If they lose this “right”, they insist on becoming pure profit maximizing machines?
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.
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.
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.
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).
It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.
$1000 +7% = $1070, $1070 +4% = $1112.80
$1000 +12 = $1120.
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.
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.
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.
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.
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?
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
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.
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.
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.
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.
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.
"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.
Two viewpoints, one tree.
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.
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...