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.
> 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
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.