It is a huge risk right now to take on someone that is poor as a renter because of the moratorium. It is completely unsurprising to me that landlords have priced this risk factor in.
But apparently California tightened the rules around security deposits in 2020, which actually exacerbates this problem. Landlords used to be able to ask for up to two month’s rent as a security deposit, but now they can only ask for one month's rent.
This leads to upward pressure on rents, as landlords adjust the only lever they have left. I wonder if applicants can/do offer to prepay several month's rent, to signal that they are serious long-term tenants who have the ability and interest in paying rent (even if they legally could avoid payment).
Of course, even eviction timelines vary vastly from one jurisdiction to another
Yeah, that's true of hostage negotiations too. The issue is one of choice and efficiency. Moving is a larger risk (via cost, opportunity, travel, etc) than changing rent or services performed, usually.
Chicago on the other hand has fantastic housing supply and so many rules on security deposits, most buildings just don't do it. Access to housing permeates every aspect of a culture, people are significantly nicer when they can afford a place to live.
Has your friend been able to get out of California ?
In CA, the cost of a home has almost nothing to do with the input costs other than land. There are areas that could be built up (tons of land just west of 280), but which is protected by environmental laws or restrictions. Full development of this land would lead to traffic nightmares, for sure, but one could imagine that some of it could be developed as we move toward more efficient modes of transport.
It's not landscape and it's not rocket science: it's zoning. San Francisco could build up, letting people live closer to their work & be much better for the environment than encouraging sprawl, but chooses not to. Y'all decided to make housing expensive, so it is.
https://www.nytimes.com/interactive/2019/06/03/us/earthquake...
It's interesting to me that such a universally easy sell as, "no new taxes" can result in such a distorted and, IMO, grotesque unintended consequence.
It's even simpler than that. Had a conversation with a man who owns some tiny 60's vintage apartments on an ocean-view lot. He turns down market-rate offers from developers looking to put in family-size units because with his Prop. 13 tax tailwind, he makes out well enough despite the lower rents.
Nothing to do with density, although there are numerous county and local laws on density zoning (which is not Prop 13)
Of course, it has been 1973 when this happened and I think only twice has the state government tried to changed it by “stealthily titled” proposition and failed.
Anecdotally, landlords are moving/moved to having move-in fees over deposits due to the legal technicalities of handling them properly.
[0] https://www.domu.com/landlord-resources/apartment-lease-form...
To clarify, the problem you're talking about is that it's risky to be a landlord, and maybe more so now than a few years ago.
> as landlords adjust the only lever they have left
At least some landlords also have the option of pulling the lever labeled "sell the unit".
Low end 1 bedroom apartment, moratorium on eviction = suddenly no rent paid. Here in Australia there was significant $ from Government for those in such a position, including rental assistance. We got nothing. And I am not about to hound a person financially at the bottom who likely lost their job and had enough shit already.
But no point messing around with the lowest end market now that we can afford not to. Sell it.
Denmark allows for 3 months deposit plus 3 months rents upfront, so you have to be able to come up with 6 months rent total to get an apartment.
(market here is very hot, so rental apartments have no problem getting 6 months rent)
When you "quit" living in the apartment, you can use the 3 months prepaid rent, so you don't have to pay rent the last 3 months.
Of course, you can still recover payment by suing, but that's obviously more difficult (especially if the former tenant has moved to another city/state).
You need to come up with 6 month worth of rent to start renting? That's massive. It basically means most would need to borrow that money. Is that supposed to be a good thing?
I'm glad that illegal here, that's abusive. Personally I avoided any ad that required more than 2 month total upfront. Thankfully the local market allowed it. If I wanted to put a massive deposit I'd buy, not rent.
People in USA live a lot more paycheck-to-paycheck than in the rest of the world.
Perhaps the best way to accomplish this without having the landlord perpetually hang onto large amounts of tenant cash is to have a large deposit that slowly decreases over time, as trust increases. So perhaps it would be 5 or 6 months of deposit that is used to offset every 3rd month of rent during the first year.
Prepaid rent is just that - it's rent for some future period that the landlord is just receiving early, so doesn't come with all the legal strings attached[2]. The landlord recognizes the income when they receive it and it becomes their money to do what they want with at that point.
The nuance goes beyond just semantics, too. If a tenant files for bankruptcy, the security deposit the landlord is holding in escrow is considered an asset of the tenant's estate. Whereas prepaid rent is not, unless the contract was executed super recently and the judge determines it unfairly harmed other creditors and wants to claw it back.
[1] https://www.lawyers.com/legal-info/taxation/property-tax/adv...
[2] I'm sure this isn't a universal truth - in the US alone, tenant law tends to be an overlaid mishmash of federal, state, and local regulations. So I'm sure some places attach strings to it. But many if not most places do not.
"Effective January 1, 2020, landlords may not request a security deposit of more than one month’s rent for an unfurnished unit, and two month’s rent for a furnished unit, if the unit is rented to a service member."
The one month limit seems specific to service members.
Seems the limit for non-service members is still 2 months, or 3 for furnished. Landlords can add 1/2 month for a water bed, curiously.
1: https://www.nolo.com/legal-encyclopedia/california-security-...
Landlords stuck with tenants who can’t pay may try to offset these losses by raising rents on everyone else. Rents in lower-end units tend to already be close to operating costs, Schuetz noted, so landlords may have slim profit margins.
IIRC, he eventually moved, but still couldn’t pay rent and started accumulating even more rent debt there. I can’t imagine who would rent an apartment to that guy.
But my point is how could you expect landlords to rent to anyone without a very stable income? They could be out tens of thousands of dollars.
What line of work was he in? If he lost his job during the pandemic, is it possible there simply were very few jobs available that he was qualified for?
The reason why they have pricing power is likely due to the moratorium.
People aren't being evicted so those units aren't going on the market, so supply of rentable units is being artificially suppressed.
When the moratorium expires then renters will be evicted and those units will go back on the market which should drive costs down for everyone else.
Now you're just doing business wrong if you don't minimize risk or figure out how to shift and transfer risk away from yourself.
Biden is going to have to either bail out tenants or landlords and banks. I'll be taking bets on which one he does.
I think I had a very happy childhood but comparing these things kinda allows you to reflect. Interestingly, the low standards stick; when we bought a small 1100sqft house with my wife (in the USA), some of my friends back in Russia were like "oh, a big house, are you planning for kids?" ;)
While it isn't inconceivable that housing could be public, the same underlying economic rationale isn't there, and private housing works really well. You'd be solving a non-problem (or, to the extent that there is a problem, it's one that's easily addressed by simply increasing private housing stock) and risking a lot to do so.
And homes are not? Certainly not at the same scale, but we are seeing the same problems with landlords that we see with monopolists.
Landlords are able to charge extremely high rents and there is not enough available/affordable land to build competition, especially in cities experiencing NIMBYism and gentrification.
> You'd be solving a non-problem (or, to the extent that there is a problem, it's one that's easily addressed by simply increasing private housing stock)
It's clearly a problem. That's why we're here talking about it in the first place. It's also clearly not "easily addressed", or that would have happened already. Sure, we need to remove barriers to increasing housing stock, but that isn't likely to be enough; especially in the short term.
"there is not enough available/affordable land to build competition"
"It's also clearly not "easily addressed","
Land can be parceled out using any system people can devise. Rent is completely artificial. Strangely, the people that do nothing for you charge FAR more than the people who hunt for you.
An interesting metric to consider is how much would at-cost rent would be if land was free and only construction, repairs, and utilities needed to be paid for. If you run the numbers over the lifespan of a building, you'll be surprised.
What you claim are rights, I dispute. The ability to control other people's living situation and extract rents is not a natural right. If anything, it's an abomination.
You could argue you don't get your moneys worth, but you do get services for them...
Not quite. This crisis will be handled just like the last one. No tenants, homeowners, or landlords will be bailed out. That they go bankrupt and have their property repossessed is the whole point of the exercise. Big lenders will get the bailout on top of the collateral.