Friday, April 8, 2011

The Problem of Rent Control and Apartment Availability

Without a doubt, one of the most self-serving selfish acts of a democracy is the ability to vote yourself a raise. And a direct result of this treasured institution is the systematic control of private property that results in rent control. If you can elect someone or directly approve an ordinance or law that controls what you pay for rent then you have given yourself a pay increase out of someone else’s pocket. Simply, in the approximately 51 United States municipalities that have some form of rent control, you have the distinct honor of owning the property but not controlling it. All aspects of the apartment marketplace are irrelevant and are forcibly turned over to a civil servant bean-counter.

Much of rent control is left over from the crazy days of the late sixties and early seventies. Since then, the adjustments and changes to those laws, boggle the mind and make any clear thinker just shake their head. But New York City (and I am by no means an expert) has had rent control since the 1920s and it has morphed continually until, at the present, only 36% of the current rental market is non-regulated. Essentially the rent of two out of three apartments is controlled. The reasons were, at one time, low income families, concerns about the homeless, and it’s now low-income seniors (source Wikipedia).

San Francisco, according to the SF Business Times and the 2010 U.S. Census, has the largest number of vacant homes in the Bay Area, over 30,000 units (Alameda County has 37,000 units). If you go to the San Francisco Tenants Union web site you get a very active (landlord being hit on the head) view of what they think of landlords as well as a very succinct and detailed description of the City’s ordinances regarding rent control. They are proud of the fact that “In San Francisco, most tenants are covered by rent control.”

The SF Business Times editorial notes that the Bay Area is a growing region and requires almost 20,000 new units every year to keep up with the need, whether for sale or rental. Some suggest even more units, upwards of 40,000 units, are needed. Much of the demand for housing, in the mid part of the past decade, was met just outside the region and required long and congested commutes. It was also responsible for the over building in San Joaquin County and eastern Contra Costa County (these will be absorbed, eventually).

One very important issue, noted in the article, is that due to the cost and difficulty of removing a bad tenant, it is cheaper to leave the unit empty. Many of these 30,000 units probably fall into that category. By not making these units available the pressure on the market increases, there are fewer units and currently more renters, the result is higher rents (in both controlled and uncontrolled units). This is probably twisting the undies at the Tenants Union I’m sure. Even in the most socialistic management of one of the basics of life, shelter, the marketplace finds a way to assert itself. Sadly it also can make criminals, just ask New York Congressman Charles Rangel how to game the system.

The result of foreclosures and the loss of homes by their owners has had a two-fold affect. There are more people and families in need of rental housing and there is pressure on the market to increase rents due to declining vacancies.

Rent control actually plays into the marketplace (and it is now built into the system). These units, kept off the market for whatever reason, are helping to increase rents. Another consequence is that developers and builders now see a potential for getting back into the rental market. Five years ago, I heard a builder say that the rental market was dead for the next ten years, unfortunately his company is not around anymore; he put all of his eggs in one basket and was squashed.

We all try to have personal control over the basics of our lives: income, food, housing, health, etc. We plan and save, build equity, educate our kids, plan for a successful retirement. Then we get clobbered upside the head. Rental housing is a necessary option in many of these choices. Those foreclosed, for the most part, are not living on the street, they are now renting, sometimes in the same neighborhood. Balance is somehow achieved.

But we will get too aggressive; we will jump on the bandwagon. States will issue tax deductions to assist the rental industry, the Feds will diddle around with some form of legislation that will enable the development industry to flood the marketplace, rents will drop, builders and lenders will fail. We will relive the 1980s and the S&L scandal. The Wall Street Journal        notes nationally: “. . . about 22,500 units to be added this year, followed by 94,600 in 2012, and more than 109,000 in 2013. Of course, that might put downward pressure on rents and occupancy levels.”

You think?

Stay tuned . . .

No comments:

Post a Comment