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Rent Controls Growing?

September 16, 2019

Will Rent Controls Spread?

As we wrote in this post originally, the threat of rent controls are real. And to prove it, just this week California approved new rent control measures.  And in New York, there is concern rent controls will be extended as court battles rage.

Since state governments want to avoid renter subsidies and social housing, enacting rent controls seems a more cost-effective alternative route for them. The Brookings Institute in their recent report suggests rent control legislation might be growing across the US even if local action has been ineffective in most locations.

Governments Making it Tougher for Landlords

In addition to rent controls, New York implemented new laws to make it tougher to evict tenants, including bad tenants. Is this an active trend that’s about to spread to more states? The movement to strengthen tenant protections seems to have momentum.

And with the rental apartment price increases in September, there’s more fuel for the fire. It seems the price of rental property success could be price controls.

Rally in Seattle over rent controls. Screen capture courtesy of Seattleweekly.com

Do You Have a Rent Control Strategy?

Even if controls don’t reduce rent, landlords often have to jump through legislation hoops to protect their revenue and their assets. And if a landlord breaches rent controls laws, many jurisdictions impose steep civil and even criminal penalties for failure to comply. Landlords may be subject to injunctions, fines, attorney’s fees, and even jail time. Tenants can sue landlords in civil courts.  Rent controls bring a host of risks and expensive complications.

Should landlords themselves be organized better to protect their interests and rights?

Rent controls and other legislation will impact real estate investment and property management.

According to one report from Urban Institute, some see rent controls as serving business and social good. How do you feel about it?

As these laws have evolved, they’ve also incorporated features to ensure landlords receive enough compensation to maintain their properties and earn a reasonable profit. Such laws might also have secondary goals of protecting tenants from unjust eviction, creating mixed-income neighborhoods, and decreasing tenant turnover. — Urban Institute 2019 Report on Rent Control Activism.

Do Governments and Tenants Care about the Implications?

Given how rents and real estate prices have grown, and housing is in such short supply, it makes sense that renters would seek relief. They may not consider the long term ramifications.  That’s why landlords and real estate investors might want to support initiatives that increase rental housing supply.

Controls on rents impact everyone, puts immense pressure on landlords/property managers, and don’t support the long term solution for the affordable housing crisis in California and other states.

Activism Becoming a Factor

Rather than complaints to government, rent control activitists are more organized, creating campaigns with promotional support for rent controls. Rent control is quietly becoming more of a threat.

Instead of looking guilty or remaining silent, here’s why communicating the dangers of rent controls can help everyone.

Assar Lindbeck, a Swedish economist who chaired the Nobel prize committee for many years, once reportedly declared that rent control is “the best way to destroy a city, other than bombing.”– excerpt from Bloomberg report.

Rent Controls Discourage New Housing

The obvious argument against rent controls is that it discourages investment in new construction developments and repair of old buildings. Repair costs are never mentioned in these debates. Rent controls also discourages high quality property management and tenant satisfaction which might prevent tenant complaints and legal battles.

“We cannot build our way out of a crisis of this proportion,” said Elena Popp, founder of the Los Angeles-based Eviction Defense Network, one of the groups pushing for stronger rent-control laws in California.

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The statement above suggests enough homes can’t be built for Californians. While the economy is booming and people can’t afford housing prices, the rental market has heated up. There is lots of land in California to build multifamily buildings. Builders need incentives and confidence they won’t be stabbed in the back after committing their billions.

Speaking Up Against Rent Controls

And while rent is controlled in the short term, the lack of new housing investment means rents means vacancy rates plummet since there’s not enough rental apartments, condos and homes available. And a lack of multifamily building hurts local and national economies.

Do Rent Controls encourage the building of the types of condos/apartments in demand today?

Consider that rent controls have been in place since 1943  in New York, yet it’s had the most persistent rental housing problem of any US city. Toronto too has expanded rent controls with persistently high housing costs and aging infrastructure. Hardly an endorsement for rent controls.

Rent control increases of 1.5% for instance don’t cover cost of living increases, repairs, ROI needs, or proper maintenance of properties

Is support for rent control irrational, especially during a housing availability crisis? Yet voices for rent control are loud and persistent. Their argument is usually emotional and focused only on one statistic: rent prices. If their voice wins, the situation is lose-lose for all.

We need to speak up for property investors and for everyone who wants lower housing costs and apartment rents.

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Better Vision and Leadership Needed

Governments, investors, and property managers must have the courage to look forward even if the present is painful for renters. It certainly proves the point, that if housing isn’t built, a housing crisis is not far off. And we’ve been in it for years, with government perhaps pandering to these loud voices.

In California, the state government’s Proposition 2 is targeting $2 billion to help with the issues of homelessness for seniors, military veterans, and poverty prevention. It’s a stop gap, band aid type measure to deal with the housing crisis, but not a sustainable solution.

Without rent controls, new housing units are built and prices begin to fall — demand vs supply. With growing investment in housing, employment and wages rise which rewards property investors (and property management companies).

And at a time when the housing market is lagging the economy, removing disincentives and risk might encourage property investors to commit to building more multifamily developments. With rent controls, rehabilitation of buildings to make them safe, compliant with growing regulations, and cost effective is impossible. Why would anyone spend their money to fix crumbling old buildings?

Reactive Governance Always Fails

The best property managers know how a bottom up management approach leads to crisis, unforeseen losses, and mounting costs. A top down approach with focus and vision, a good property management system, and a keen eye for quality and efficiency gives investors and landlords confidence to hire you.

Rent controls are a bottom up business management scheme, and they hurt everyone.

7 Reasons Why Rent Controls Don’t Work

  1. discourages investment in new developments
  2. discourages investment in rehabbing/converting old buildings to meet regulations
  3. prevents choice for tenants and keeps tenants trapped in high priced situations they don’t want to be trapped in
  4. prevents homeowners (especially seniors) from selling their houses because there’s nowhere for them to move to
  5. makes eviction a difficult process for landlords and tenants
  6. decreases quality of living and amenities for tenants
  7. renters have to stay put, instead of moving to a new location for a better job

The overall effect on the economies of cities such as San Francisco, San Jose, San Diego, New York, Los Angeles, and other cities is negative. Rent controls are a dead end trap for investors, property managers, and most importantly for tenants.

Take time to support those who fight rent controls and arm yourself with the rationale against rent control legislation. It can seriously impact your business and ruin your state’s economy.

 

See also: Property ManagementSoftware for Property ManagersHow to do Tenant Screening | Best Accounting Software for Property Managers | Best Property Management Apps | How to Use Property Software | Toronto Housing Market | Toronto Condo Prices | Australia Housing Market | UK Rental Market | California Property ManagementCalifornia Housing Market | Apartments for Rent | Renters InsuranceRental Housing Market | How to Reduce Tenant Turnover |  Cloud Property Management Solution | Tenant Screening | Improve Property Revenue | Improve Property Cash Flow | Property Management Issues | Real Estate Portfolio Tips | Starting a Property Management Business | ManageCasa Property Software

 

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