market vs world stock markets and US venture capital vs world venture capital better than I did.

> if strict can give equal chances to tenants no matter your background.

The GP's point is that it gives equal chances to tenants to stay. New tenants do not benefit from rent control, they instead are hurt by the higher prices due to lower supply.

The supply problem has nothing to do with rent control.

Rent control = less profit for building properties = less supply.

Lets be clear, the reason there is less supply is not rent control.

It's regulations and NYMBYs that prevents any new building with higher occupancy.

Regulations and NIMBYs increase development costs.

Rent control reduces development revenue.

They both play a part in making building development less attractive, just from different sides.

Which is why rent control doesn't address the root causes of the housing problems, and in fact only makes things worse in the long run. It's just virtue signaling without regard to the results.

Housing is a strictly zero sum game. When you have more people who want houses in an area than there are houses you will have winners and losers.

Rent control chooses certain people to be winners and other people to be losers. It does exactly nothing to increase the number of winners. Furthermore it creates disincentives to the creation of new housing, which means fewer winners in the future. Even worse, for the winners it does select it puts them at a long term disadvantage by trapping them into a non-optimal location.

The only solution to “not enough housing” is “more housing”. Rent control is actively harmful to this goal.

Except in practice people can't find affordable places with rent control because nobody is willing to leave their below market rate place. The real problem with it though is that it does not in any way fix the root cause of the problem, which is lack of supply.

The root of the problem is greed.

I'm a truly free market, rent would be outlawed.

How so?

It will not help you find an affordable place to live, it will help those who already have existing leases hold on to them forever. Rent control does not create an abundance of housing, it just creates a constituency of people that gets a better deal than those who don't.

Correct, rent control in the Boston area created haves and have-nots. It was great for those lucky enough to get in, but the rest of us were effectively subsidizing them.

It’s probably the case in CA now. Just want to mention that rent control in Switzerland extends to future tenants. It can be implemented so that it gives protections.

It's interesting that some people in this thread are claiming rent control hurts landlords, while others here are discussing how it helps landlords increase profits.

Hurts new or potential landlords. Helps those who already have good cash flowing properties.

> Everyone else suffers

Actually, existing property owners benefit. So really is populism--the only people it hurts are landlords and people who don't live there yet.

And people who move

It seems more and more clear that California, or at least those in power in California, don't want to fix the housing problem. Because if you're a land owner, the only problem is people trying to spoil the good times. All this VC money pouring into the pockets of tech employees, and a larger and larger fraction going straight into landlords' pockets. What's not to love?

If actually you want lower home prices, build more homes. Build tall (curb height restriction rules); build everywhere (no more minimum parking rules); build immediately (reduce complex planning permissions for developers). Just build more.

Supply and demand will decide the price of most goods, and housing is no exception. Rent control does not address the underlying issues that cause prices to rise- lack of supply and growing demand.

Are there really not enough houses? I've always been under the impression that there exists more than enough housing, but a lot of it is empty.

Not enough to fix the housing problems CA has. Not nearly. And if that's the problem, tax empty homes.

But even then, even if there are empty homes, building more will still fix the problem. Let those foolish owners leave the homes empty- we can build more anyways.

I really dislike the notion of clearing more land and putting up more cookie cutter houses and apartments for the sake of saturating the housing market in order to get people to rent for reasonable prices.

Density is preferred, ie clearing parking lots downtown, not open spaces in the country.

I really dislike the fact that I’d have to save for decades just to afford a decent house in California.

The land isn’t doing anything just sitting there. I am totally fine with clearing it out so people can actually afford houses.

Coming from CA and living elsewhere now, it honestly hurts me how much people take that land for granted. It's so damn gorgeous and rare.

It is definitely stunning, and it can make a painful commute bearable, but I would put the needs of my fellow humans over aesthetic.

That said, there is still a ton of "boring" land we can build on first before cannibalizing the scenic drives.

> my fellow humans

This may be the pivotal pinch point which marks the root of our disagreement. I honestly feel more fellowship with animals and computers than humans.

Also, when it comes to the "needs" of humanity, I think we've surpassed that mark. It's beginning to appear that people are insatiable consumers that will destroy anything for a bit of convenience, all while being unhappy the entire time.

I'm not on team human.

In shrinking rural towns, sure. In cities like SF that have been adding only one unit of housing for every 5-6 new jobs, there's a very significant housing shortage.

There's plenty of houses if you're willing to move. I live in a house that would cost 1-4 million depending on what part of the valley you want to live in. There's good jobs and the schools are some of the best in the world. But it's a couple hours plane ride from NY and SF. This all just seems like utter madness to someone from the midwest.

> California, or at least those in power in California, don't want to fix the housing problem.

It’s a national problem. If you improve the supply only in CA, more folks will move there and recreate the problem.

yes, the incentives are misaligned for any other outcome

In NYC, rent stabilization laws have long had the concept of "preferential rent."

Rent stabilized apartments have a limit to how much can be charged for them (called the "legal regulated rent"). That amount can only be adjusted (on a percentage basis city-wide) by a government board every year and by a handful of other exceptions (historically: improvements to the building/apartment, major repairs, new tenant in the unit---however some of these exceptions were recently eliminated). The legal regulated rent is sometimes hilariously more than what any sane person would pay for a particular apartment and landlords would never be able to get a tenant at that price (for reference, as an NYC renter, my preferential rent is ~26% less than the regulated rent).

So in comes the concept of "preferential rent": a price below what the landlord is legally entitled to charge. That preferential rent is in effect for the duration of the lease signed. With the recent rent stabilization reforms in New York state, renewal leases on rent stabilized units will only be able to charge the preferential rent plus that year's percentage increase (as decided by the government board). Previously, landlords were allowed to raise the rent all the way up to the legal regulated rent plus that year's percentage.

In other words, before the recent reforms, landlords had a strong incentive to keep the legal regulated rent as high as possible since they can always raise rents upon renewal to that value. Previously, preferential rents were truly temporary and the landlords had no obligation to maintain them upon renewal. Now the only way to raise the preferential rent to the regulated rent is if the current tenant vacates the apartment and the landlord finds a new tenant, on whom they may charge any value up to the regulated rent.

It's difficult for landlords to kick out rent stabilized renters since those renters are generally entitled to renewal leases, but one simple tactic before was to just raise the rent from the preferential value to the regulated value. With the recent reforms, this is no longer a viable tactic.

When you mess with supply and demand there are always unintended consequences. I'm currently a beneficiary of rent control and am lucky to be paying below-market rate for my apartment. It would be nice to move to another neighborhood, but it would be dumb for me to give up the savings. My neighbor pays 1/10th of what I pay for the same size apartment. Neither of us are leaving anytime soon. This is why there's no liquidity in the SF housing market. They're trapped and live in constant fear of being evicted.

On a philosophical level, why should my landlord be subsidizing our housing costs? If we want to make housing more affordable for low-income families, surely there's a more equitable way to finance it.

Same. I’m in a rent control place and I would never ever make the mistake of moving in a place that can arbitrarily increase its rent. I fee bad for people who didn’t have a choice and will probably have to move out at some point because of that :/

Do you feel trapped at all? My understanding is that rent control only affects increases. So if the area you live in becomes less desirable, you're likely to face a choice of "starting over" and paying market rate, or sticking with your current living arrangement due to not wanting to lose that rate.

I feel trapped living in SF yes. You can’t purchase anything because it’s too expensive and if I want to move to a different place next year probably the prices will have increased.

Why should we subsidize your landlord, paying on a Prop 13 valuation 1/10th the market rate?

None of them are suffering.

I don't like rent control but I hate prop 13. Interesting is that Howard Jarvis rallied renter support claiming that landlords would be nice and pass the tax savings on to tenants. Of course this didn't happen and there were immediately movements for rent control around the state.

The real solution here is to build more housing, as high prices are a market signal of a shortage. While I support more unit creation more than I support rent control, in the current crises we need both. What I still can't get over is how much of CA land use politics is pure generational warfare, the olds vs the millennials, and it seems that the millennials are finally starting to win some fights.

> generational warfare, the olds vs the millennials

This is a good example of that. Rent control tends to benefit the older generation at the expense of younger people and families. It does nothing to solve the actual problem of lack of housing inventory.

millennials in CA are disproportionately renters, not home owners. This bill will provide millennials with some extra security so they know their rent won't be spiked and they'll need to move.

imo It will still benefit the older generation more. There's now even less motivation for people to build more housing inventory to rent out. With ever dwindling housing inventory, it's first come first serve. Guess who's there first?

"Economists from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing. Studies in San Francisco and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes. And since rent controls typically have no income threshold, they have been faulted for benefiting high-income tenants."

This is what would really help with the housing problem

"State Senator Scott Wiener, a San Francisco Democrat, offered a bill that would essentially override local zoning to allow multiple-unit housing around transit stops and in suburbs where single-family homes are considered sacrosanct. The bill was shelved in its final committee hearing this year, but Mr. Wiener has vowed to keep pushing the idea."

But the NIMBYs killed it for now https://www.nytimes.com/2018/04/17/business/economy/californ...

> This bill will provide millennials with some extra security so they know their rent won't be spiked and they'll need to move.

I'm not sure that's how rent control works. Unless I missed something, your rent is only capped if you don't move.

At the cost of further increasing the price of rents across the board due to limited housing supply.

did you read the article or understand the bill? This bill doesn't impact construction finance because it doesn't apply for the first 15 years after a building is constructed (pretty much all residential construction loans use a 15 year rent projection for valuation). Additionally, the median market rent increase is a few percentage points lower than the rent increase allowed by this law. The main thing the law does is allow people who are being price evicted to be price evicted over 3 years instead of 60 days.

until they need a two bedroom for a kid. rent control works great if you have your shit together and have no life changes coming up. If you're settled in your life and you already have a place, rent control is great, if you're going thought the life change stage of your life, rent control doesn't help to much. Rent goes up to market when you move out to go to college, then it goes back to market after you leave college to get that first job, then when you want to move into a place by your self or with a significant other, back to market. Need something bigger to start a family? Back to market. Once you finally get your shit together and ease into a stable part of life (if you haven't bought a house) your rent is stable. But it's not a big help until you're stable. So while most people are renters in the younger demographic, rent pretty much stays at market for the majority of the time through 20's and 30's. The answer is still more housing to lower the overall price of housing.

"The answer is still more housing to lower the overall price of housing." I am not arguing against that at all, but if we decide to go extreme SB50 style urbanize California we wouldn't see real price impacts for maybe 5 years at the earliest. What are we supposed to do between now and then, just accept 15% YoY rent increase?

IF this was passed at the same time as laws that allow more housing and tapered off after the expected return of more houses, I'd be fine with it. But as it stands now, the idea of rent control until more housing is a pipe dream since the more housing part never seems to come.

The studies are clear, rent control is a benefit to a few but long term doesn't really add much value and instead makes the market stagnate in funny ways.

Rent control deters the building of more housing. It's literally part of the problem.

Can you explain what you mean? I don't follow. Rent control is a bandaid that provides a level of stability to the lower classes. They can live without daily anxiety of being rudely defacto 'evicted' by radical, surprise rent increases.

This enables a society to continue to grow and function at a somewhat more sustainable pace, letting cities and counties grow without intense boom-bust and crash cycles, with a more stable working class, and therefore a long-term sustainable housing construction market.

I understand that rent control is no grand solution, and that we need more houses built - but I do not understand how rent control is part of the problem.

The problem starts and ends with personal and corporate greed. The rent control is an attempt at constructing a sustainable, stable society from the ashes of an out-of-control capitalism that is leaving most of its consumers in the dust.

Rent control is not part of the problem and would not deter rational actors from building additional housing - I believe it would increase it.

Rent doesn't get changed daily, only when a lease is up for renewal.

Rent control deters the creation of new housing. This reduce in supply raises the price, which is bad for the poor - exactly the people it is meant to help.

I was under the impression that some rents can be increased during the lease. I do not think it is only a renewal event, by law.

> Rent control deters the creation of new housing.

I keep seeing this repeated but I don't understand. Why does rent control deter creation of new housing?

> This reduce in supply raises the price

But you've glossed over why supply is reduced. I don't see any reason that supply would be reduced with basic moderate rent control like this one.

Edit: I have tripped some wire (?) and am not allowed to post any more. In response to the comment below,

> https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...

That seems to be Washington, not California. According to http://www.hrc-la.org/doc.asp?id=36 it seems to read that some leases allow rent increases mid-lease.

https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...

I believe you might be thinking of month-to-month, which is not a traditional lease. On all fixed term leases over a month rent cannot be changed during the term of the lease.

Which is an oddly elaborate way of saying that rent increases in California can happen annually.

Technically, you can have a lease of any length. I've seen 3 and 6 month leases. I'm sure it's possible to have a 24+ month lease.

> Why does rent control deter creation of new housing?

If you have a lot of money and you want to build/buy a rental property, would you do it in a) a growing city with no rent control where your discounted future cash flows are unbounded or b) a city where there is a law placing a ceiling on your returns.

All else being equal, you are going to choose the city without rent control to build your new housing units in (or invest in something other than real estate altogether), thus illustrating how rent control disincentives new investment in housing, and specifically low-income rental housing.

I think your illustration has failed, though, because I would very much choose b). I consider a) as an evil in the world and would avoid participating in that if at all possible. b) sounds like a really good choice for long-term investment in in sustainable society.

> All else being equal

Okay but all else is not equal, and in the real world, it is never equal. These thought experiments do nothing to improve conditions in the real world, since they are based on flawed models of how people behave.

> Okay but all else is not equal, and in the real world, it is never equal. These thought experiments do nothing to improve conditions in the real world, since they are based on flawed models of how people behave.

By that logic, nothing affects anything else and we should all give up trying to think or plan.

I don't agree. We know that people are not 'rational actors' that maximize personal profit at every turn, and we should not base our economics around that known false idea.

I think it is wise to produce better models with new information - not to ignore everything or to knowingly use false models. People do not - and should not - act according to those 'rational' ideas of maximum profit.

The problem is that this is well a well studied problem and your first principles approach to it gives us the wrong results. Rent control policies like this one (only works on buildings 15 years old or older) do not impact new housing starts.

Rent control does indeed make the housing shortage worse in the following ways:

- It makes it so new renters subsidize the old ones, raising prices for newly vacant places, defeating the purpose of controlling costs. It also doesn't offer tons of protection from boom/bust cycles, as mainly those riding the boom will be able to afford absurd prices in highly regulated places like SF — Where a 1br can fetch 3.7k/mo (!!)

- "FU, got mine" attitude disengages renters from organizing the same way NIMBY homeowners do. For example, SF renters could easily outnumber homeowners to allow much more housing to be built, but ~70% of housing stock there falls under rent control.

I do want to be clear that I fully support controlling costs in some manner, however, this desperately needs to be tied to a solution that results in more housing.

Luckily for all of us, this law will not create a new class of rent control prisoners/devotees because the allowable increases are too high.

do you have any clue about this specific measure? Its limited to buildings that are 15 years old or older, and it limits rent increases to 8% annually, which in practice is about 1 - 3% of all lease agreements in CA, a very small amount. Commercial construction loans are based on the 15 year revenue generating potential of the proposed building, this law was created specifically with that in mind so as not to interfere.

> do you have any clue about this specific measure?

Any price control inevitably has negative consequences in the market. This is practically a law of economics.

> Its limited to buildings that are 15 years old or older, and it limits rent increases to 8% annually, which in practice is about 1 - 3% of all lease agreements in CA, a very small amount.

If it with have such minimal effect why even have it?

> Commercial construction loans are based on the 15 year revenue generating potential of the proposed building, this law was created specifically with that in mind so as not to interfere.

Then it's not as bad as it could be. Doesn't mean it's justified.

The landlords that jack up rent more than 8% a year, at least in SF, are the commercial landlords of large apartment complexes like Avalon. At the very least this will stop the ones managing older complexes built 2004 and earlier from doing that anymore.

This is simply about spreading out massive rent hikes over the course of a few years instead of a few months. It gives families time to adapt or move. The allowable increases under this law are very high.

It may not seem justified to you, but to a low income family in a rapidly gentrifying area, it means everything.

All you need to do is say, if you're increasing the rent by more than 7% then you need to give a years notice. That's it.

What’s a year’s notice going to do for anyone that 60 days doesn’t already?

> Any price control inevitably has negative consequences in the market.

And what is the magnitude of the consequences of this law? That’s what matters. It’s very small.

> Any price control inevitably has negative consequences in the market. This is practically a law of economics.

There is an exception: if the price ceiling is higher than the market price, then the ceiling will have no effect. It may be that the allowed rate of increase is high enough that it's an ineffective price control, in which case there would be minimal market distortion.

This bill specifically exempts new housing from its controls.

It can be expected to stay exempted?

They'd have to start over from scratch with a new piece of legislation to do that.

Many of the legislators who supported it specifically cited this aspect of the bill, so I don't think such a change would make it through.

“That bleak picture — combined with three-hour commutes“

We could also consider building more, and better, mass transit.

This is a misleading headline.

The problem with rent control is that it allows many well-off individuals to collect ever-growing rent subsidies, to the point where after 10 or 15 years their rent is a joke compared to what their (often less-fortunate) neighbors are paying.

This bill does not have that flaw. Crucially, it sets the maximum allowable rent increase to be well above, not below, the historic long-term rent curve. Over time, in the long run, rents will approach market-rate. And that makes all the difference.

What you're ignoring is voters resoundingly rejected Prop 10, the rent control measure that went on the ballot LESS THAN ONE YEAR AGO. Which was pretty close to AB1482.

Yet, despite the majority of voters saying no, the legislature felt it necessary to push forward with legislation anyways.

Above all else, the government ignoring a direct vote from the people is most disgusting of all and reason enough for why this should be vetoed.

https://www.sfchronicle.com/politics/article/Prop-10-Califor....

AB-1482 is nothing like Prop 10.

This is a disaster. Have we learned nothing at all? Rent control won't help anyone except those who already have a low rent place and it'll only help for the short term until they need to move. After 50 years of ridiculous regulations that prevent more housing from being added, we're still moving in the wrong direction. This is truely a sad day.

It's not ideal and no silver bullet, but having rents go up means "normal" people living in places for years get pushed out of the city and land lords get richer, faster. It seems to address that issue, which is not all bad on the surface.

It's not the perfect solution, but what do you propose as something better that still helps normal people not get pushed out?

I don't have a perfect solution, either, but I see unintended consequence from this:

* Fewer rentals on the market

* More instances of landlords "re-occupying" a place (eg, ACTUALLY kicking out the residents) in order to fix it up (or not) and then re-rent to someone else at a much higher base rent, later.

When rents go up, tenants push themselves out (or, the market pushes them out). When we devise tenant protection laws, we invent 'better' landlords who find clever ways to PUSH out people who are paying below market.

If there was a way to artificially hold ALL rents down, it might be less obvious -- but under a rent control scheme, everyone knows when you're paying below market; you look at the classified ads (okay, craigslist) and see that you could never afford to find a 'new' place like yours at the same price. The tenants know it, the landlords know it. The tenants have protection. For awhile. Until they don't.

My uncle was given an eviction notice last month so the owner can fix the place up. Expect many more people to get similar notices before the new eviction protections kick in at the end of the year.

Wouldn’t it mostly discourage people from buying properties for the only purpose of renting them? I think the long-term effects will be interesting. Hopefully, a bunch of rental properties will hit the market.

Finally, a novel and innovate solution no one has thought of before.

What could go wrong?

https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...

To be clear, this is a 20 year old article, the literature on rent control has changed a lot since this was written. Basic economic consensus rn seems to be that rent control is a poor long term solution to rising housing costs but a necessary short term solution as the required supply shock wouldn't even be able to happen in the near term even if regulatory barriers are eased due to labor, construction, and land costs in expensive metros and that the anticipated negative impacts of rent control (less liquidity in rental market, higher prices) dwarfed by the impact of lack of supply.

It’s a 20 year old story about rent control in San Francisco. So, we are talking about a long term problem?

“ A few months ago, when a San Francisco official proposed a study of the city's housing crisis, there was a firestorm of opposition from tenant-advocacy groups. ”

yes, and there was a huge well funded study a few stanford professors conducted of rent control in SF in 2018 that is a much more accurate study of the affects of rent control policies.

"Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood."

To be clear, the rent control studied was a yearly rental increase of ~2/3 CPI, or 1-2% annually, while market rents increased at about 7% annually since the 50s in SF. The proposed policy is a rent cap of around 8%, which is higher than the aggregate rent increase in the SFBA over the past 30 years or so (also 7%). This isn't a rent control law as much as it is an anti gouging law, disallowing landlords from increasing rent 10-20% YoY, which happens to maybe 1-3% of the market.

https://www.brookings.edu/research/what-does-economic-eviden...

It sounds like this is a poor solution for a non-problem then.

its a great solution for people who's landlords are price evicting them by raising their rents by 25%. This law will allow people 2-3 years to find an alternate living arrangement compared to the 30-60 days they have today.

If I were to guess, this bill will likely be positioned as a long-term solution and the other bit where housing supply is addressed will go largely neglected.

Which is, coincidentally, an apt summary of San Francisco's housing policy for the past twenty years.

> but a necessary short term solution

[citation needed]

I've never seen an economist support any form of rent control.

So does this bill automatically expire at some point? If not, why not? Not many laws are easily repealed as the side effects they create work to entrench them in society. A bad person is a person that think they can engineer other people's lives for the better through legislation.

Yes, it does. As currently written, it expires in 2030.

There's three paths:

1) Rent cap landlords. The landlords will cry Big Government.

2) Abolish single family-only zoning and legalize backyard cottages, townhomes and small apartments. The homeowners will cry Big Government.

3) Do nothing. Watch as more people start living in tents or endure super-commutes that snarl your traffic and worsen climate change.

Well if you explicitly pass things as “reversing a commit” instead of making a new hack to control unintended consequences, it’s harder to complain about big government since you’re making it smaller not larger.

It may only apply to LA, but this whole (regulatory) issue seems deeply related to another similar article: https://news.ycombinator.com/item?id=20806752

I'm a landlord and would love decreased housing regulations, even if it decreases the value of my property by increasing supply.

When regulations allow for denser housing land prices go up because you can put more rentable dwellings in the same space.

Land prices go up because that's what it's worth. If the government says "you can't do this profitable stuff on your land", then the land is less valuable.

I don't know where to stand on this issue. I wish everyone could afford basic living spaces, but if they could, there would be way more people, and the planet clearly cannot sustain that.

Preventing renters from living in high density housing will make the number of people on the planet go down?

SF isn't uniquely expensive. Every city with opportunity has a huge premium. It's all for the same reasons.

I'm not sure if I wish they'd go away.

If housing were more affordable, we could easily have 10B people on the planet right now. Most people truly want to have families. They want homes to raise those families. People can't go own reproducing forever. Could we have had 2% population increase over the last 30 years in the US instead of 1%?

Yes, but we'd already be over 10B people. In another 30 years, we'd be at close to 20B. It's not sustainable.

And even if it was, it's not necessarily a better situation. Who's to say that education, health care, food and other basic necessities wouldn't be more scarce and cause the overall cost of living to be even higher? Inequality would almost certainly be much worse.

The Malthusian trap plagued the world since the beginning of mankind. Until the industrial revolution, life for the average person was getting substantially worse over time. Then suddenly, productivity growth outpaced population growth, and we went through -- objectively the best time in human history. This is a time that includes monstrosities like the world wars and the threat of nuclear winter, and it it's BY FAR the best time humanity has ever seen.

Productivity growth is starting to decline. Do I think that making housing more affordable and jump-starting population growth to keep GDP numbers increasing at a steady clip is a good trade off? No.

Cheap housing sounds great. But I don't think it's a miracle pill. There are unintended consequences to everything. I wish we lived in a fantasy Utopia where everyone could be hold hands and be happy all day, but we don't.

I suppose if people suffer less and love more, they reproduce more. I believe the world can sustain many times more people than it currently does, but only if we spread out. Cities are not good places for people who can't sustain it.

I dunno, a think a lot of homeowners would love to be able to build a little cottage in the back yard and cover half their mortgage renting it out.

I was thinking that too; but then, a lot more would complain about the renters at their neighbors’ house, increased traffic, noise, problems with lower income renters, HOA violations, and the ungodly backup at the city permitting office for any minor construction.

SF calls them ADUs(auxiliary dwelling units) and incentivized people to build them.

A lot of people don’t want to because once you’ve rented it out, the tenant can never be kicked out unless they break the law.

Do you want to sign up for someone living in your backyard for the next 20 years?

Well then they didn’t really incentivize people to build them!

An ADU should be like renting a room in your house. Exempt from fair housing laws, and at worst a non-guaranteed lease renewal, if not a simple 30 day notice.

But the point of fair housing laws is to protect tenants. If everyone's building these and renting them with no fair housing protections, you've effectively just abolished fair housing laws without actually repealing them.

To me it feels like the sensible thing to do here is to either actually abolish the fair housing laws if tenants don't really need those protections, or have them apply to these new constructions as well since tenants do need them.

A stance in the middle makes no sense considering the intention of these laws.

A stance in the middle would apply to just these ADUs specifically, because they are somewhere in the middle between;

a) renting out a room in your house (where fair housing laws already don't apply) and,

b) renting out a fully distinct dwelling unit, where fair house laws definitely apply and serve an important function.

ADUs are always going to be a small percentage of the overall housing market, so lessening housing regulations around ADUs specifically is definitely not the same as abolishing fair housing laws entirely.

I agree! I get the sense that many more people would build ADUs and rent out units if they knew they had more control over them. I’m not saying we should get rid of all tenant protections, but could make them a little more fair for the owners.

I'm not a landlord or homeowner, and 1 makes me cry Big Government.

What if something crazy happens to the economy, say the dollar gets devalued, and all you have is rental property for income? Realistically you would raise your rental price.... But wait, there's a cap, and you can't.

2) "legalizing backyard cottages" is actually against Big Government, and I'm with you there.

You're forgetting another option: deregulate and let the market compete.

> What if something crazy happens to the economy, say the dollar gets devalued, and all you have is rental property for income?

In San Francisco rent control is indexed to inflation. If the dollar is devalued, inflation increases, and you get to increase your rent more. The same is true for Oregon's new law, which permits 7% increases in addition to inflation.

> You're forgetting another option: deregulate and let the market compete.

Rent control is about providing housing security and controlling volatility. Over the long-term unfettered markets may produce optimal supply, but in the short-term people can easily be pushed onto the street. As Keynes said, "economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again". (The more famous bit is, "in the long term we're all dead.")

SF is capped at 60% of CPI. Inflation is 10%, you can get 6%. Doesn’t take long for that to add up.

In which universe is inflation 10%?

https://www.bls.gov/regions/west/news-release/consumerpricei...

Let me restate that, if inflation was 10%, you’d only be able to increase by 6%, so you’d be losing 4% per year, which adds up quickly.

If the economy crashes is the best outcome for a large population to simultaneously become priced out of their homes? Policy has to consider its effects on society as a whole, not limit itself to one myopic viewpoint.

If the dollar gets devalued, then there is inflation, which the increase is tied to

Deregulate doesn't work when people won't sell. What do you do when highly wealthy people buy property and then never sell? You can't simply slash all of the regulations because regulations aren't the reason why they're not selling.

In fact, they're not selling because of market dynamics. Their property is becoming more valuable over time because no one else is selling, which means any property that does sell does so at an extreme premium. If you were an investor: Would you sell off your stock when your stock is performing strongly and continually growing?

Make no mistake. There is no free market happening here.

> What do you do when highly wealthy people buy property and then never sell?

Tax them. Inefficient use of land is a good sign that the property tax is too low. If the government charged a property tax rate that roughly matched the property value increase, there would be no gain just by sitting on the property. You'd have to put the land to productive use to actually make a profit.

- If the dollar gets devalued, other things will drop in price as well

- Laws can change in this case, as they have here. laws are a dynamic system

- If you are making money from rental properties only, that means you own properties (as well as your own house in theory). Not only are you more well off than almost all the population, but you have goods that are worth a lot of money that you can sell (maybe at a loss but you still have a roof over your own head).

"deregulate and let the market compete" is the right answer. It's the owners that don't allow for it.

> If the dollar gets devalued, other things will drop in price as well

When a currency is devalued, the price of things denominated in that currency increases.

> Laws can change in this case, as they have here. laws are a dynamic system

If you're going to pass a law allowing a rent increase every time the market would cause there to be a rent increase, I can suggest a much simpler alternative.

> If you are making money from rental properties only, that means you own properties (as well as your own house in theory). Not only are you more well off than almost all the population, but you have goods that are worth a lot of money that you can sell (maybe at a loss but you still have a roof over your own head).

That is not a valid assumption. Many small time landlords "own" the apartment building that they live in, but really the bank owns most of it and the rent is only enough to pay the mortgage and their own salary for managing the building. Require the rent to be capped at a level that causes the building to be worth less than the amount that you owe on the mortgage and there isn't anything for you to sell while you "still having a roof over your own head" -- you're just going to file for bankruptcy and have nothing.

> 2) "legalizing backyard cottages" is actually against Big Government, and I'm with you there.

The criticism is that big government (state level) is blocking smaller governments (cities) from making policies that fit the smaller community.

> The bill limits annual rent increases to 5 percent after inflation and offers new barriers to eviction

The limits to rent increases seem like they are enough to avoid significant short term spikes, while keeping up with market rate rents.

The biggest problem with some existing rent control (like in SF) is that the limit is so low that rents can't keep up with market rates even over decades, which is clearly terrible economic policy. Maybe this limit is high enough that this won't be as much of a problem for the rest of California.

Ah, because it worked so well in SF to ease housing prices! So why don't we expand the program?

Will never cease to amaze me just now inept politicians are.

SF's (and CA's) housing crisis has it's roots in NIMBY-ism and property tax policy. Both are intertwined and share proponents. Rent control is a bandaid, which isn't to say it's not needed as an emergency measure.

This reminds me of the approach dictators have to issues. Issue an edict or decree making the problem itself illegal. Problem solved!

Sparrows are eating a great deal of the produce grown in California, let's remove them to end food insecurity.

Exactly! The “Four Pests Campaign” (除四害) aka the Great Sparrow Campaign (打麻雀运) agree.

[1]https://en.m.wikipedia.org/wiki/Four_Pests_Campaign

This program is vastly different than the program you are criticizing, in case you actually care.

It helps avoiding having one’s rent increase insanely and having to move out.

They know exactly what they're doing. It's the constituents who are the problem.

AirBnb really changes the dynamics of rent control. If you rent to someone in a hot market, you are entering a long term agreement with less flexibility in raising the rent in accordance with market rates. In the past, when faced with rent control, the landlord had to either accept it, or let the property sit vacant.

Now, with AirBnb, landlords have a much more viable option. They can put the property on AirBnb and have the flexibility to charge what the market will bear.

I foresee that as a consequence of this law, there are going to be fewer rentals and more AirBnb properties in California.

Agreed if there were no other side effects.

However, since both NIMBY owners occupying their home and renters hate AirBnB, it's quick to imagine anti-airbnb legislation (like what SF already has) quickly passed if the tide turned.

Oh joy, politicians trying to get votes from the economically unaware. If you thought there was a housing crisis, just wait. It's going to be crazy.

Here is a different article, more tolerant of private browsing: https://www.forbes.com/sites/adammillsap/2019/09/04/more-ren...

Limiting rent increases to max 8% (what this bill encodes) is only going to affect maybe 1-3% of lease agreements annually. This isn't about vast controls of housing stock, it about limiting 20% rent spikes people experience.

At the cost of further disincentives to actually building more housing. What a great idea.

Every field of economics agrees that rent control causes harm to the people it's supposed to help.

this doesn't impact new buildings (only buildings older than 15 years old), its impact on housing creating is miniscule compared with the regulatory barriers of zoning and cost barriers of impact fees and construction costs.

The value of a new building is lower because it’s expected future value is lower.

The value of a new building (for finance purposes, IE getting a loan for construction) is based on the DFCF over the next 15 years, this is an industry standard. This rent control implementation doesn't start until the building is 15 years old, it will not impact real estate finance for new buildings.

My point is when the new building is sold after being built and rented up, it’s value to a buyer is lowered by the rent control.

In a vacuum, yes. Just as much as on paper 0.1+0.2=0.3 but in most floating point implementations it doesn’t.

In application Toronto has seen the opposite effect to what you describe. We hear this argument over and over as we just had our rent control stripped, but it’s counter to the experience.

Here’s one write-up:

https://urbantoronto.ca/news/2018/11/people-why-universal-re...

Your article says this:

> So far, empirical evidence shows that rent control has not crippled the purpose-built rental market.

But the economic concensus is exactly the opposite.

https://www.economist.com/the-economist-explains/2015/08/30/...

https://www.nytimes.com/2018/10/12/business/economy/rent-con...

https://www.businessinsider.com/does-rent-control-work-no-it...

https://www.bloomberg.com/opinion/articles/2018-01-18/yup-re...

https://www.nytimes.com/1989/05/30/opinion/how-rent-control-...

The article continues beyond that line.

They outline, with numbers, the practical effects of rent control in the sample size of metro Toronto.

I’m not an economist but I didn’t think consensus was a valid benchmark against empirical data.

Consensus are built from empirical data of more than just one metro area.

A consensus of opinion is irrelevant. And among those articles is hardly a consensus. One wants regulations limited to an extent, another wants vouchers instead of rent controls.

Those (The few of those I could actually read, thanks paywalls!) all focused on the effects on owners bringing rental units out of the market and don't really show that there was an overall decrease in the number of housing units available. The economist article for example doesn't have any real info on the effect of rent control just the fairly standard arguments about it affecting the willingness of land owners to build.

> Every field of economics agrees that rent control causes harm to the people it's supposed to help.

Is that for rent control as in New York or San Francisco, where the allowed rent increases are very small; or for rent control as in San Jose (8% until reduced to 5% in 2016) or Oregon, or maybe this bill, where the allowed rent increase is larger than most of market increases?

A limit of 5% + inflation is probably more than most markets in most years, and more importantly, is a big enough limit that most leases will be able to catch up to the market over a few years.

So, this would still distort the rental market, but in a much more limited way, that may be more likely to actually help people.

It's 5% above inflation, which would currently put it at about 6.8%.

Here's the problem: Prop 13 amended the CA constitution to prevent the state from increasing assessed property value by more than 2% a year. Landlords recognize that the real value is actually increasing faster than 2% and so increase the rent at the actual market rate. Given living costs make up the single largest force controlling cost of living, including for tax payer funded workers: police, firefighters, teachers, etc this fundamentally resulted in a massive tax cut for landlords, and more importantly businesses (who unfortunately aren't impacted by this).

The increasing disparity between taxed value and real value results in all tax payers having to pay increased income tax, which is then directed largely to landlords who aren't contributing their fair share - their properties are benefiting from services that they aren't paying for.

So tax-control bad, rent-control good? Owners’ properties benefiting from services that they aren’t paying for also bad? Renters benefiting from services they aren’t paying for doubleplus good?

Renters are paying for services though - that’s part of what the rent they are paying to their landlord is for. But landlords currently aren’t paying that so the burden has been shifted to tenants income. So tenants are currently having to pay market rates for rent, and increased income tax to subsidize their landlord.

> I am Senior Fellow, Economic Opportunity at the Charles Koch Institute. My research focuses on cities, urban development, population trends, labor markets, and federal and local urban public policy.

Great source there! No agenda at all.

Prop 13 but for renters now too!

I wonder if this was pushed by landlords. It's easier to push a 5% hike in rent every year than random 10-20% hikes. Especially in a nearly tapped out market. The prices are already astronomical and the home prices are fluctuating/faltering. In 10 years, the rent will be 63% higher. And that's after inflation. Your $3,000 1-bedroom will be nearly $4900 after 10 years. Unbelievable. Will FAANG prop up landlords by adding 5-10% TC increases every year? Startups certainly won't. They stopped increasing comp a few years ago.

I wonder if they put in measures to make permitting easier for builders so we can actually get more housing built?

I guess we’ll find out in some years whether rent control entices builders to build more or if it will depress the market for building (as it usually does) such that at some point we see people (families) bunking together ala Soviet housing solutions to demand.

I know people doing that in Berkeley already.

Berkeley and Oakland are two places that have outrageous transfer taxes when you buy/sell your house. Its 15x what it is in most other cities in California. Basically more impediment to owning a home.

1.5% is definitely high, but I have a difficult time believing that it's a larger impediment to owning than the generally high price of property due to lack of supply.

Its a lot to come up with with when you are struggling for a downpayment on your first house.

It is a lot in some ways (it’s a remodel, or repair, etc.) but you’re not going to buy your fist home in Berkeley if you’re working with a tight budget. People are paying cash in some instances.

I’m sorry, I think it’s pretty odd when you can’t set the price for your property being leased.

If you like better rates, negotiate, fix zoning, or buy. If you can’t do any of those, you should leave. The rest of the country is really not that bad.

California already has a net outflow of people, especially middle class. This is offset by immigration and undocumented migration from Mexico so that the state's population actually continues to grow. But most of the newcomers are not affluent, will almost certainly rent rather than own, and tend to live together in large family groups like 10 people in one apartment. This is going to keep putting pressure on the housing market -- people need a place to live, they can't afford to buy, so the powers that be, in their wisdom, decided to just legislate limits to the price, hoping no one would notice all the unintended consequences that will definitely happen.

You hear that? That's the sound of my home rising in value as supply to compete against it is reduced. Very cool CA!

Hear this? These are the tenants that would have had to move out because they made the mistake of not moving in a rent-controlled place.

It doesn't help the housing crisis when the core problem is severe lack of inventory. It will help politically though since this helps seniors, the most reliable voting bloc. Pricing controls will just make it worse for everyone else, especially younger generations and families.

Meanwhile in the booming Seattle: https://www.seattletimes.com/business/real-estate/amid-build...

> “I’ve been renting in Seattle since 2014, and this is the first time where I felt like I have negotiating power,” said Kjerstin Wood, who went apartment hunting with her partner last weekend and got bombarded with offers like free parking that she plans to use to play landlords off one another. “For the most part, everyone we’ve met with has been very eager to get us to apply right then and there.”

> The trend is likely to continue: The apartment-construction surge that began earlier this decade is continuing at the same brisk pace, outpacing demand for rentals even as the city’s population booms.

And a 2017(!) article talking about vacancy rate in Downtown LA that has seen a huge building boom (no not nearly enough to really depress prices, but enough to stave off the meteoric rise): https://www.scpr.org/news/2017/09/15/75615/in-high-vacancy-d...

The Bay Area desperately needs ~6-story units in every urban area and near every public transit stop.

Along with 6 story units, we need better commute. The challenge is that the developers and cities lie and say hey we can add housing but we do not need to improve roads, and even if we improve roads, we will improve it just a tiny bit.

Please travel from Sunnyvale Saratoga starting at 101 at the north end to 85/DeAnza at the south end at 5-6 PM every day and see how long it takes to travel 6 miles. Unless you live here and know it already, you will be surprised.

But when it comes to selling housing, the developers, one example being of the vallco mall owner, somehow gets their way without any indication that their project will benefit the city, and thus rightly gets overturned at the ballot. [ And this is from someone (me) who failed to buy a house in Cupertino and now lives elsewhere.]

Anyways the way to build 6 story buildings can not be by making the living worse for everyone who already lives there. Much worse.

Just curious how the success of such a measure might be evaluated? Or is this pure theatre?

"... there could be a big effect in rapidly gentrifying neighborhoods like Boyle Heights in Los Angeles, where typical rents on apartments not covered by the city’s rent regulations have jumped more than 40 percent since 2016."

A deceleration in rental inflation in neighborhoods such as the above? A reduction in newly homeless populations?

So are you willing to accept that if none of these things happen, and the homeless problems increase, that this measure failed and should be repealed?

It's one thing to describe a proposal's political motivations, but quite another to actually declare that you might be wrong in your approach and are willing to define object criteria for success.

Regarding SF house prices in particular:

San Francisco prices go up => only tech bros can afford rent

San Francisco rent prices get capped => tech bros still need place to live and win rental application lotto

Artists can't afford rent, but want to live in city full of tech bros and glass condos?

It doesn't make a lot of sense to me why you'd want to stay in SF if you're genuinely an artist. Is it a romanticization of the city's past rather than the reality of the present - a stark line between rich and poor with tent cities all around? An elementary school system not friendly to families making community ties (random geographic assignment)?

SF doesn't have a thriving liberal arts school - the art academy is a profit pit meant to create student debt. Aren't places like Berkeley, Pacifica, and Santa Cruz much more attractive locations? Even farther south like San Luis Obispo?

Lastly I am just going to ask this more fundamental question: should anyone be allowed to live anywhere they want, and is that the right people are striving for? Or is it simply they should be able to stay in the place they are once they're able to `get int`?

Vote pro housing centrist fiscally right republicans , we need a more diverse ca congress

"As in previous polling, the law [to dramatically increase the housing supply] is more popular with Democrats than with Republicans, with 76 and 55 percent support respectively."

https://sf.curbed.com/2019/5/17/18629809/sb-50-housing-trans...

Yeah, thats why we're seeing oodles of houses now that the Democrats practically control all of california. Are you trying to argue that the current one party rule is a good thing?

I didn't say that. But the fewer Republicans there are in Sacramento, the better the chances of SB-50 (or something like it) getting passed.

Ummmm...you do realize the Dems hold supermajorities in both houses right? Do republicans have psychic powers they're using to control the Dems now?

A single state senator (one of the few Democrats who opposes SB-50) blocked the bill from being voted on.

The supermajority was irrelevant.

So you blame republicans and want even more Democratic control of the Legislature than they already have.

When did I blame Republicans?

You having problems reading your past posts? You just basically said evil Republicans are blocking common sense housing solutions and indicated the solution is an even greater proportion of Democrats but then said that a Democrat blocked it and their numbers don't matter.

Could you quote the part where I said Republicans were blocking things?

"The fewer Republicans" et al

> For a quarter-century, California law has sharply curbed the ability of localities to impose rent control. Now, the state itself has taken that step.

Yep. Because communities shouldn’t be able to decide for themselves. Make it a state law. I’m just glad that (for now) these central planners are limited to a state economy and are not in Washington.

Great news for property owners in CA. Studies show over and over rent control legislation further restricts supply[1], so the existing housing will become even more valuable!

1. https://web.stanford.edu/~diamondr/DMQ.pdf

Before anyone gets too excited, the cap is apparently 5% plus inflation per year [1] which seems pretty mild? (For comparison, Oregon's rent control is at 7% plus inflation, and San Francisco varies but is below 3% [2].)

[1] https://la.curbed.com/2019/9/10/20857225/california-rent-con... [2] https://sfrb.org/topic-no-051-years-annual-allowable-increas...

San Francisco is 60% of inflation, which is the cause of all the problems. It's not even in the same league.

> California lawmakers approved a statewide rent cap on Wednesday covering millions of tenants, the biggest step yet in a surge of initiatives to address an affordable-housing crunch nationwide.

As though California is at all symptomatic of the problem of providing affordable housing in the rest of the nation. They might as well say it's the biggest step taken in an affordable-housing crunch globally.

A whole article about California's housing problem without a single mention of Prop 13, though? That's some impressive willful ignorance.

> A whole article about California's housing problem without a single mention of Prop 13, though?

It's insane how many of these there are. I even know someone who recently bought a townhouse who didn't even know what prop 13 was.

One thing that tends to be excluded in most analysis of rent control is the preference of landlords to operate fewer, more expensive units. When you have more units, you have more to keep track of - more tenants, more staff, more maintenance. A high-end luxury unit and a dirty fleabag mostly differ in some move-in amenities and services; rich tenants might demand more, but they don't trash the place faster. So every unit tends to be luxury by default since that's where the upside is.

If your rent increase gets capped by rent control, your ability to stay at a limited scale of operation and just add to the price gets squeezed, and that motivates making more capital investments in property(and specifically in vertical upgrades, since horizontal expansion puts them in a land bidding war). It hits investment properties run by large companies the most, and challenges them to use land more effectively to stay competitive, in the same way that higher minimum wage challenges companies to use labor more effectively.

However, we still need an SB50 or successor bill to deal with the build restrictions. The landlords and developers can demand building big(and they do already in many cases) but they're held back by zoning laws put in place by NIMBY residents. The trick is that instituting rent control does something change the outlook of the NIMBYs too, since their property value has a relationship to the value of rentals. Rental rates and turnover slow down = property values slow down = their house becomes less of an investment.

So it's a good first step either way.

This is interesting as Berlin, Germany is also set to pass a five-year rent freeze to address tenant concerns and rising gentrification. I always attributed to the fact that Berlin for some years has had a pretty left-leaning state/city government and the fact that Europeans are more willing to try things like this. As an American living here, I never thought I'd see such a large scale action back in the States. Is it now 'global' zeitgeist at this point to make moves like this?

For those living in SF, this significantly expands the number of eligible apartments for rent control. Right now only multi-unit homes/apartment complexes built before June 1979 have rent control. Now everything (except single family homes/owner occupied duplexes) built within last 15 years on rolling basis is eligible.

Given how slowly SF builds housing, the fact that anything built 2004 and earlier is eligible basically means almost everything except new high rises.

This is only going to make the housing problem worse. They need to remove all the onerous zoning laws and restrictions of building taller buildings. It’s a supply problem.

Rent control causes housing shortages.

It limits the price of housing to an arbitrary price which is below the demand price of housing.

It fails to communicate the housing shortage with higher prices, and therefore it does not incentivize the building of additional housing to relieve the shortage.

Nor does it incentivize the finding of lower-cost alternatives, because all prices are capped at the limit, and so there is no information communicated about their relative differences.

We absolutely need more ways to buy a house without all the rigamarole that causes a buyer to sell at 20% more a year later. Banks and real estate agents already force most people into selling at much higher. What if there was a special kind of property that's good at in-and-out ownership, low friction moves like rentals. Get rid of the bank and agent fees. Build it into the lien.

Startup idea anyone. The demand would be high.

And of course there are exemptions for mom & pop landlords in the law.

This is why I'd rather do business with big megacorps than with small businesses; mom & pops are straight-up allowed to hurt their customers and their employees in ways megacorps aren't legally allowed to. See also: exemptions mom & pops have from mandatory sick leave laws, anti-discrimination laws, mandatory health insurance, etc.

Ok, now there should be very little reason or objection from tenants rights folks not to pass SB-50 next session to make it easier to build density near transit. https://leginfo.legislature.ca.gov/faces/billTextClient.xhtm...

> “The housing crisis is reaching every corner of America, where you’re seeing high home prices, high rents, evictions and homelessness that we’re all struggling to grapple with,” said Assemblyman David Chiu, a San Francisco Democrat who was the bill’s author.

If your new law is such a good idea, why do you have to lie so blatantly to promote it?

In Paris, FR, rent control was approved a few years ago. The problem is that there is no incentives for landlords to update their apartments and to maintain them clean and good looking.

Before, a pretty apartment was typically more expensive than a similar apartment (same size, same zone) which was ugly and Now, it’s same price.

Aren’t the effects of rent control well-studied and well-understood phenomena at this point? Won’t this cause the rental market to become effectively deadlocked? i.e. people staying put for very long amounts of time due to not wanting to lose their low rents, landlords refusing to maintain their properties due to lack of incentives, inefficient allocation of rental properties (one person living in a 2 bedroom merely because the rent is low), and so on?

This seems like a bad solution to a problem (housing shortage @ current market prices) with an obvious solution (allow more housing to be built).

It’s almost like the politicians pushing for this policy don’t value the input of experts and the application of research, but instead are only interested in solutions that sound good at the most superficial level. Golly!

Can someone explain how rent control works? It seems like it only benefits long-lived tenants. In the Bay Area, every apartment I’ve signed with advertises a “1 month off” deal or some equivalent. That guarantees them the option of at least a 9% increase in rent the second year.

I genuinely don't understand folks reaction to Rent Control bills like this or the one recently passed in New York.

Don't you think that policymakers KNOW that the best way out of a housing crisis is to build your way out? California has put out bills in recent years to try to remedy this (ie. the bill that would require housing near transit lines) that FAILED, breaking down all the local neighborhood associations and powerful interests is not something that can be done in a single legislative cycle.

Rent control is about making it easier for everyday folks to survive day to day, its not meant to be a permanent solution, and if in 20 years this bill is still needed it won't be for lack of effort, it will because the NIMBYs were able to win out.

I live in Sweden, which is heavily rent controlled. Let me just say that this hasn't worked out. Rental apartment contracts in larger cities gets sold on the black market for larger sums.

Queues are over 10 years in many cities and there is no real way of getting a rental apartment in any larger city. This means people are pushed into buying a housing apartment which cost a lot of money and drives up prices a lot.

It's not viable or logical that an apartment in central Stockholm should cost as much as an apartment in a small village in northen Sweden.

Norway, Finland and Denmark all have more free market and it's much easier to find a rental in all those countries. I would advice against having rent control.

Instead of controls like this, increase housing supply and let the market drive down rent and house prices. If they do that, maybe the renters won't have to rent anymore.

The landlord's would be much more afraid of this kind of market based solution.

The only way to drive down rents AS A WHOLE is to increase the supply of housing.

Any legislation that makes renting less profitable will make BUILDING RENTAL PROPERTY less profitable.

This sort of thing, on the whole, makes rents increase by decreasing housing supply.

What hope do we have for self governance when the poster child of bad economic regulations, universally derided for having the opposite effect for which it intends, can still be implemented? Are governments incapable of learning? Are we doomed never to make any political progress on policies that are counter-intuitive, even when there is overwhelming agreement and empirical evidence of its harm? This makes me cynical of climate change. Even if we do achieve a carbon-neutral lifestyle, who's to say the next generation of politicians won't make the same arguments being made today against stopping climate change?

Has anyone done an analysis to see what fraction of the wealth generated by silicon valley ends up in the hands of people who happened to own land there? If normal houses cost millions of dollars, I could see it being a sizable fraction.

I think the pricing mechanism plays a useful role in encouraging people with valuable land to give it to others who will use it more productively. At the same time, I think there's a risk that people who just own land could capture an unreasonable fraction of the generated wealth.

Would it really be right for San Francisco homeowners to capture over 50% of the wealth from Silicon Valley's success?

Well, more bad and broken policy coming out of the state that has a long history of borking its housing policy.

This does nothing to fix the problem. They need to build more housing. A lot more housing.

But, no, we can't do that. That makes too much sense or something.

For people looking for solutions, here is a link to a supposedly suppressed Housing Development Toolkit put out by the White House in 2016:

https://www.whitehouse.gov/sites/whitehouse.gov/files/images...

I have owned income property in San Diego for over thirty years, so I have a direct interest in this.

After looking at the details, this law looks OK for the present but if we enter a period of hyper inflation then it is not so good. The 5% plus inflation might not be enough since the government jumps through hoops to underestimate the rate of inflation. If we have 75% inflation and the government admits to only 20% inflation (for a hypothetical argument), then landlords will be damaged financially. I believe that sometime the government will inflate its way out of debt.

The perfect way to do it would be to only match the rent increase by the property tax increase. If the landlord isn't getting any increase on property taxes then it's fair for the tenant to not get any rent increase.

It's 5% rent increase, not the 1-2% seen in SF and NYC. Properties don't typically increase in rent that much. This isn't likely to lead to the absurd $1000 studio apartments in Manhattan.

California hurt itself in confusion

Rent control benefits no one, nor the landlord and certainly not the tenant. However, it is a classic "virtue signaling" used by politicians to advance their career. This is no exception.

Rent control benefits current residents and communities from being disrupted by real estate pricing.

Now that I think of it, I wonder why the larger employers in the South Bay don't build dormitories. Given a strong tendency to hire people fresh out of school (or nearly so), I would think that a great big dormitory on the company campus might be just the thing. It removes housing as an issue for a new hire, ties them more closely to the company (quit, you have to find an apartment), and they can spend their evenings shooting Nerf darts and shopping at the GoogleGrocery and the GoogleCoffeeShop.

I think Henry George's Land Value Tax is a great solution that can really help us avoid a situation similar to what occurred during Mao Tse Tsungs revolution.

People will cry foul this will drive costs up in the long term. But we are far removed from free market economics since cities have put restrictions in building new housing thus keeping real estate prices artficially high. Now the state puts rent cost restrictions that will drive the prices of real estate down. Rent control seems to be used as a means to an end rather than a goal on itself because politics.

I've just read through this law, and I think there might be some problems with it.

My uncle has just been evicted so that the owner can fix the place up and raise the rent. Under this law, that would be illegal, but this protection only comes into effect starting January first.

I expect to see thousands of similar last-minute evictions as anyone contemplating this course of action tries to get their tenant out before the end of the year.

Rent controls are either toothless or only help standing tenants.

Indeed, they work against supply while increasing demand. This does not help people looking for a home.

> Economists from both the left and the right have a well-established aversion to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing.

Nonetheless while it doesn't fix the underlying economics, I can see how it could be good to have a damper on the volatility of real estate prices, so that prices swing over the course of many years rather than violently.

The only solution to higher rent is to build more, a LOT more, housing.

The rest of this is just distortion on the economy that will lead to all sorts of bad outcomes

We're already at unsustainable YoY rent increase levels in many places IMO. I for one have no problems moving if my LL decides to increase my rent ANY percentage. I know that over the course of my next lease I will always be able to come out ahead by hundreds if not thousands of dollars for the same price I'm currently paying and for sometimes better place.

Hello, 11 month leases!

“Notwithstanding any other law, an after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property, in which the tenant has occupied the residential real property for 12 months or more, with or without a written lease, property shall not terminate the lease tenancy without just cause”

Governments respond to complaints from the masses.

From what I've heard, rent in a lot of Californian cities is extremely expensive, so I assume people are complaining about the price of their rent... probably statewide to some extent.

Hence the new bill. It's just a reaction to a temporary problem.

Which will probably stay in place long past the problem is solved!

It's still allowed to grow much faster than taxes under prop 13, which is rent-control to benefit property owners.

So yet another thing -- along with Prop. 13 and the cost of housing, which is partly the result of Prop. 13 -- that helps people who are already here, at the expense of newcomers. I suppose you could argue that that's appropriate, but it seems short-sighted to me. I'd rather see us build a lot more housing.

This will encourage landlords to tear down existing properties rather than renovate them, as well as to not maintain them well.

Rental housing quality will bifurcate further, with poor and lower middle class people living in worse housing.

This is bad policy. It's not replicating the absolutely insane policies of SF, but it's still bad.

In Oregon rent control was applied in a very targeted way to encourage new building such as exemption for the first fifteen years after a building is constructed and rezoning of a massive number of lots to allow multi tenet housing.

Did the California laws include anything to encourage additional housing to be built?

AB 1482 also only applies to properties over 15 years old.

This is nuts. In Iowa this might be unconstitutional as the government is prevented from rewriting contracts.

http://archive.is/5jIXP

Do statewide rules even make sense, in such a large state as California? The housing markets in the rural east and north surely are not identical to the housing market in the Bay area, San Diego, and LA. Even Sacramento's rentals are an average $1000 cheaper than the SF area.

Most new (first time tenants) will get a cliff rent with next few years of upside factored in. But this will benefit existing tenants. I still think right law to change would be to allow high rises and right government intervention would be to create large scale new units

Text of the bill here: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtm...

This allows for time to adjust (move) which is good. It doesn’t allow the person serving the espresso to the lawyer to live next door to the lawyer. That may or may not be an ideological goal, but this doesn’t address that.

Between this and prop 13 it might be easier to just build a wall around the state.

When rents are high we should incentivize development of more housing stock. Increase supply until the market finds balance with the demand. Rent control has the opposite effect. It’s a disincentive to new development.

I wonder how much someone would charge for insurance to cover the difference between 5%+inflation and market rate?

It's effectively a option on future rent prices... it shouldn't be particularly hard to value numerically.

What is the historical rate of yearly rent price increase in the bay area?

> The housing crisis is reaching every corner of America, where you’re seeing high home prices, high rents, evictions and homelessness that we’re all struggling to grapple with,” said Assemblyman David Chiu

Chiu is being misleading, to put it mildly.

The median home value in Texas is under $200,000; in Dallas it's only $213,000. In Florida it's $235,000; in Tampa it's $219,000. In Illinois it's $182,000; in Chicago it's $226,000. In Pennsylvania it's $174,000; in Pittsburgh it's $146,000. In Ohio it's $140,000; in Cincinnati it's $144,000. And so on. So much for every corner of America.

In California it's $548,000; in San Francisco it's $1.3 million. California's housing problems are in fact not a national problem.

So every landlord will now raise 5% annually even if they hadn’t in the last. That’s often the effect of governments regulating increases, from what I have seen of stage utility regulation.

I recently bought a house in CA. Knowing this legislation was pending I didn’t get roommates. I’d rather AirBnB than be forced into rent control. That’s now two rooms off the market.

Did you buy a single-family home? The bill exempts single-family homes.

Things like this can make sense in the short term, but there needs to be sunset provisions to force a long term solution. I'm not really sure what that would look like though.

This move is already proving pretty awesome for homebuyers like me as more builders seem to be focusing on "build and sell" not instead of "build and rent out".

I thought california was trying to reduce its homeless population?

They could just build/provide new housing for everyone and everything would be at normal rates... But if you don't allow, then the prices go up...

This is not "approve by California" yet.

It passed in the assembly, but must also pass in the senate and be signed by the governor before it actually is law!

Just great news. Landlords would also raise rents to kick people out they didn't like. Then reduce the rent back with the new tenants.

So if a new apartment comes on the market in SF (never gonna happen, I know) what rental rates can they start with? Whatever they want?

This is a really difficult-to-solve problem. I never found a city with good prices for housing (compared to the local average salary).

Won't this slow down gentrification of a neighborhood? There's neighborhoods in most cities that 10 years ago were 'the bad neighborhood' that have become walkable and popular again.

It's hardly unfeasible for the bid area to have a rent of <$500, but after gentrification could easily pull $1500. At a 5% cap a year, it would take considerably longer to reach this price, which will likely slowly down the conversion of these areas, as the demographics would change much more slowly.

How does this work? Can't the landlord just refuse to renew the lease, and then lease it out to someone else with a higher rent?

Turning over the leaseholder has a cost all by itself. But more importantly, there is also the reputation damage you'd sustain by doing this. Consider, any perspective leaseholder who googles the property could find that out that you're kicking out the tenant to increase the rent. That would drastically reduce the potential demand from people looking for the security of a long-term occupancy. So, yes, it might be possible for a landlord to do that. But if he does it twice, he will earn a reputation and only attract short-term tenants. This means, it is an option only for the most short-sighted and stupid landlords.

Rent control benefits renters in the short term who don’t want or don’t need to move. However, property owners can’t price rents according to market conditions. This suddenly lowers the value of rental property and will mean that there is less incentive to build new rental property or maintain or improve existing rental property.

Where else is it being done? Is it a success in these places? There must be some places it is viewed as working or why else would California do this.

Can anyone point to a place (city, state, country) where homelessness and housing supply were positively impacted by rent control?

Any rent control is a distortion that should not be done. Open up property rights and get more high-density housing built. Done.

I'd be down if rich yuppies like me got not rent control, but a retiree got all the protections. Where do we draw the line?

I agree that at this point rent control is a good option. Housing prices are going up so fast that rents need to go up too. The higher rents then give an incentive for house prices to go up. It becomes a cycle for both to increase. But rent control by itself is not enough. The other leg of the solution is to increase housing via governmental incentives. Otherwise, rent control will make the situation worse since there is no incentive to increase housing.

The problem is that increasing rent has no restraint in CA.

When a landlord increases rent by X% they are saying that the value of the property has increased by X%. Unfortunately businesses and landlords got together to push (and pass) prop 13 which amended the CA constitution to prevent assessed property value from increasing at more than 2% per year.

That means any time a landlord increases rent by more than 2% they are benefiting from incorrect taxable valuation. Because property taxes cover the infrastructure that supports homes + buildings (the roads, police, firefighters, teachers, etc) they are directly offloading the costs of those services onto people who don't own property: The people who don't own property then have to (in addition to insane rent increases) pay higher income taxes, in order to support those services the are functionally there to benefit the undertaxed properties.

The cost of being a landlord is much more than just property taxes.

Another unintended consequence is likely to be a degradation in the average quality of the housing stock. Everything gets old and needs to be replaced / upgraded. With limited ability to pass on the cost of improvements, and less mobility for tenants, the best strategy for owners is to extract value from the property by neglecting repairs. The annual rent increase can be pegged at maximum, while the building itself moves "down market".

Well, looks like I will be forced to increase the rent next year to a maximum so I can decrease long term risk.

In the past 5 years in Bay Area. My rent has been increasing by 9-10% every year, so I welcome this law.

As a Marylander, I’m okay with this. Let California destroy itself. Better for the rest of us.

An allowable increase of 5% per year plus inflation that expires after 10 years and exempts single-family homes and new construction isn't going to destroy anything. That amount is in line with the amount market rate rents have been rising on their own. We're not talking San Francisco rent control here.

The problem is we need new housing units and the local governments usually make the construction process so difficult that it's becoming increasingly unprofitable unless you are a very large corporation. This makes it even more difficult, especially in the multifamily space.

California is certainly coming out with a bevy of terrible legislation recently. This particular one should be entitled "The Disincentive to Produce and Maintain a Healthy Stock of Rental Housing Act".

Well there goes the state. These people have no clue how to manage a state. This will ruin what's left of the housing market and make the state completely unlivable.

What has changed in the new state laws?

It is fun watching the Democrats running California to self pwn themselves over and over with idiotic legislation like this.

It’s about time. Landlords have been exploiting tenants in California (and across the US) for far too long.

The only positive about this (counter intuitively) is that it will show that rent control does not work

Supply and demand

Really cool

The real solution is to decommodify housing.

>The landlords, like all other men, love to reap where they never sowed, and demand a rent even for the natural produce of the earth.

-Adam Smith

>decommodify housing

genuinely curious what would that entail, in practical steps

My guess is to implement a higher tax on properties where the owner does not live on the property, or put a limit on how many rental units a landlord can own. Something like that could dis-incentivize large tracts of rental properties.

How does that create an abundance of housing?

Look into the history and development of Vienna’s social housing system as a start. 62% of people live in housing under this scheme:

https://m.huffpost.com/us/entry/us_5b4e0b12e4b0b15aba88c7b0

Increased land or property taxes (while eliminating income taxes) might help.

Make it undesirable to sit on large amounts or expensive property, reduce the propensity to resell for gain and put a stop the home ownership casino which in some ways looks like bitcoin speculation over the past two decades.

Give credit for primary residence (and or legit Ag or industrial use, but maybe collecting land taxes from industry is preferable to capital gains even.).

After these deductions tax like crazy for the privilege of squatting on what I think truly is, by nature, communal social property (land). That should dampen down the speculation and return prices to earth while encouraging primary single residence ownership.

Oh, and stop inflating financial bubbles that distort the price of a basic human need. For starters.

This may not change the argument, but he was referring to the landed gentry who owned farmland rather than people who build and maintain buildings.

It doesn’t. The landlord captures increases in value from things like better public infrastructure or outside economic development in the same fashion. Tech workers in San Francisco, for example, have created massive amounts of wealth and value in the city, much of which has then been sucked up by landlords and developers who provide nothing even remotely comparable. They just profit from owning something other people do work in and build on top of.

I think it does change it somewhat though. For example Tokyo has seen a growth in population but no increase in rent. The zoning there allows construction whereas bay area zoning does not.

If car production was outlawed existing car owners would get a windfall. But that's not due to some intrinsic feature of being a car owner. Land is definitely more limited than cars. But it seems to me that land scarcity explains only a portion of the increase in prices in San Francisco.

This article has more on tokyo housing starts relative to sf and nyc: https://www.google.com/amp/s/www.wsj.com/amp/articles/what-h...

The difference from ag land is that the builders in tokyo are doing real activity to provide the housing. Lots of businesses benefit from externalities, not just landlords.

> They just profit from owning something other people do work and build on top of.

The same way people who own shares in a company that pays dividends profit from work other people do. Those landlords either built the apartment buildings themselves, or spent the capital investment to buy the building from a previous owner.

(to your comment below, HN isn't letting me respond)

So in the end, this isn't about the business model of landlords this is about fundamentally different views on the legitimacy of private property. That's a topic much broader than rent and real estate.

I agree! That money should all be going back to the workers instead too ;)

The citizens of San Francisco have basically given the landlords a monopoly but not approving higher density zoning.

Only 43% of SF residents are homeowners, and many fewer are landlords, yet it is very rare for rezoning or higher density legislation to get passed. There are plenty of developers that want to develop in SF and create some competition for the existing landlords, forcing everyone to offer better services. Instead, we get laws like statewide rent control which reduce the potential long term value of new development, further reducing both supply and competition.

Companies capture external value all the time, that isn't the core problem. Improved infrastructure and more wealth in a city would normally attract more competition reducing the total amount of that value that each landlord could capture.

Should it not be the other way around, turn housing into more of a commodity? We have no shortage of most commodities, for example foods, because typically the higher the demand for the commodities, the more is made. Those markets benefit from things like economy of scale. Housing seems to be the opposite right now, there's very high demand and yet development is not able to keep pace due to artificial restrictions like zoning and height limits.

Housing is limited by sustainability in ways most commodities are externalized.

Here are all the reasons you can't buy a commoditized "cheaply made" house in Nowhere Minnesota:

A. There is finite land in the world. Burying it in sprawl housing is an American tradition that has wrought disastrous environmental, health, time consuming, wasteful, and systemic consequences across the nation. B. Housing does not exist in a vacuum, not in a way close to what true commodities - things you buy off a shelf for a purpose but otherwise are non-interactive - operate. Housing requires infrastructure in myriad forms from electrical to transit. These structural requirements are systematized and cannot be commoditized meaningfully and thus housing itself is limited by them. C. Housing is limited by your means to sustain it. This means you need a job, and work is going in the opposite direction of commoditization because any repetitious work is being automated. The availability of meaningful employment is shrinking and thus the viable domains of legitimate housing likewise shrink, which is why the flood to California is a thing, why there is so much demand for density, and why a half century of gentrified urban planning has ruined the states housing market. D. Housing is already commoditized. You can buy a manufactured house made at scale for an inflation adjusted cost half of what manually built houses were costing a century ago with more square footage, modern amenities, and the ability to have it installed on a lot over a weekend. If you price out the physical goods cost of manufacturing some of the highest density vertical condo buildings in the world the per-square footage of livable space costs are often below stick built houses. The limiting factor is land - so back to A through C, thats the limiter.

The construction of buildings should be done in a free market that invites competition of builders but with the regulation to recognize those purchasing said structures are rarely educated on quality or safe construction. The distribution of land needs to be radically rethought because the established paradigm of treating it like a segregated consumer good is bankrupting the working class as the aristocracy pours money into property as their Scrooge McDuck money pit of choice.

The quote refers to the land itself, not to the structures built on it. In other words, it is an argument for a land tax, not for the confiscation of buildings.

I don't understand how that's possible. Housing is a good/service, how can that be decommodified?

Social housing exists in many forms across the developed world. As I commented up-thread, look into its history in places like Vienna.

Social housing just manifests the imbalance in waiting lists instead of prices. It's not like people who get stuck in the queue are having a better time than people who can't afford the market rate.

Building more housing in desirable places to accomodate shifting demand and growing population is just as important under social housing, but even less likely, since the demand is totally disconnected from the incentives and capital required to do it.

>Social housing just manifests the imbalance in waiting lists instead of prices. It's not like people who get stuck in the queue are having a better time than people who can't afford the market rate.

This is under the assumption that demand often outstrips supply. That's actually less likely to be true with an effective social housing policy in place.

>Building more housing in desirable places to accomodate shifting demand and growing population is just as important under social housing, but even less likely, since the demand is totally disconnected from the incentives and capital required to do it.

Lol. And you think a "free" market will improve the connection between demand and the incentives required to do it? Far from it. With a social housing policy, at least more housing will be built, because it's part of the plan.

Here's another place where a social housing policy has worked very well:

https://en.wikipedia.org/wiki/Public_housing_in_Singapore

Structurally, Singapore has a Georgist tax policy (it's effectively a tax haven where the majority of the population pay no income tax) that funds a very active building program. So no, the demand is actually more connected to the incentives and capital required to do it than under a so-called "free" market.

We already have planning around how much housing should be built in popular cities; the plan is "as little as possible." The same stakeholders are not going to suddenly be okay with shadows, traffic and parking impacts, changes to neighborhood character, etc. because they come from a social housing agency. You still have to fight that fight.

If San Francisco's incumbents were okay with their city looking like Singapore, we wouldn't be having this conversation.

What we really need to do is make owning a house more affordable. People buying up rental properties is a bane on the housing market and human existence in general.

Wow. State takeover of everything. Downright scary

I’m surprised to read negative opinions about rent control. The alternative to rent control is having one’s rent double next week. I’m amazed that rent control was not a thing!

Most rent control implementations are far too restrictive and create severe market distortions that can last generations. This one, thankfully, is not, and the allowable increases mean units are unlikely to get too far out of whack with market rates.

The market's too high, lets implement market controls to keep prices at the market.

Sorry if this comes off snarky but perhaps others posting here can see past next week. All too often these quick fix Band-Aids end up causing more problems in the long run while also spreading the problem far beyond where it had previously been contained.

Sure. In the mean time I’m not renting your place if it doesn’t have rent control. And anybody who does is insane.

Market solutions in action in these last 2 posts!

The market solution is rent control + more housing. We got one.

Except rent control means less housing!

Source?

I think that artificially decreasing the price of a good/service through regulation decreases the incentive to produce more of the good/service.

The solution to the housing crises is to build more housing. This discourages building more housing.

Why? In both cases there should be more housing. If rent control is a thing, now you have more rich people who can’t find a place and are willing to put money in building new housing.

If there was abundant supply, you could tell a landlord doubling your rent above current market rate to go pound sand. Rent control restricts supply.

HN: According to the simple laws of supply and demand, housing prices would go down if we just increased supply to meet demand.

Also HN: These rent controls are just going to make the housing problem in this state even worse.

I don't get it. If the situation were really as simple as the first statement implies, then if this particular law was really going to have a catastrophic effect on housing, that would just mean people would leave and demand would go down and prices would fall, right?

Is it possible that California's housing problems are maybe a little more complex than a few out-of-context pull-quotes from Wealth of Nations would suggest?

Rent control decreases the supply of housing

This phrase is repeated frequently throughout these comments but never with an explanation. I think the opposite of that phrase is true; that in these circumstances, rent control is part of what will enable an increase in the supply of housing.

The inequality gap must be lessened for there to be sustainable growth in the housing construction market; this rent control is part of that.

Rent control decreases the liquidity of the rental market because anyone currently renting is strongly incentivized to stay put in order to keep their low rate.

I still don't understand this. Most people are motivated by a lot more than the desire to pay less rent. Jobs change, people move, they go upward in their careers, etc.

Is there any evidence to suggest that rent prices are actually "strong incentives" to not move? I think this isn't true.

I think people are much more motivated by their social circles, their job prospects, upward social mobility by working hard, or starting a business, etc. There are so many factors that go into choosing where to live that I find it difficult to believe that simple rent control like this would "strongly incentivize" people at large to not move. Especially in California.

Anecdotally, I have voluntarily left 5+ rent-controlled apartments without even a thought to them being rent controlled and my next place being unknown. It simply has not mattered, because the amount saved by rent is often far less important than the other aspects of life.

Your experience may be exceptional. When money is tight, people make what can send to be strange decisions.

Also anecdotally, I don’t know anyone in SF living in a tent controlled apartment whose name is actually on the lease, they’re all illegally subletting from the actual named tenant to keep the rate locked in.

> because anyone currently renting

Not everyone who is renting has tight money situation. Your complement states that everyone who is renting will have a tight money situation and then follow the 'strong incentives' that you have prescribed to them without knowing who they are.

You don't know what incentivizes those people. It sure as heck isn't primarily saving on rent, especially in SF.

> Also anecdotally, I don’t know anyone in SF living in a tent controlled apartment whose name is actually on the lease, they’re all illegally subletting from the actual named tenant to keep the rate locked in.

Well that seems like an entirely separate issue. Go after the people doing illegal things that are hurting your rental market. Stop that activity from happening if it's illegal, don't use some existent, illegal activity to then set into stone why passing new laws is bad. That doesn't make any sense.

The NYT article we're all commenting on explains: "Studies in San Francisco and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes."

There's a literature on this; there's no need to speculate.

Another thing worth checking is the IGM Economic Experts Panel, which covered rent control in 2012: http://www.igmchicago.org/surveys/rent-control

I think you're intentionally misrepresenting the opposing viewpoint. If rent control artificially reduces the price of housing, more people will want to live in CA. Less houses will be built, as less profit is being made. Therefore, prices will be lower for those already housed, yet more people will be unable to purchase a home.

Of course the million dollar question is how many less units will be built if they're less profitable, and how many people will be enticed to move or stay in CA because of rent controls.

> If rent control artificially reduces the price of housing, more people will want to live in CA.

There were two other comments in this same subthread pointing out that people are in fact moving out of California. (One of them has been deleted.)

It's almost as if f(california_net_migration) is multivariate.

> Less houses will be built, as less profit is being made.

Residential construction in California has been approximately steadily climbing since 2008 [1]. Even if I believed your premise -- which I don't -- reality disagrees with it. The conditions surrounding new residential construction are so much more complex than merely "omg rent control".

A San Jose Mercury News article published last year discussed some of the influences in new residential construction: https://extras.mercurynews.com/blame/

Strangely absent from that article though is that people don't want to just "live in California"; they want to live in the same places where everyone else is already living. There is plenty of affordable land in the central valley, in Kern County, and lots of other places with stagnant economies and depressing downtowns. But if you want to live in San Francisco, expect to pay a stupid amount of money for a vacant lot [2]. Again: this is not a situation that rent control is going to have any effect on whatsoever.

> Therefore, prices will be lower for those already housed, yet more people will be unable to purchase a home.

Funny, this sounds quite a bit like the situation that Proposition 13 created back in 1978 [3].

And yet, proposition 13 is rarely cited as a significant contributor to California's housing issues, especially by the "this is simple supply and demand" crowd. Personally, while I suspect proposition 13 has contributed, there are lots of other factors, including foreign investment [4].

But maybe we'll soon see just how much of an effect that particular factor has had in housing costs [5].

Sure though, rent control is gonna have a huge impact on California's housing prices. Totally.

[1]: https://journal.firsttuesday.us/the-rising-trend-in-californ...

[2]: https://sanfrancisco.cbslocal.com/2016/10/21/san-francisco-v...

[3]: https://en.wikipedia.org/wiki/1978_California_Proposition_13

[4]: https://calmatters.org/housing/2018/03/data-dig-are-foreign-...

[5]: https://www.cnbc.com/2019/07/17/foreign-purchases-of-america...

>And yet, proposition 13 is rarely cited as a significant contributor to California's housing issues, especially by the "this is simple supply and demand" crowd. Personally, while I suspect proposition 13 has contributed, there are lots of other factors, including foreign investment [4].

Really? Because I am vehemently anti prop 13, and I don't think you have to go far to find people that hate it too. So I'm not sure you can use that criticism against me. That's essentially a straw man.

> Less houses will be built, as less profit is being made.

This is more or less a factual statement, that if less profit is to be made by renting houses at least some portion of people will choose to invest in other things. Whether that portion is even noticeable, I don't know

>There were two other comments in this same subthread pointing out that people are in fact moving out of California. (One of them has been deleted.)

>It's almost as if f(california_net_migration) is multivariate.

If you want to have a serious conversation, being snarky isn't going to help. Regardless of net migration statistic, California is still growing in population. SF is still growing, and the state overall sees positive growth.

https://lao.ca.gov/LAOEconTax/Article/Detail/265

>Is it possible that California's housing problems are maybe a little more complex than a few out-of-context pull-quotes from Wealth of Nations would suggest?

Yes, which is why a rent-control law is too simplistic to be a solution.

Perhaps an alternative real solution to the housing crises is the abolishment of professional landlords themselves. Why should we support a system where people can own many properties, each feeding them 1/2 of someone else's paycheck? Public-owned housing is the future. It works in Europe and it can work here.

Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year? Who could possibly afford it after several decades of compound growth?

> Public-owned housing is the future. It works in Europe and it can work here.

Public housing has failed time and time again in the US, so citation needed.

Public housing isn't perfect in Europe - it leads to stagnant cities and the inability to redevelop areas as they change.

So how is housing going to get built? Are you suggesting that the state have a monopoly on buildings and housing? What process do we use to begin the expropriations and confiscations?

Start small. People can own one, maybe two housing units (everyone loves a good cabin). Get rid of REITs. Expand building of public housing; don't means-test it, it's available to everyone. Means-testing is how you get impoverished housing projects. Universal public goods have a habit of sticking around and getting funded.

Where do you plan on raising the funds to actually build housing?

Unless it’s economically attractive to invest in real estate, the money won’t flow into housing.

Sure you could have the govt do it, but based on their track record I don’t assume it’ll be done very efficiently.

Sorry, to clarify... Are you saying that because we have public transit no one can own cars anymore?

The generous way to read the post above is an arrangement where property ownership can be both public and private - possibly where rental units are majority state owned and private ownership is more concentrated in actual residents.

>” ...real solution to the housing crises is the abolishment of professional landlords... Why [] support a system where people can own many properties[...] Treating housing as an investment vehicle is fundamentally incompatible...

It’s akin to saying most transit should be gov owned: cars, trucks, trains, planes, ships... they may allow you to own one private vehicle.

>Sorry, to clarify... Are you saying that because we have public transit no one can own cars anymore?

You joke but many people here would support just that.

Eeeeh, in the long run I think it'll just become unnecessary to own a personal car for most people if self-driving car fleets become a thing - I dunno... it might be a luxury like owning your own boat, if you're vacationing on a lake you can always rent one so why pay to maintain something you very rarely need... more apt might be to consider it equivalent to owning your own train car.

At any rate I don't think personal property ownership should be made illegal, it could just be made to cost - taxi companies are taxed for running a fleet of vehicles and charging people to ride on them, that sort of mass property ownership could be similarly taxed.

I think everyone can agree that the private car culture destroyed any hope for good public transport in the US.

I grew up in Boston and it actually had a wonderful public transit system - assuming you're a comfortable in the city and not fearful of who you'll bump into on the bus.

You don't need to confiscate anything. We have an abundance of housing stock (nationwide, many more existing homes than families to fill them). If you make it impossible to be a private landlord then these properties will decrease in value until most citizens can afford to buy a house. Public housing will only be necessary for a small percentage of outliers. New housing will be built to be sold at a modest profit and replace decaying stock, just as it is now. The only difference is owners will not be able to sit on the pot collecting rents from derelict buildings while they wait to optimize their redevelopment in a peak market.

Using the law to destroy the value of someone’s asset until they abandon it is confiscation, just indirectly.

Confiscation, it is not, anymore than negative reports are confiscation of stock. You can liquidate and acquire a different asset. Personal preference has rarely been rewarded (re: eminent domain). There are windows of opportunity, timing and strategy inherent to capitalism. Sell before it passes (or the market adjusts) to maximize your realized asset value.

People are going to like that as much as they like devaluations or high inflation.

Both your examples (eminent domain and a government using propaganda to devalue a company) are forms of confiscation. It doesn’t matter if smart people would be able to foresee and mitigate the damage.

Sorry, it might be rude, it might be unfortunate for existing landlords, it might even be a terrible idea, but I don't see how you can call it "confiscation". If the defacto situation is maintained ownership until a decision is made to sell that is not confiscation.

If the city builds a trash transfer center right next to my house causing my property value to plummet I might be upset, but nothing has been confiscated from me because I do not own "the character of the neighborhood" except in some small collective part.

What term do you propose? I agree confiscation is imprecise, but I can’t think of another word that means an intentional act by a government to deprive a citizen of their property, or the value of their property.

Perhaps "devaluation"?

The first house I ever owned was a condo I bought in 2005, way out in the sticks, because the further I got from the city the cheaper the houses got, and because I had a strong suspicion that housing prices were too damn high.

By the time I had to move to CA for work in 2009 of course the market had crashed badly and the condo was well underwater, not even counting the $20k I had put into the kitchen and bathroom.

It was a $185k 2BR 1.5BA unit, with a condo fee of $300/mo and a monthly payment (principle + interest) of $980 with a 3/1 ARM at 3.5%. I got lucky because the rate was indexed to the LIBOR and it was being manipulated to ~0% back then, so my rate stayed super low even though it was adjusting every year.

I put the unit on the market for $165k for two months and got zero showings. So I offered it for rent at $1400 on Craigslist and it was rented that weekend.

I just sold the property last year, to the person who was renting it (and had been for 4 years) for $185k. I gave him the last 4 months before closing rent free because we closed without any broker (no commission) and because I didn’t have to do a thing to the unit pre-closing, seeing as how he was already living there.

Not all landlords are scum out to make a buck on the back of tenants they never met and don’t care about. Not all landlords are even in it because they initially set out to be! And very few landlords are being “fed” half of someone’s paycheck, but more like, covering the costs plus a few percentage points, as long as nothing unexpected happens.

I own a condo too. And if I move I probably won't sell it, but rather rent it out until I move back (while living in a rented place of my own). Individual home ownership is not a problem, it should be encouraged. The problem is people (and REITs) who lever up with a bunch of properties to be fed half of people's paycheck in the manner described.

I will nitpick and say that paying your mortgage is not a cost. That is equity you're getting.

You are very confused. A mortgage is definitely a cost. It's only meaningful equity if you ever sell it and get any of the money back, which is not guaranteed at all.

And only public housing would collapse the entire economy. Plenty of countries tried this, most notably the commies in Russia and in eastern Europe.

Welcome to commiefornia

I agree with you when it comes to a mortgage or real-estate only really being worth what it will actively sell for. Real estate by at large isn'r really liquid. I've known a lot of young people who are too quick to take out huge loans and get into "house flipping" only to realize that they're now playing a risky waiting game of when they'll have enough equity to match the cost of fees to actually sell the house combined with the assumption that they'll be able to sell it.

However, as someone who's lived in a large urban area with public housing - I can confidently say that the only real benefit public housing has is reducing the price of high end real-estate in close proximity and increasing petty crime in the area.

Source - lived in the South End neighborhood of Boston proper.

Public housing already exists in the United States. It has had at best mixed results. There has been more success with HOPE VI public housing that doesn't concentrate everyone receiving subsidized housing together but it has been criticized for having lesser density and availability than straight up housing projects restricted to the financially disadvantaged.

So, you're saying people shouldn't be able to own apartment buildings? That will really help housing in dense areas.

People could presumably still "own" apartments.

> It works in Europe and it can work here.

In Asia too: https://en.wikipedia.org/wiki/Public_housing_in_Singapore

Agree 100% with you. Treating housing as an investment VS a human right is what got us here in the first place.

Housing in San Francisco is not a human right.

But your anger is misdirected. The distortion in the housing market is the direct and predictable result of specific government policy, of which TFA is just more of the same.

In this case by “more of the same” what I mean is a policy which will do nothing to solve the problem. This particular law seems to be relatively harmless.

> Why should we support a system where people can own many properties, each feeding them 1/2 of someone else's paycheck?

That doesn't make much sense to me. 1/2 of the paycheck is only true for a few places with limited housing supply, which is the root cause of the problem. One could apply the same logic of "x% of the paycheck" to other spending items such as food and conclude that the state should also produce our food.

> Public-owned housing is the future. It works in Europe and it can work here.

Public housing in European countries accounts for less than 10% of the overall market and is mainly aimed at poor people. I do not see how this would be a general solution to the shortage of housing.

> Treating housing as an investment vehicle is fundamentally incompatible with the ideal of housing being affordable. How can you possibly have affordable housing in a system where housing increases in value (cost) at 5% a year?

True, but here, too, the cause is a lack of supply due to zoning, minimum parking requirements, minimum lot sizes and other restrictions.

We cannot, landlords are a parasite on productivity whose existence is based on the theft from their tenants. If it was not profitable they would not do it, if it is profitable, it is inherently unethical.

Radically untrue, bordering on nonsense.

Investment requires a return on investment. Return on investment must be commensurate with the risk. Risk adjusted returns are the reason the house/apartment was built in the first place.

The house was built because there was someone to live in it.

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