Rent Control and the aftermath
Dec 16, 2019
Beware! - rent control impedes rent growth and in turn cash flow. Its usually a political fix for prevalent conditions at a given time and once enacted it stays-on hurting housing forever.
Apartment demand and rental pricing change over time depending on economic and market conditions. Housing availability and demand are major factors. With higher demand, rent-rates rise and eventually price-out people on fixed incomes. Local government intervenes with rent control to protect those tenants. The conditions that brought in rent control will eventually ease and rent pricing will level. In fact, the demand-supply dynamic may turn in the tenant’s favor and this is why you see concessions being offered at properties to attract tenants. During those times, it is not uncommon to see offers of a full month’s rent as a concession for a 12-month lease.
When demand increases and supplies tighten-up, new tenants pay a much higher market rent, in effect subsidizing those tenants under rent control.
As a friend observed while visiting a property, the rent control tenants usually have big TVs, the latest electronic gadgets and fancy cars.
I once met a person on a flight, earning upwards of $250,000 per year that was heading to San Francisco, who told me that he will never give-up his comfortable rent-controlled apartment with bay-views where he has been living for many years even though he owns another home in another city.
In parts of Europe the rent control situation is so bad, that apartments do not become decontrolled when a tenant leaves, so an existing tenant charges a fee (they call it a key fee) to an incoming tenant effectively removing the landlord from the equation. The “key fee” can be a significant amount like a down payment on a house by our standards.
Warm regards,
-Nes
Love The Rent