Lets talk about the reality of Rent Control, the economics behind it, and why it’s ultimately a flawed approach to a housing shortage - enjoy! Add me on Instagram/Snapchat: GPStephan
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We need to first define what Rent Control is: This is a government-enacted regulation that limits the amount a landlord can increase a tenant’s rents annually.
There are very few things economists agree on, but there’s one thing I found especially interesting when I began researching this topic…and that was the mutual consensus that rent control does NOT help with housing affordability. A 1992 pole of the American Economic Association found that 93% of its members agreed that “a ceiling on rents reduces the quality and quantity of housing.”
A Stanford study has argued that Rent Control actually has an ADVERSE affect on prices for renters and actually works AGAINST making housing more affordable.
Here’s what they found:
-Rent controlled tenants were 20% more likely to stay in their unit.
-Renters were more likely to move elsewhere if they didn’t have the incentive of having their rent capped where they currently were living
-In the priciest neighborhoods, turnover was HIGHEST as landlords actively try to remove tenants to achieve market rents
-Landlords of rent controlled buildings were more likely to convert their buildings in such a way that it wasn’t rent controlled, reducing the amount of housing by 15%
-The loss of available housing drove up prices of rental units. It was found that a 6% decrease in housing supply led to a 7% increase in rental prices.
The net result is that, based off these studies, rent control ends up restricting the supply of new units into the market. While some renters may get a bargain and win the lease-agreement lottery, most people NEVER get access to low rent-controlled prices, and if they do, they are incentivized to never move out because it’s so cheap, lowering supply.
First, landlords of rent controlled properties have NO INCENTIVE to fix up their units. If they have a tenant paying below market rent, they want the tenant out. Because of that, they will do the bare minimum to keep the unit habitable and nothing else, hoping that eventually the tenant will get fed up and leave…allowing the landlord to re-rent the unit for market prices. Generally, rent controlled units are falling apart. Landlords do NOT take care of them as they should.
Second, when it comes to owning real estate, it’s a business…and any sustainable business out there is driven by money. Landlords will spend whatever it takes to increase the value fo their property if it means they’ll receive a higher rent.
Third, my personal experience is that rent control doesn’t always benefit the person it was intended for - it benefits the person who happened to sign a lease agreement at the right time, regardless of how much money they make or whether or not they actually NEED the assistance.
It’s a complex situation, and there isn’t necessarily a one-size-fits-all approach that will make EVERYONE happy, but here’s my thoughts.
In order for a solution to work, we need to place our focus NOT on rent control, but expanding zoning so that we can build more dense housing. Until then, the problem will continue to get worse…and if rent controls are enacted even further, landlords will be less likely to maintain their properties, more likely to take their units off the market, more likely to convert them to units that aren’t rent controlled, and all of this will further drive up housing costs as inventory dwindles.
For business inquiries or paid one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness @gmail.com
Suggested reading:
The Millionaire Real Estate Agent: http://goo.gl/TPTSVC
Your money or your life: https://goo.gl/fmlaJR
The Millionaire Real Estate Investor: https://goo.gl/sV9xtl
How to Win Friends and Influence People: https://goo.gl/1f3Meq
Think and grow rich: https://goo.gl/SSKlyu
Awaken the giant within: https://goo.gl/niIAEI
The Book on Rental Property Investing: https://goo.gl/qtJqFq
Favorite Credit Cards:
Chase Sapphire Reserve - https://goo.gl/sT68EC
American Express Platinum - https://goo.gl/C9n4e3
FULL DAY LIVE REAL ESTATE INVESTING EVENT AT MY NEW PROPERTY OCTOBER 27TH: https://goo.gl/QfeS1F
Join the private Real Estate Facebook Group:
https://www.facebook.com/groups/therealestatemillionairemastermind/
Get $50 off for a LIMITED TIME with code ThankYou50 - The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $125 million in sales: https://goo.gl/UFpi4c
We need to first define what Rent Control is: This is a government-enacted regulation that limits the amount a landlord can increase a tenant’s rents annually.
There are very few things economists agree on, but there’s one thing I found especially interesting when I began researching this topic…and that was the mutual consensus that rent control does NOT help with housing affordability. A 1992 pole of the American Economic Association found that 93% of its members agreed that “a ceiling on rents reduces the quality and quantity of housing.”
A Stanford study has argued that Rent Control actually has an ADVERSE affect on prices for renters and actually works AGAINST making housing more affordable.
Here’s what they found:
-Rent controlled tenants were 20% more likely to stay in their unit.
-Renters were more likely to move elsewhere if they didn’t have the incentive of having their rent capped where they currently were living
-In the priciest neighborhoods, turnover was HIGHEST as landlords actively try to remove tenants to achieve market rents
-Landlords of rent controlled buildings were more likely to convert their buildings in such a way that it wasn’t rent controlled, reducing the amount of housing by 15%
-The loss of available housing drove up prices of rental units. It was found that a 6% decrease in housing supply led to a 7% increase in rental prices.
The net result is that, based off these studies, rent control ends up restricting the supply of new units into the market. While some renters may get a bargain and win the lease-agreement lottery, most people NEVER get access to low rent-controlled prices, and if they do, they are incentivized to never move out because it’s so cheap, lowering supply.
First, landlords of rent controlled properties have NO INCENTIVE to fix up their units. If they have a tenant paying below market rent, they want the tenant out. Because of that, they will do the bare minimum to keep the unit habitable and nothing else, hoping that eventually the tenant will get fed up and leave…allowing the landlord to re-rent the unit for market prices. Generally, rent controlled units are falling apart. Landlords do NOT take care of them as they should.
Second, when it comes to owning real estate, it’s a business…and any sustainable business out there is driven by money. Landlords will spend whatever it takes to increase the value fo their property if it means they’ll receive a higher rent.
Third, my personal experience is that rent control doesn’t always benefit the person it was intended for - it benefits the person who happened to sign a lease agreement at the right time, regardless of how much money they make or whether or not they actually NEED the assistance.
It’s a complex situation, and there isn’t necessarily a one-size-fits-all approach that will make EVERYONE happy, but here’s my thoughts.
In order for a solution to work, we need to place our focus NOT on rent control, but expanding zoning so that we can build more dense housing. Until then, the problem will continue to get worse…and if rent controls are enacted even further, landlords will be less likely to maintain their properties, more likely to take their units off the market, more likely to convert them to units that aren’t rent controlled, and all of this will further drive up housing costs as inventory dwindles.
For business inquiries or paid one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness @gmail.com
Suggested reading:
The Millionaire Real Estate Agent: http://goo.gl/TPTSVC
Your money or your life: https://goo.gl/fmlaJR
The Millionaire Real Estate Investor: https://goo.gl/sV9xtl
How to Win Friends and Influence People: https://goo.gl/1f3Meq
Think and grow rich: https://goo.gl/SSKlyu
Awaken the giant within: https://goo.gl/niIAEI
The Book on Rental Property Investing: https://goo.gl/qtJqFq
Favorite Credit Cards:
Chase Sapphire Reserve - https://goo.gl/sT68EC
American Express Platinum - https://goo.gl/C9n4e3
You are wrong about what restricts supply. Tenants staying in the same place for 10 years doesn’t restrict supply, if they were to move within the same area supply would remain low. You mean to say they move, you mean to say the poor get displaced so the rich can move in. What happens if the rich get priced out? Rent control, if done the European way works, it depresses the market on the short term but stabilizes it in the long run attracting regular consumers to compete again.
I grew up in Berkeley, Santa Monica, and Venice. You are spot on. I watched Blue Collar landlords subsidizing A-list actors and movie producers. I watched the Dell Web Towers sit with maybe two units occupied for years, while they waited for the tenants to die. Years later they razed the towers and built the Sea Colony Condos near Ocean Park. I've seen $700 a month single-family homes sell for $1,500,000 never to be a rental again. Many of the most expensive places to live have had rent control for years and the problem only got worse.
The current idea of rent control does not work, yes. But we need a new regulation.
Absolutely agree. Rent control has to go!
Landlords will destroy livelihood and push people into homeless in the name of Profit.
Dosent rent control limit the % that lanlords can raise the rent yearly? Meaning the rent cant be raised $300+ during a rent increase?
Please do not give rent control a bad name; the problem is lied on people who enforce it. I like a diverse city where all spectrum of people reside, not only super rich people. That’s what rent control has achieved letting diverse people stay home thus we have a city of diversity.
Rent control has merits letting people stay in their home and strengthening the community, otherwise increasingly higher and higher rent will uproot tenants. Mega cities will only be resided by one type of people, millionaires whose fortune is built by collective and societal endeavors.
If the issue is a lack of supply, get rid of the landlords altogether. Landlords are leeches thriving off the incomes of people who can't get approval for home loans, usually for systemic reasons. As said, some landlords keep units vacant which decreases supply. Does that not come off as highly immoral? They are literally keeping people homeless to make sure they can make a buck off the people who could live there. Housing should be viewed as a basic human right, not an investment to get rich quick off. If you have the money to buy a property in the current market, I shed no tears for you. A "mom and pop rental" is hurting for money if they can afford property to rent to begin with. I don't find it a horrible thing that a landlord had to foreclose on their house. That means the person who was living there got affordable housing, which is never a bad thing. The landlord could have saved time and money just selling the property to the tenant with a mortgage at the same rate as rent.
The issue isn't rent control being a bad thing driving up rent. The issue is rent control not being enough. Imagine you went to build a house, but you didn't put enough load bearing walls/support pillars in. The house collapses, but you wouldn't say, "oh the load bearing wall caused the house to fall." It's not an issue that comes from having load bearing structures; it's an issue of not properly fortifying your structure. You need other laws in addition to rent control keep the prices down, and affordable for the masses.
I live in a non-rent controlled apartment. Landlord/property manager still want to invest the bare minimum to maintain the apartment. While rent control may make a landlord less likely to maintain a unit, landlords in general don't want to maintain their property to begin with. They just want a "passive income," which means putting in as little money as possible and charging as much as you can. It's not a crackden apartment, but I've got cracks in my ceiling, large dark spots in carpet, mice in walls, warnout carpets, kitchen appliances from the 70s, and they charge $1500+/month rent.
You made this video four years ago and the rental situation is worse than ever now. Either, zoning hasn't changed, things aren't being built fast enough, or this isn't as great of a solution as you thought.
This is my situation, and I've never felt more anxiety about becoming homeless than now. I've been in my rent controlled apartment for just over a decade and I really don't want to move. Being disabled in our 50's, my husband and I have very specific needs that this apartment satisfies. We also don't have any support so if we were forced to move, it might literally kill us (my husband is medically restricted from lifting anything above 10lbs and I can't stand/walk for longer than five minutes without intense pain).
My current rent is 38% of our combined income and is sitting at about half of its market value; the average market rates rose nearly 32% over the past year and a half in our city. Because our disability benefit is so stagnant, if we had to start paying market for this apartment, rent would become 75% of our income. This doesn't include our renter's insurance and we would also become responsible for paying all utilities, boosting total shelter costs closer to 82%. This would basically be a death sentence. We're already in one of the cheapest complexes in my city so we have zero choice than to fight to stay.
My corporate landlord made the choice to get into investment real estate and had the resources to play the game. I'm just trying to live my life and survive on $1700 USD per month with my husband. I can't control what laws landlords are bound to. I can only fulfill my financial obligations and pay my rent in full and on time. I recognize that my landlord has a huge incentive to find a way to evict us and I was honestly getting nervous with how wide the gap was getting, but I don't know what I can do about it.
Right now, I'm just trying to squirrel away what extra money I have because I can sense disaster inevitably smashing my world. With everything being unaffordable and everyone becoming more and more broke by the day, the chances of finding any sort of traditional employment is slimmer than nil with the barriers I have. I obviously have a huge income problem and I'm brainstorming what I can do about it, but due to serious trauma in my life (in addition to having a very shy and introverted personality), I suffer from a severe lack of self-confidence and self-worth and it's very paralyzing.
My rent in California has more than tripled in the last four years and it's fucking insane, minimum wage has gone up but not THAT much
Every issue you listed was because of greedy landlords… not rent control. also kind of hard to claim you don’t like to get into politics when you are pushing up against housing stability for low income earners.
The main problem is jobs not giving pay raises to keep up with the increasing prices in rent, it wouldn’t be a big problem if wages matched
And this is why the homeless amount grows
rent control is not a good thing….
Yes we need government regulated interest rates for landlords. If banks could set their own rates or not renew a mortgage without a big bump in interest each year it might start destabilizing the housing supply.
Or maybe we should just stop using the state to force people into doing things they don't want to do with their own property.
If you are pro rent control, you are a thief. Deal with it
Hello Pete Mitchell!
Price controls were enacted on wheat for making bread, in Ancient Greece and Rome.
What happened? The supply of wheat drastically decreased as it simply was not profitable for farmers and bakers. Results,starvation. Always interesting to learn from history, but I don’t expect rent control supporters will take note.
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Rent control keeps the landlords from growing their buisness while helping the tenant. Rent control helps buisnesses like home depot keep their prices high and hd doesnt have to sell in high volume they can sell higher per item since landlords arent growing rather just maintaing or forclosing….. Keep things barely affordable 2024 biden
partial rent control is obviously gonna have a problem because people don't wanna leave them. Its all or nothing.
The % a landlord can increase it annually should have a cap.
We shouldn't just let rent cost grow at a rate significantly faster than wages do. People need a place need to live.
Building is nice and all…..but it needs to happen at the consumer level like it used to. If you can't find a house as a first time home buyer you should be able to use the loan to build.
They're not building houses either way tho
Those suffering in poverty have needs far more important than others. RENT is what enslaves the poor.
Im reading basic economics by thomes sowell, everything you are saying is in line with that book
.the CDC voided every single private rental contract in the country in favor of tenants….i dont want to hear about rent control…let the market do its thing..
Land value taxes and zoning reform
Rent control should not be allowed to be handed down to family members
In the early 90s Ontario, Canada, the government said new apartment buildings wouldn't have rent control, hoping that more buildings would be built but none were. I wonder if removing rent control would work if other economic restrictions and distortions were removed. For example letting R1 neighborhoods go R4 with triplexes and 4plexes. For old suburban malls, they could be redeveloped as a mix of retail, high-rise apartments, schools, and offices, but the local residents usually want it to stay like 1982
In the North East places like Boston in lieu of rent control developers are mandated to build "X" number of affordable housing units with each new market rate development. While the job market is red hot one of the major drivers of increased rent's is displacement from College students. It's no surprise that many colleges in Boston do not have dormitories or they do not require students to live in them if they do not want to. What would have been a much better idea would be to have required college students to live on Campus.
I don't know how I'm supposed to be expected to pay more than $1,000 for a one-bedroom one-bathroom apartment that's in the middle of a homeless slum