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REAL ESTATE California Governor signs rent-control law... yea or nay?

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MJ DeMarco

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Haven't read the bill in its entirety because you couldn't pay me to live in CA, much less own RE there but it restrains increases to 5% per year plus inflation. Seems reasonable but I wonder what the fine print says. CA landlord law is already a shit-show.

 

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Thoelt53

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Rent control hurts landlords, increases rent over the long term (just look at any major metro w/rent control) and increases homelessness.


 

Rabby

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Desolation to follow. If I could short the CA rental market, I would pour gobs of money into the short position (or put options). Maybe I'll think of something yet (evil grin).

Two things will happen, at least:

1) Young families will become crowded into smaller spaces as older couples with no children hang onto large spaces. This will happen because there is no economic incentive to vacate the larger spaces, with rent controls in place.
2) Landlords will cease to maintain properties well. With less ability to make profit, the worst landlords will win in the now fixed game of "spend as little as possible." Landlords who attempt to maintain property in peak condition will be unable to do so and will remove their money from residential real estate, investing it elsewhere. New residential construction will rapidly decelerate as markets correct for the artificial controls. Over time, there will be too little housing because nobody is willing to invest with caps on their income that are determined by the political rhetoric of the day.

There is a lot of literature on this. I highly recommend Thomas Sowell's, Basic Economics for cause/effect principles like this. Or his earlier work, Knowledge and Decisions... excerpt:

View: https://www.youtube.com/watch?v=Gs4js9Go6Qc
 

AgainstAllOdds

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"The law limits rent increases to 5% each year plus inflation until Jan. 1, 2030."

"It would not apply to housing built within the last 15 years, a provision advocates hope will encourage developers to build more in a state that desperately needs it."


I don't see this as that bad for real estate investors. In fact, could be a positive. What's going to end up happening is that almost every single landlord will standardize a 5% increase year over year.

Basically the asset you're holding will come with 5% appreciation built in on top of the normal rent income.

Today your rental home brings in $1,000. In 10 years, it will bring in today's equivalent of $1,629.
 

Process

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Nay.

It is almost as if certain politicians do the worst econonmic moves possible to be able to milk their donors out of "contributions" for special loopholes.
 

G-Man

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It’s a shame there isn’t some sort of mechanism that could determine the supply and pricing of housing that auto regulated to match the quantity and price demanded by renters.

.... shame nothing like that exists
 
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G-Man

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Desolation to follow. If I could short the CA rental market, I would pour gobs of money into the short position (or put options). Maybe I'll think of something yet (evil grin).

Two things will happen, at least:

1) Young families will become crowded into smaller spaces as older couples with no children hang onto large spaces. This will happen because there is no economic incentive to vacate the larger spaces, with rent controls in place.
2) Landlords will cease to maintain properties well. With less ability to make profit, the worst landlords will win in the now fixed game of "spend as little as possible." Landlords who attempt to maintain property in peak condition will be unable to do so and will remove their money from residential real estate, investing it elsewhere. New residential construction will rapidly decelerate as markets correct for the artificial controls. Over time, there will be too little housing because nobody is willing to invest with caps on their income that are determined by the political rhetoric of the day.

There is a lot of literature on this. I highly recommend Thomas Sowell's, Basic Economics for cause/effect principles like this. Or his earlier work, Knowledge and Decisions... excerpt:

View: https://www.youtube.com/watch?v=Gs4js9Go6Qc

This a more recent one, and a good reminder of the problem/solution dialectic that determines almost everything the state does.

Government gets involved. Problem ensues. Government gets more involved to solve the mysterious problem, often blaming the “market”. And then we’re forced to suffer through endless lecturing about how the free market doesn’t work all in reference to highly regulated industries where there is no free market to begin with.

Maybe next we can pour trillions of dollars into the defense industry creating a “market” for products that no one actually needs or wants, then wonder why there’s no cure for cancer. That’s right, it’s because the people that are smart enough to figure it out are busy working at Raytheon building smart weapons.

Sorry, been reading too much Murray Rothbard and had to get that out of my system.

/Rant over
 

SamRussell

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On principle, I’m against government involvement in the economy, so this is a big no from me.

In fact, if we used principles to make decisions, politicians would have a lot less decisions to make. And we’d need less of them.

It’s a shame there isn’t some sort of mechanism that could determine the supply and pricing of housing that auto regulated to match the quantity and price demanded by renters.

.... shame nothing like that exists
I know you were being sarcastic, but you’re right.

Basic freedoms no longer exist...

Whenever I think of most people’s take on freedom, I’m reminded of Summer from Rick and Morty, “I didn’t mean free will, I meant, like, choosing a cell phone plan.”
 

njord

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We aready stronly regulate the rent in Holland and our housing market is compleetly f*cked up massive shortages in housing for renting and buying + rented houses are basicly left to rot becouse there is no incentive to keep them wel maintained.
 

ecommercewolf

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Rent control is a simple solution to "solve" a housing shortage problem that DOES NOT solve the actual problem.

Any economist or somebody that has taken a basic Econ course would agree.

The real solution would be to fix zoning laws, and allow for greater housing density.

Making rent control laws still does not fix the SUPPLY issue
 

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DustinH

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Supply will continue to be strained.

Some landlords will decided to sell their investment properties because there will still be a shortage and they will profit massively. Those investors will take that money and invest it in real estate in other areas of the country or in another investment vehicle.

Since landlords will profit from selling the property more than renting it, there will be a vacuum in the market of rentals. Regardless of monthly rent there will still be a shortage of affordable rentals.

The problem is still simply supply and demand. There is a shortage of housing to purchase and housing to rent in California. It's a problem that they created themselves and refuse to action with the correct solutions.

Developers and builders don't want to build anything affordable in California. They only want to build high-end and luxury housing to make the necessary profits commensurate with the risk they are absorbing.

Home building levels nationwide are still only at about 50% of what they were in 2005-2006. The entire home building industry is about to go into a little bit of recession because they will have no where to build product that the majority of the public can purchase. Problems with the high cost of land, slow and over-regulated approval processes, shortage of skilled labor, increased costs of building products, trade disputes, and highly restrictive local government laws will put many home builders out of business. Just wait and see a year from now.
 

Kevin88660

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The latin Americanization of U.S. Economy and Politics is on the way...
Left wing politics and economics policy, then inflation and debt crisis, then right wing military dictatorship, but somehow left wing populist win again through coup or election, the cycle starts again.....
 

Tourmaline

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I mean when the NY Times admits it's bad....


The problem, though, is that these programs actually make the city much less affordable for those unlucky enough not to live in a rent-regulated apartment, Mayer says. The absurdity of New York City’s housing market has become a standard part of many Econ 101 courses, because it is such a clear example of public policy that achieves the near opposite of its goals. There are, effectively, two rental markets in Manhattan. Roughly half the apartments are under rent regulation, public housing or some other government program. That leaves everyone else to compete for the half with rents determined by the market. Mayer points out that most housing programs tie government support to an apartment unit, not a person. “That is completely nuts,” he says. It creates enormous incentive for people to stay in apartments that no longer fit their needs, because they have had kids or their kids have left or their job has moved farther away. This inertia is a key factor in New York’s housing shortage.
But hey, Cali likes to suffer. Perhaps this will help accelerate the state breaking up into three!

 

jpn

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We aready stronly regulate the rent in Holland and our housing market is compleetly f*cked up massive shortages in housing for renting and buying + rented houses are basicly left to rot becouse there is no incentive to keep them wel maintained.
As a landlord in NL I partly agree with you. We have rent control on low cost housing which means that low cost is not maintained and goes to shit. Or it is improved into more expensive accommodation that is not rent controlled. Leaving nothing available in the middle.

The biggest problem though is the lack of construction permitted by local government due to high land prices, and a shortage of builders. This means there is no economic incentive to build affordable housing. Leading to a shortage in the lower segments of the market.

My general feeling is nay, like mentioned before most regulation that I’ve seen in the rental sector lead to more and worse problems down the line, that require further regulation, until it’s all completely F*cked.
 
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Tourmaline

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Mikkel

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Nay

First, we assume the government knows what the actual rate of inflation is... which is funny since they seem to get everything else wrong too.

Second, you can say goodbye to all those houses that require more money than a 5% increase/year to maintain the house... since California has strict laws that allow tenants to sue based on housing code.

Say goodbye to more houses, and say hello to more homelessness.

Hard no for me.
 

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biggeemac

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I live in Oregon, and Oregon was the first state to pass a statewide rent control law back in march. I have no intent on becoming a landlord to the open market here. F*ck that. If they are hell bent on removing any control that I have whatsoever, F*ck it. The government can manage their supply of real estate.....which ultimately belongs to them anyway. I'm still trying to figure out what I'm gonna do with the houses that I will inherit from my dad.
 

Grinder20

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Haven't read the bill in its entirety because you couldn't pay me to live in CA, much less own RE there but it restrains increases to 5% per year plus inflation. Seems reasonable but I wonder what the fine print says. CA landlord law is already a shit-show.

@MJ DeMarco, great, real estate socialism. California will figure it out one of these days, if it kills them!
 

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I have a friend who lived in a rent controlled unit. She wouldn’t move because her rent was so cheap compared to the current market. It was like 70% below.

A developer bought the building to turn into condos, but he couldn’t make the tenants move out, so he started to offer money for people to leave. The offers started at $15k and if you held out long enough they went up to $75k and higher. She eventually took the nice check and moved out. Lol

I had told her to hold out for $150k.
 

rollerskates

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We have rent control on low cost housing which means that low cost is not maintained and goes to shit. Or it is improved into more expensive accommodation that is not rent controlled. Leaving nothing available in the middle.
Kind of like the health insurance market. There are people squeezed in at the bottom at low cost and overcrowding and at the high end, it's easily available but at high cost. In the middle? Forget it. Rent control is the Obamacare of housing.
 

Vegvisir

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My first instinct is that this is a political ploy to make it look like they are trying to fix the problem of the housing crisis in CA to voters. The free market is very clever and in the end landlords will always find a way around this. I feel like it would be pretty easy for landlords to make the money back by tacking on fees in other areas. For example charge high application fees, overcharge on trash pickup, high deposits(can earn interest), etc.
 

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