New Rent Controls?

[bizorky]

I wasn't aware that, as a field of inquiry, economics operated on the basis of majority rule.

The story you quote is just one of many possible examples. It should be clear to you that a bias would exist for free market rules among those who believe that rent should be based on what the market will bear. Eliminating rent controls is overwhelmingly supported by building owners and individuals in the rental business.

Is rent control perfect? No. But neither is letting everything be determined by so-called market forces.

 

[TdotTrickyRicky]

Bizorky, my reply to you post was not ment as an attack but lets look at the issue objectively. I can understand the desire to believe in rent control but look at it from the other perspective. Rental housing is a business, if there was no profit made there would be no rental housing, it makes no sense to have rental property without making a profit. The rental housing industry is not a monoply, there are a diverse range of owners and properties perhaps more so then in any other industry so their is no price collusion driving rents upward and there is an equilibrium point where it makes more sense to buy then rent so a natural cap on rental rates exist relative to housing affordability (which is dictated by what the average person can afford). Rental profits are long-term and predictable to the point of boredom. Owners and investors get a return on their investment generally around 6-8 percent in north america regardless of if one believes rents are falling or skyrocketing during this period. There are only so many high end renters to court and they're numbers are unpredictable as housing affordability changes limiting the number of property owners able to chase them.

Given these characteristics I think it hard to justify the populist notion that rental income is an extortion and needs to be supressed. All that rent control does is force building owners to subsidize renters (receive less then 6-8 percent return). As a result the quality of the rental stock deteriorates adversely effecting the quality of the rental stock as owners delay repairs and the market tightens up as owners take rental stock off-line (why bother rent if you don't get a return?). Property far outlasts political regimes and ideologies so any yo-yo effect (steep rise and fall in rents) is a product of demographic and policy design but the boring equilibrium of long-term mediocre returns always prevails.

 

[bizorky]

My point was that removing rent control did not stimulate the development of new rental units, affordable or otherwise. This was something suggested by many people who argued for removing rent controls.

Market rules would suggest that as availability becomes scarce, the prices will go up. As you have pointed out, rental housing is a business; a business which could effectively squeeze the lowest income earners out of their apartments as scarcity increases and prices rise. Many low income earners typically don't own cars and can't afford to move far outside the city to seek less expensive housing. They get cornered between incomes that don't keep pace with the cost of housing, and a limited selection of alternatives. Moving becomes difficult, if not impossible for some, as the price of a new unit could rise considerably when compared to the constant annual hikes in rent in their existing unit.

Rental building owners and managers view forms of housing geared to low income earners as an attack on what they perceive to be their rightful business, so I am not surprised when building owners are opposed to rent controls of some sort, or to other low cost housing options.

Rental buildings owners can write off losses, and can certainly write off the cost of improvements to their units. They can also pass the costs on to renters. They can pass on increases in the cost of heating, and need not adjust the increase once it is in place. This is exactly what happened when gas prices spiked a few years back, then dropped. There was no rent increase reduction when heating costs fell. Is the system totally fair to a building owner? No. Is the escalating price of housing fair to low income earners? Not by any stretch.

The issue of housing is crucial in society. Its impact extends far beyond the right of a building owner to extract a profit from a renter. We don't have a particularly strong policy concerning guaranteed low income housing, and there has been little effort in pursuing unique or inventive forms of housing to deal with the needs of low income earners as a group. Some fear the creation of ghettos through the pursuit of co-ops or other housing that addresses the needs of low income earners, but this is a straw-man argument. Low income earners are already "ghettoized" by their small incomes. Either we should seek out housing alternatives or maybe start defending large increases in income.

 

[TdotTrickyRicky]

"The issue of housing is crucial in society. Its impact extends far beyond the right of a building owner to extract a profit from a renter. We don't have a particularly strong policy concerning guaranteed low income housing, and there has been little effort in pursuing unique or inventive forms of housing to deal with the needs of low income earners as a group."

I totally agree with you with respect to low income earners potentially being pushed out of the system and lack of creative solutions to this problem. The reason there is a lack of creative solutions to this problem is that society always wants to force building and property owners to bear the cost of inequities in society. So as the average income rises and leaves some people behind property owners who are the easiest targets (see downloading of services onto property tax) are forced to subsidize low income renters through rent control. If society feels we should level the playing field then all tax payers should shoulder this burden (keeping in mind that property shoulders a considerable amount of our tax burden already). Landlords associations for instance advocate for low income rental supplements so that low income renters can be housed in building at market rents. There are many benefits to this especially by reducing the ghettoization of low income people into a few buildings and the fact that it can be done for a fraction of the cost of public social housing where each unit costs the public tens of thousands of dollars per year.

On the flip side there will always be a need for public housing options and policy decisions because some landlords will discriminate against certain tenants, with children for example. This is largely because they can't under the current system effectively recover any loss due to damage of their property by a tenant and kids cause more damage. But again rental control seen as the solution is again part of the problem. If renters were responsible for the damage they do to a unit then landlords would have no reason to discriminate.

 

[bizorky]

The reason there is a lack of creative solutions to this problem is that society always wants to force building and property owners to bear the cost of inequities in society.

Agreed, but it is primarily the low-income earner who bears the costs of these inequities.

As I have stated, I don't think that rent controls as they existed in the past were very effective. I don't believe for a moment that any new forms will satisfy either renters of building owners. Market forces are not solving the problem, either.

I don't have an ax to grind when it comes to building owners. Knowing a few, I understand the difficulties and costs they face in their business. I also recognize that issues such as taxation and insurance can be costly burdens.

As for assessment and municipal taxes, I doubt that I am telling you anything new when I say that if there is a system in need of fixing, it is taxation-linked assessment system. Multi-unit dwellings are taxed in excess when compared to single, detached housing. Multi-unit dwellings make sense in a city; they should not be taxed at a rate double that of a single house.

There really is no choice but to examine some form of creative alternatives to housing people who have a low-income. Maybe one avenue is to look at some renters having a greater opportunity to become stakeholders in buildings. It is an easy thing to say off the cuff as the policy issues for doing this would be quite complex.

 

[DarnDirtyApe]

Personally I think that we don't have an affordable housing problem, we have a poverty and unemployment problem with people who cannot afford market rents, no matter how controlled they may be. To me it seems far better to address the problem directly rather than rely on the giant hammer of rent control which distorts the market for everyone else.

There's plenty of vacancy in the rental markets, and the prices seem to be as low as the landlords can go while still breaking even. You can get your pick of 3 bedroom apartments for $1,000, which after property taxes, utilities, and maintenance probably doesn't leave a lot left over to pay a mortgage on the building. I don't claim to know what it would be, but there is a point where landlords cannot drop the rental rates and still break even. Any family with a household income of $30,000 could afford a $1,000 apartment. The problem is that we have so many people scraping by on incomes less than that, and we need to provide support to these people so they can at least have enough money to rent market rate housing.

Leave property management to the professionals, I say. We should be providing people with the means to choose their own housing, rather than encouraging depency by forcing them to live in public housing.

 

[building babel]

Of course multi-unit dwellings should be taxed at a higher rate than single detached housing. If I stacked ten storeys on top of my little house, and rented them out for profit to ten families, I'd expect to pay a helluva lot more property tax considering how much money I rake in from the same square footage of land.

Rent controls were very effective in the past for those of us who rented. They protected us from being gouged.

 

[DarnDirtyApe]

Nobody is suggesting that a 30 storey apartment tower be charged the same property taxes as a house on the same size lot. The problem now is that apartments are charged more per dollar of assessed value than single family dwellings are. For example, if a $500,000 house is charged $5K in taxes, a $5MM apartment building will be charged more than $50K (10 times the tax on the house).

Maybe rent controls worked in the short-term to prevent you from being gouged, but they also dissuaded anyone from building new rental stock which kept the supply of rental housing artificially low. Without controls, any time rental profits rise, someone will see an opportunity and build more housing, bringing more supply onto the market and preventing other landlords from raising rent excessively.

 

[bizorky]

Of course multi-unit dwellings should be taxed at a higher rate than single detached housing.

Sorry babel, my mistake. I didn't mean the entire building, I meant the individual apartment or condo unit. Those types of units in a multi-unit building are charged more when compared to a single detached dwelling.