[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.)