[ac29]

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...

[macspoofing]

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.

[azernik]

> 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.

[macspoofing]

>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.

[azernik]

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

[macspoofing]

>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...

[azernik]

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.

[eru]

> [...] 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?

[macspoofing]

>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.

[eru]

> 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.)

[adamsb6]

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.

[namesbc]

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.

[jjav]

> 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.

[mattbreeden]

> 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.

[hcknwscommenter]

"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.

[brohee]

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...

[moduspol]

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

[azernik]

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.)

[rdtwo]

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

[azernik]

> 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.