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California Approves Statewide Rent Control

nytimes.com

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Re: California Approves Statewide Rent Control

#971

Post by macspoofing »

azernik wrote: post #955
macspoofing wrote: post #940

Earlier quoted context omitted.

>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…

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…

>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...

Re: California Approves Statewide Rent Control

#972

Post by eru »

cybersnowflake wrote: post #941
eru wrote: post #743

Earlier quoted context omitted.

Bay Area is one of the most productive parts of the USA. (And one of the most productive places on earth.) Excluding people from work in productive areas perpetuates poverty.

Why do people NEED to work in san francisco/LA? You may think you're contributing something valuable being a barista or adjunct ethnic studies professor in the Bay Area but if you can't survive there maybe the others don't agree. Move to a house bigger than a shoebox with less traffic, less filth, and less crazy politicians, and lower costs. Whats the hangup? I don't understand these people who watched pirates of sil…

You are right that it is a bit weird and hard to understand why productivity differs so much.

But that labour productivity (eg measured in salaries the market can bear) differs so much is a fact. Whether we like it or not.

That puzzle is mostly about productivity differences for tech workers. For the baristas in the Bay Area relatively standard explanations like the Baumol effect do most of the explanatory work.

Re: California Approves Statewide Rent Control

#973

Post by eru »

Jweb_Guru wrote: post #842
woah wrote: post #837

Earlier quoted context omitted.

As amazing as it seems, a lot of far left people in the Bay Area who engage in the housing debate actually don’t believe in supply and demand. Hard to have any kind of discussion on that basis.

I believe that, on average, housing prices increase when housing is limited and decrease when it is not. I don't believe this relationship is nearly as linear as people imagine, especially since not all "demand" for housing comes from people wanting to live in it (thanks to rampant speculation in the market). I also don't believe that even a tremendous increase in available housing will cause the price to decrease en…

If we built lots more housing, there are two mutually exclusive possibilities (though honestly, they are on a spectrum):

A) Housing becomes affordable, or B) housing stays expensive.

The latter means we added trillions of dollars to the national wealth.

By the way, please go ahead and do tax property a lot. Ideally, you'd only tax the unterlying land with a land value tax. But even a naive property tax is OK.

That way foreigners buying up local real estate for speculation means foreigners paying for local services.

Re: California Approves Statewide Rent Control

#974

Post by eru »

macspoofing wrote: post #747
eru wrote: post #732

Earlier quoted context omitted.

> [...] 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 "inc…

>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…

> 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.)

Re: California Approves Statewide Rent Control

#975

Post by eru »

mcv wrote: post #807
eru wrote: post #730

Earlier quoted context omitted.

It's bad behaviour all right, but that doesn't automatically mean a law is the best fix. Tenants could ask for contract terms that forbid such raises. Or, if landlords are not forthcoming, they could take out insurance. And yes, such insurance would need to have its terms written carefully. And it probably doesn't exist as a product at the moment. But eg sponsoring the development of such insurance would be an easier…

I'm not sure what insurance is going to accomplish here. Tenants could negotiate it in the contract, but most people are not lawyers who will understand and negotiate the finer details on a contract. The law is not automatically the best fix for all kinds of bad behaviour, and in many cases it clearly isn't, but I think this is one of those cases where it really is. Dramatically raising rent prices on someone who is…

Individual people would likely not negotiate themselves directly, because they are not lawyers. But they would take contract terms into account when comparing places to rent.

"700 USD per week" vs "800 USD per week and rent increases limited to 7% a year" are relatively straight forward things to compare.

You are right that landlords have a limited monopoly power when people have moved in. (And depending on market conditions tenants also have limited monopsony powers, because it's a bit of a hassle to find a new tenant.)

But those kind of longer term engagements are pretty common in the commercial world. And they are often solved with contracts.

What's keeping people from coming up with those terms themselves?

Note: I am not suggesting that landlords agree to those terms out of the goodness of their heart. They would offer such a ceiling on the increase eg in return for a higher starting rent. They are essentially selling a call option.

If they price the option premium right, they would make money. Just like any other kind of extended waranty you can buy.

Re: California Approves Statewide Rent Control

#976

Post by falsedan »

macspoofing wrote: post #942
falsedan wrote: post #853

Earlier quoted context omitted.

who the what now my point is, vanishing landlord or no, the units remain

>my point is, vanishing landlord or no, the units remain Still wrong: 1) Apartments get converted to condos, or re-purposed because the property has value, but renting doesn't. 2) The population keeps growing meaning that your same number of units don't meet the needs. 3) Rental supply also drops as people opt not to move and sit on their rent-controlled apartments, limiting the supply for those looking. This is why…

> Still wrong:

ah, ok, they eat them. thanks for clearing that up

Re: California Approves Statewide Rent Control

#977

Post by eru »

bko wrote: post #746
eru wrote: post #726

Earlier quoted context omitted.

New homes being nicer is not a problem. It's good. (See https://www.planetizen.com/blogs/100293-how-filtering-increa... ) It's how we upgrade the national housing stock over time. Landlords already charge as much as the market can bear. Coordination isn't really necessary.

> Landlords already charge as much as the market can bear. Coordination isn't really necessary. This statement doesn't mean anything. Consider a game where you try to maximize revenue. You play along with other players with the same goal. If you set your rent too high, other players undercut you. You set the price too low, you leave money on the table. Now consider a rule that says you can at most raise the prices x%…

If you allow new players to enter the game or existing players to expand their supply, the coordination strategy you outline invites defection.

Re: California Approves Statewide Rent Control

#978

Post by eru »

sct202 wrote: post #805
eru wrote: post #741

Earlier quoted context omitted.

It also takes a tenant out of the market. So the net effect on other renters is pretty slim.

In Chicago, a lot of multi-units (2+ flats) are converted to single large SFH, so the net effect could be worse especially if prices were to go down that it would be attainable to do that.

Interesting! I wonder about the economics of that?

Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)

Re: California Approves Statewide Rent Control

#979

Post by verbify »

ng12 wrote: post #915
verbify wrote: post #780

Earlier quoted context omitted.

I used to think so too. Now I'm on the fence. High interest rates means people can borrow less, and has a dampening effect on house prices, low interest rates means people can borrow more, so house prices go up. Our current environment of low interest rates means that borrowing is cheap - which has pushed up prices, as now people can now afford larger mortgages. This has come at the same time as a withdrawal of mortg…

> low interest rates means people can borrow more, so house prices go up. Sure, but they go up by the amount of money you saved on the mortgage, the net price is the same. The amount homebuyers can afford to pay doesn't change with interest rates.

> The amount homebuyers can afford to pay doesn't change with interest rates.

The amount people can afford to pay doesn't change, but the cost of the house does change.

Assume a 30 year mortgage. If the interest rate is 2%, and I spend 1.5k a month on my mortgage, I can afford a mortgage of 406,000 and own the home at the end. However, if interest rates are 10%, even if I'm still earning 1.5k a month, I can only afford a mortgage of 171000 in order to pay it off by the end. You can double check my figures using this calculator - https://www.bankrate.com/uk/mortgages/mortgage-repayment-cal...

Given that deposits are usually at a minimum 10% of the house price, it's very hard for first-time buyers to gather that amount of money - while people who have purchased before can sell their existing home.

The issue the paper describes is that interest rates have gone down, so house prices have gone up, _and at the same time_ it's harder to get your first mortgage (i.e. you need a larger deposit) - which most new buyers cannot afford.

Re: California Approves Statewide Rent Control

#980

Post by macspoofing »

falsedan wrote: post #976
macspoofing wrote: post #942

Earlier quoted context omitted.

>my point is, vanishing landlord or no, the units remain Still wrong: 1) Apartments get converted to condos, or re-purposed because the property has value, but renting doesn't. 2) The population keeps growing meaning that your same number of units don't meet the needs. 3) Rental supply also drops as people opt not to move and sit on their rent-controlled apartments, limiting the supply for those looking. This is why…

> Still wrong: ah, ok, they eat them. thanks for clearing that up

You do realize there is a second, third, and even a fourth line (and more) after this first line.
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