Rent Control Hurts Everyone

It always pains me to read stories like this one in The Bay Citizen of San Francisco on April 30:

“In San Francisco, one of the toughest places in the country to find a place to live, more than 31,000 housing units—one of every 12—now sit vacant, according to recently released census data.  That’s the highest vacancy rate in the region, and a 70 percent increase from a decade ago.”

What’s the reason for this horrible situation?  Rent control.  People who would otherwise rent out an apartment in a building they own are now choosing not to rent, because of the mandatory low rent that they could charge, and the huge hassle of dealing with ornery tenants (not to mention the hassle it is to evict a bad tenant).

San Francisco Rent ControlThe article quoted above tells of how a man who owns a building cannot evict a tenant that’s been living there for 30 years, in order that his younger son can move into the apartment.  The tenant pays $525 per month in rent, and the city will only let the owner raise the rent $2.63 this year (supposedly this is tied to inflation somehow).

Rent control laws have been tied to housing shortages in almost every situation they have been tried in (or are currently in place).  In New York City, the most famous example, there is no mid-range housing available.  Any new construction must be considered “luxury” housing in order to not be subject to rent control laws, so developers only build “luxury” housing.  This causes a shortage of housing for normal people.  While rent control holds down rent for some units, costs for other rentals skyrockets.

“Increasingly, small-time landlords like Koniuk are just giving up.  One of his Divisadero Street neighbors has left two large apartments on the second and third floors of her building vacant for more than a decade, after a series of tenant difficulties.  It’s not worth the bother, or the risk, of being legally tied to a tenant for decades.”

This accounts for the fact that the vacancy in San Francisco is rising, and the fact that it’s almost impossible to find housing there.

The trend in many cities is to repeal rent controls, and it has proven good for both city economies, and for renters.  In 1997, a group of property owners in Boston and Cambridge banded together and put up a state ballot initiative to require the immediate removal of rent controls. 

What was the result of the removal of rent controls?  Tenant activists had predicted mass evictions, huge rent increases, and surges in homelessness.  These dire predictions did not pan out.  Sure, there was some increases in rent, but construction of new apartments also began for the first time in 25 years.

It’s sad, really.  Everyone loses with rent control.  Tenants lose, because they cannot find affordable housing.  Property owners lose, because they choose (or are forced) to remove units from the market.  And the government loses, because when property owners don’t rent out their apartments, they have their properties re-assessed, and pay less in property taxes.

Question: Why do we continue with rent control policies, when everyone would do better without them?  You can leave your comments below.

For your entertainment, I’m including a video from the “Rent is Too Damn High” party:

(If you’re having trouble viewing the video in your RSS reader or email, click here to view it in your browser)

  • Broc

    Well, of all of the blog posts I have read of yours this one I would say is the most bias in its reporting.

    First of all you didn’t explain why these tenant protections are in place. When laws have been passed and enacted to protect a group of people it is normally because a group of people at some point in time have been mistreated or taking advantage of. In this case in San Francisco this tenant is being protected by “Rent Stabilization” (commonly called Rent Control) and “Just Cause” eviction protections. These protections are in place because of the negative behavior of landlords that have come before. It’s not hard to list them; jacking up rent with no notice or little notice so tenants can’t afford it and are forced move out, evictions with little or no notice without a justifiable cause. So, what is “Rent Stabilization/Rent Control” and “Just cause”:

    Rent Stabilization/Rent Control – Basically establishes a limit at which the landlord can raise rent on a current tenant, which is not …” (supposedly this is tied to inflation somehow)”… The rate of rent increase changes from year to year and in this case is base off the Bay Area Consumer Price Index. Other things that could also be added to rent are, increased cost of utilities or if improvement are done to the property that cost more to maintain that maintenance cost could be added to the tenant as well. Also keep in mind these “rent control” measures are only in place for active tenants once a rental space is vacant the landlord can relist the rental space at whatever rate he wishes.

    Just Cause: This established a list of “justifiable reasons” to evict a tenant from this residence. Keep in mind this dispute is over where a person is calling home, maybe it shouldn’t be so easy to make a person homeless. There are 15 reasons you can evict a tenant with “just cause” and they are listing here . The abuses of the Landlord or family member move in has been documented in the past which is why it limited to one family member move in eviction per building. Many landlords have used the “family move in” eviction to get a rent controlled tenant out so he can then jack up the rent and get a new tenant in the building at a much higher rate, which is why documentation and notice in advance is required.

    These protections are in place because they protect where people are living, their homes, sure should be there changes to law to find a better balance for landlord and tenants sure and you would hope some common sense added to the situation… of course. But too often a lack of regulation leads to an abuse of position or authority and in many cases without regulations landlords would be making many people homeless. While I feel for the landlord and his position, the hard part is weighing the rights or property owner against the rights of the tenant.

    • Robert Ewoldt

      Broc, thanks for making the case for rent control. I feel like you did it adequately, and balanced my obvious bias on the side of economic advancement (sorry, I just had to get a little barb in) :) I just don’t see why these things can’t be managed by the market. Sure, there will be landlords who abuse their tenants; but, at the same time, under rent control, you have tenants who abuse their landlords. Society just isn’t meant to be that way. In a market system, people will find a way to get along, rather than live at enmity with one another. 95% of tenants will have good relationships and leases with their landlords. The 5% of tenants who are jerks will have to move from place to place to place, until they realize that they’re jerks, and then they’ll learn to live peacefully with other people. The 5% of landlords who are jerks will eventually run out of people to abuse (i.e. no one will rent from them), and they’ll go the way of failed businesspeople.

      Have you ever had a landlord that you didn’t get along with? What did you do? How did you resolve your issue?

      • Broc

        I would have to question any system in which you acknowledge up front “yes there is going to be abuses” to the system and you don’t implement any way of correcting it. I also feel that abuse of tenants by landlords is NOT the same as landlords with “abusive” tenants. Abusive tenants don’t evict their landlords or increase their rent, landlord are in the position of authority and rent control and just cause evictions are a way of ensuring fairness… maybe it has gone a bit too far in favor of the tenants but that has come as a result of the landlords previous actions. What do you mean by “society isn’t meant to be that way” I am not sure what you mean by that, please explain. Why cant people find a way to get along in the current system or with some tweeking, no need to blow up rent control?

        No I have not had a landlord who I didn’t get along with; I have had incompetent property management however. They gave a set of keys to my storage garage to another renter to use (thinking it was not being used), and when the other renter came back and said it was fully of stuff, property management told them it must have been left behind by a tenant who has now left so they should go through it and either keep what they want or throw it all out. So I came home from work to see some random dude in my storage going through everything and throwing stuff into a dumpster…. I was a bit upset.

        • Broc

          Not sure if this fits into this post at all but its a yahoo story about worst places to be a renter.

        • Robert Ewoldt

          Tenants DO abuse their landlords in areas where rent control is in place (as evidenced by the article that I cited in my post). They take advantage of the fact that the landlord does NOT have control over the use of their own property, and live for 30 years without any rent increases. The landlord is held hostage, unable to change the use of the property, unable to sell the property (because nobody wants to buy a rent-controlled property), and unable to buy out the tenant (why in the world should a landlord have to buy a tenant out of his own property, anyways?). This IS tenant abuse.

          Here’s my solution. Why not have common-sense tenant protections that DON’T include price controls? Why not leave many tenant/landlord decisions between the tenant and the landlord, with a few small significant regulations? Why not say that a landlord can evict a tenant for being a jerk? Why do you have to have a regulation that states that a landlord must provide as many keys to the unit as the tenant requests, within 14 days? Why can’t that be worked out between tenant and landlord? Why do we have to codify that additional water charges can only be up to 50% of the actual cost of the increase? Why do we have to stipulate that a landlord can only increase rent because of capital improvements by a certain amount? Why can’t these things be worked out between a reasonable landlord and a reasonable tenant?

          • Broc

            Your solution… “Why not say that a landlord can evict a tenant for being a jerk? Why can’t that be worked out between tenant and landlord? Why can’t these things be worked out between a reasonable landlord and a reasonable tenant?” Well because people aren’t reasonable…seriously I would love to live in the dream world that you seem to think actually exists but it doesn’t. You need to watch some Judge Judy, People’s Court or any other daytime court show… you will see that people are lying, greedy, and spitefully. People are not reasonable which is why regulations like this get built upon more and more as people try harder and harder to screw each other over. Do you think that when the first rent control regulation was written there was all this micromanagement with utilities and keys? No of course not but since people continued to screw each other over more laws were written to help avoid future instances of the same thing occurring again.

          • Robert Ewoldt

            I’m not living in some dream world. In every other area of our economy, people are allowed to set their own prices for the goods and services that they provide, and it works fine. If someone is not happy with the price that they’re paying, or that they’re asked to pay, they go somewhere else and get the same service. People ARE reasonable when they are not constrained by price controls.

          • Broc

            I completely disagree with your evaluation of “reasonable people” perhaps its my own bias. I have spent time in law enforcement which means I did see the worst side of people most often, so maybe my own personal experience is framing the debate too much for me but I do not at all agree with the idea that if regulation was removed people would act better.

      • Broc

        I found the link for “The Bay Area Consumer Price Index” maybe you can make heads or tails of the tables and numbers…lol

      • Broc

        I found the link for “The Bay Area Consumer Price Index” maybe you can make heads or tails of the tables and numbers…lol

  • Broc

    Also here are the rates of rent increases that I was able to find. Let me know if you find better (different) ones.

    March 1, 2011-February 28, 2012—0.5%March 1, 2010-February 28,2011—0.1%March 1, 2009-February 28, 2010—2.2%March 1, 2008-February 28, 2009—2%March 1, 2007-February 28, 2008—1.6%March 1, 2006-February 28, 2007—1.7%March 1, 2005-February 28, 2006—1.2%March 1, 2004-February 28, 2005—0.6%March 1, 2003-February 29, 2004—0.8%March 1, 2002-February 28, 2003—2.7%March 1, 2001-February 28, 2002—2.8% March 1, 2000-February 28, 2001— 2.9% March 1, 1999-February 29, 2000—1.7% March 1, 1998-February 28, 1999—2.2% March 1, 1997-February 28, 1998—1.8% March 1, 1996-February 28, 1997—1.0% March 1, 1995-February 29, 1996—1.1% March 1, 1994-February 28, 1995—1.3% March 1, 1993-February 28, 1994—1.9%

    • Robert Ewoldt

      OK, I understand your concerns, Broc, but have a few questions for you:
      1. Do you think that these rent increase percentages are fair (when they likely don’t cover even inflation)?
      2. Do you find it fair that a landlord would only be able to raise a tenant’s rent $2.50 per year?
      3. Why do you think it’s better for the government to centrally price rents instead of having the market dictate rent?
      4. Do you concede that rent controls are causing a shortage of affordable housing in places like San Francisco?
      5. Do you think that the tenant protections that San Francisco has put into place are too stringent?

      • Broc

        1. Is the rent increase fair? I don’t know rental markets there but by my untrained eye I would say they percentage wise are too low to be keeping up with inflation but here is the actual announcement which seems to state that the rent increase is actually only 60% of the rate of inflation:

        “Effective March 1, 2011 through February 29, 2012, the allowable annual increase amount is 0.5%. In accordance with Rules and Regulations Section 1.12, this amount is based on 60% of the percentage increase in the Consumer Price Index (CPI) for All Urban Consumers in the San Francisco-Oakland-San Jose region for the 12-month period ending October 31, which was 0.9% as posted in November 2010 by the Bureau of Labor Statistics.To calculate the dollar amount of the 0.5% annual rent increase, multiply the tenant’s base rent by .005. For example, if the tenant’s base rent is $1,250.00, the annual increase would be calculated as follows: $1,250.00 x .005 = $6.25. The tenant’s new base rent would be $1,256.25 ($1,250.00 + $6.25 = $1,256.25).”
        Last updated: 1/25/2011 11:14:53 AM
        2. Kind of the same question as 1 but given what they have in place I again feel the inflation rate number is low because its is 60% of the inflation rate
        3. I feel its better to have a third party who doesn’t have a direct connection to its profits set the regulation if there is going to be any. If you aren’t going to have regulation of any kind you are asking for victims and abusers.
        4. Perhaps this rent control pendulum has swung to far but I did find the link to an ordinance online that show where some of these protection were coming from:
        In the link it above it explains how “the market” being allowed to set its own prices had created a housing crisis because there was a shortfall or affordable housing… check it out

        ” (2) Tenants displaced as a result of their inability to pay increased rents must
        relocate but as a result of such housing shortage are unable to find decent, safe and sanitary
        housing at affordable rent levels. Aware of the difficulty in finding decent housing, some tenants
        attempt to pay requested rent increases, but as a consequence must expend less on other
        necessities of life. This situation has had a detrimental effect on substantial numbers of renters
        in the City, especially creating hardships on senior citizens, persons on fixed incomes and low
        and moderate income households.
        (3) The problem of rent increases reached crisis level in the spring of 1979. At
        that time the Board of Supervisors conducted hearings and caused studies to be made on the
        feasibility and desirability of various measures designed to address the problems created by the
        housing shortage.
        (4) In April, 1979, pending development and adoption of measures designed to
        alleviate the City’s housing crisis, the Board of Supervisors adopted Ordinance No. 181-79
        prohibiting most rent increases on residential rental properties for 60 days.”
        5. Whether it be 95% or 5%, I would prefer a system that 0% percent of people are made homeless by someone abusing of the system. So if protections go a bit to far to protect anyone from that injustice fine. Just I would prefer a justice system that falsely imprisons no one but does let a few guilty go free. I would prefer a Landlord-tenant system in which zero wrongfully evictions are done and sometimes Landlords are stuck with a difficult tenant.

        • Robert Ewoldt

          Why control landlord abuse by price control, though? Do we control abuse in ANY other industry by price controls? If you have grocery stores (who are arguably in a position of authority as well) raise their prices 15% in one year, do we run to the government to implement “food control” because the grocers are being unreasonable? No.

          Why not regulate abusive landlords in ways that are NOT connected to price, and are NOT detrimental to the rental market as a whole?

          Also, in looking at the link you sent to the Bay Area CPI, it looks like the cause of high rents in the 1970s and 1980s, that was the impetus for rent control in the first place, was the high inflation that plagued everything else in that period under Jimmy Carter. Why did we choose to impose price controls on only ONE area, and not on others? Because there was an easy target… landlords. It’s the tyranny of the many against the few. Because there were fewer landlords than tenants, and because both groups vote, the politicians acquiesced to the larger number of voters, and created a long-term housing shortage.

          I take issue with your characterization of government/politicians as a “third party who doesn’t have a direct connection to its profit.” Politicians are very MUCH involved in profit here. They profit because they are creating regulations that punish those who aren’t their constituents, in favor of those people who will vote for them. They are not creating regulations that make economic sense, nor what is best for the economy overall.

          • Broc

            Well, like I have stated before regulation has been introduced because of the abusive actions of landlords and this regulation seems to have been the agreed upon way of remedying that mistreatment. Rent control wasn’t just cooked up because someone was bored one weekend and thought it might be fun as a social-economic lab experiment. As for you analogy with food isn’t really the same… we are not talking about were people shop for a head of lettuce we are talking about people being forced out of their homes by, to use your words, tyranny. Perhaps this rent control regulation should be tweaked to help serve both landlords and tenants better but protection NEEDS to be in place because people will screw each other over as much as the law allows them to.

            Yes and you may be correct that politicians do profit by pandering to their base, but that is why we have checks and balances and court systems and divided government. Like I said before; this scenario is very sticky because you have to balance the rights of the landlord against the rights of tenant. Is this an inconvenience for the landlord? I am sure it is, but so would be forcing the tenant to move.

          • Robert Ewoldt

            As I implied in one of my previous replies, the reason for rent control was NOT because landlords were mistreating tenants, but because of the inflation of the late 1970s under Carter. Ask anyone who lived in that period… things were hard. Regular inflation was 15-20%, and mortgages were at 15%. With inflation going up, landlords raised their rents, in order to cover their rising expenses, and tenants PERCEIVED that as mistreatment (which it wasn’t). Rent control was the tenants’ collusion with the politicians to extract their pound of flesh from their landlords, and put the burden of high inflation primarily on the landlords.

          • Greg Harden

            Rent Control in NYC is designed to give de facto subsidies of tens of thousands per year for years on end TO THE WEALTHIEST NEW YORKERS!

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