California

How Rent Control Laws Hurt Tenants

California is about to get a real world lesson in how rent control laws can't solve a housing crisis.

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Every time we walk past lumber racks in a home-improvement store my wife or daughters start giggling about all the "fine pieces of wood."

It's an inside joke that goes back to my first rental property in a small Mojave Desert town. I bought it "as is" in an online auction (although I saw it in person first), and remember the horrified look on the faces of my family when I took them to see it. Think of the term "uneasy silence."

Half of the roof had blown off from vicious desert winds. The house had broken windows, broken everything, trash strewn everywhere. It looked like something out of the movie "Road Warrior," given that it sat amid tumbleweeds, sand and cactus. Anyway, I lovingly fixed it up on a shoestring budget. When it was done, I popped for a pricey but fine piece of wood to create the mantelpiece. I was proud of it—and still get teased.

This is not the newspaper version of "Fixer Upper," but a look at rent control. Gov. Gavin Newsom is likely to sign an anti-rent-gouging bill that caps annual rent increases at 5 percent plus inflation and limits the ability of landlords to evict tenants.

The debate has centered on the plight of tenants, who face soaring rents as California's self-imposed housing crisis deepens. Opponents note that landlords will exit the market, builders will stop building apartments or turn rentals into condos, and owners will defer maintenance. Owners and renters will become adversaries as regulators and tenant boards turn a simple market transaction into an us-versus-them situation. Rent control obliterates housing markets wherever it is imposed.

Personal stories trump economic arguments, so today's column offers my perspective as a small-time landlord. It's a story other investors share, and sheds light on why government caps will make the housing situation worse. They're not looking for sympathy, even when tenants mistreat the property, don't pay their rent, or when unexpected things happen. In my case, a small earthquake cracked the toilet line and flooded my Mojave Desert house the day tenants were supposed to move in. It's a business with costs, risks, and rewards.

But here's a clue of what's going to happen. I've rarely raised rent or charged late fees and am lackadaisical about rules. Now the state is going to tell me how much I can charge and make it tough to evict any bad tenants. Most landlords will now raise rents to the maximum allowable limits every year and strictly enforce the terms of the lease. Many will sell their houses to single-family owners, which will take them off the rental market.

Currently, I'm under market rate with most rents because I rather keep good tenants than risk finding new ones. With rent control, landlords lose the ability to raise rents when they choose, so we need to be diligent to keep rents at their peak given that the previous year becomes the baseline. If we are lax on enforcing the lease, then it's hard to suddenly declare that to be a "just cause" for eviction. Since the state will control our profits, we'll need to maximize profits wherever we can.

I'll probably turn management over to management companies, which are far less lenient when a tenant has a tough month or less likely to authorize what I did recently—insulate a house and install new ductwork to help a tenant get utility bills to an affordable spot.

This is a side business. It's partly a labor of love. Most of my homes are historic properties in working-class communities. After I renovated an Art Deco mansion on a city park, neighbors hugged me because turning an eyesore into a professional office building helped upgrade the surrounding block. As an aside, a 2020 ballot initiative would remove Proposition 13's property-tax limits from most commercial buildings, which could obliterate my earnings on that property. California gets you coming and going.

At what point does it make more sense to stick one's money in a mutual fund? That fund doesn't call you at 2 am when the toilet is overflowing. When small landlords leave the market that means fewer single-family homes for rent. It makes renters more dependent on big apartment companies, who can afford the staff to manage the regulatory hassles. It also means fewer opportunities for middle-class people to buy and rent out real estate, which remains a great path to wealth creation. Not everyone has a government pension, you know.

It's about incentives. You get more of what you encourage and less of what you punish. California's rent crisis is caused by insufficient supply, which is the result of a system that imposes a punishing level of regulation and fees on builders and developers—and now on landlords. It will mean fewer properties for rent and fewer landlords who proudly design the fireplace mantle.

This column was first published in the Orange County Register.

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  1. You know what would help tenants? The Koch / Reason policy of unrestricted, unlimited immigration. Don’t blame California for a problem originating in the White House.

    #OpenBorders

    1. Give it up, OBL. Your attempts at sarcasm were funny at first but that stopped long ago. Time to find another schtick.

      1. Piss off . OBL brings a bit of sunshine into these dark times.

        1. Eh, I think this one was kindof forced

  2. Let’s see… Conservatards (or at least, the ones that comment here) LOVE the idea of “tariffs”, because the USA (hooray!) can “prop up” its domestic suppliers of goods and services, by supposedly punishing foreign suppliers, by punishing USA consumers, with the heavy hand of Government Almighty! And here’s the kicker: Because of the vast mental superiority of Americans, our foreign (NON-American) stupid-head trade partners will NEVER think of treating us the same way we treated them, in kind! BWAH-ha-ha-ha!

    In the same manner, these same conservatards should be supporting rent control! The heavy hand of Government Almighty will “prop up” the renters, by punishing the landlords! Because of the vast vote-delivering powers of the fact that “there are MORE renters than there are landlords”! And the landlords, because of their mental inferiority, will NEVER dream up of the idea of “striking back” by NOT building ANY more housing! And even just getting OUT of the business altogether!

    1. You say really stupid things, especially in the form of strawman, when off your meds.

      1. Refute what I say, then, instead of resorting to grade-school insults.

        For the reading impaired, here, what is in common is relying on the heavy hand of Government Almighty, and self-righteously assuming that ME and MY TRIBE are WAAAAY smart, and the other tribe is made of morons. Since they are morons, there will be NO unintended consequences. And THAT way of thinking, is what the stupid-heads do!

        Now refute what I just said.

        1. I’ll refute it.

          You’re OK with slavery.

          Fuck off slaver.

      2. Haven’t you noticed that tariffs are taxes?

        You think sellers absorb those 25% taxes?

        No, you just wave your jazz hands and all ist gut.

        1. Show me a 25% price increase

          1. Show me you have any economic knowledge greater than your love of Trump.

  3. California is about to get a real world lesson in how rent control laws can’t solve a housing crisis.

    Yes, I’m sure that this time they’ll learn – unlike the 40,000 times before when they failed to learn the lesson. I’m sure that when rent control doesn’t work they way they want it to, they’ll abandon rent control rather than just rent controlling harder.

    These people are either stupid and incapable of learning that economic laws cannot be repealed by legislative acts or they’re evil and know full well what’s going to happen but go ahead and do it anyway because that’s what the voters demand. Every time I get cynical and decide they must be evil because nobody can possibly be that stupid, I look at Bernie Sanders and all the people who support his Free Shit campaign and realize that, sadly, people really are that damn stupid. I don’t know which is the more depressing thought, that we’re governed by malevolent people or that we’re governed by morons.

    1. I think that we’re governed by malevolent morons, actually! AND by the malevolent moron voters that put them in power!

      Most depressing of all, is to realize that we (collectively at least) deserve what we get! As soon as SpaceX gets this “Mars” thing going, I hope that they can brain-scan the emigrants to exclude the morons and the malevolent characters, and I’ll be getting ready for departure!

      1. You also think slavery is ok so you can fuck off slaver.

      2. Hey Hihn, are you gonna run around shitting every single thread up again today?

        Now fuck off slaver.

      3. Actually, I think the truth is sort of sad. The Progressives are always acting from an emotional response that sees everything as a moral choice. They want to help poor renters, and because of the immediate suffering seen on TV, need to help them right now, and in the most visible way. The world, being divided into good and bad people, most be controlled to help the good. So, laws are passed to help the good, innocent victims and if they don’t work as intended, then the Progressives double down, since backing off will be giving into the bad guys.
        If you point out that the initial efforts have made things worse, then you are acting as an agent for the bad guys. That’s why there is such a strong emotional response to any criticism of a law to help victims. God help you if your criticism is based on math.

        1. “…God help you if your criticism is based on math.”

          Yeah, math is done by white, western guys!

        2. Progressives think good intentions are enough, forgetting what the Road To Hell is supposedly paved with.

      4. Why would you be getting ready for departure when you already know they will be excluding morons?

        Can’t believe someone else didn’t jump on this first! Haha.

  4. There are investment and enterprise options besides California real estate and mutual funds. Just saying…

    1. Less investors = less dental properties. Which was part of the writers point.

  5. “Not everyone has a government pension, you know.”

    Don’t give them any ideas now.

    1. So what is social security?

      1. Ponzi scheme?

  6. Rent control benefits almost no one. Even the people who are lucky enough to have an rent control apartment really are not that better off and in most cases are worse off. Rent control locks in the rent at well below market value. This means landlords have no incentive to do any maintenance or improvement on the property. If the rent control is $1,000 a month and the market is such that the property will rent for a $1,000 a month whether or not it is immaculate or a rat infested shit hole, there is no reason for the landlord to not let the property decline to the shit hole level.

    This is why apartments in New York City are so notorious for having terrible maintenance and services. The ones that are not rent controlled do not. They can be fabulous. It is the rent controls that are dumps for the most part.

  7. As if the evidence from Santa Monica, San Francisco and Berkeley wasn’t enough, the whole state gets it in the shorts now.
    Schumpeter was criticized for pointing out that the the revolution made the USSR a real test of economics; he was held to be heartless, since (among his friends) there was no doubt that people were going to starve, at least.
    His response was ‘I didn’t do it’. I feel the same ‘sympathy’ for those now frozen out of the rental market.

  8. Anything that discourages development is fine by me. There’s no “housing crisis”, either – just overpopulation. Start paying kids to get sterilized in high school, and mine the southern border.

  9. It’s good to see an actual libertarian article here instead of just another hysterical ORANGE MAN BAD article. Too bad we still have the same shitheads commenting, though.

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