exposing the dark side of rent control...
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Published 2018-10-12
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We need to first define what Rent Control is: This is a government-enacted regulation that limits the amount a landlord can increase a tenant’s rents annually.
There are very few things economists agree on, but there’s one thing I found especially interesting when I began researching this topic…and that was the mutual consensus that rent control does NOT help with housing affordability. A 1992 pole of the American Economic Association found that 93% of its members agreed that “a ceiling on rents reduces the quality and quantity of housing.”
A Stanford study has argued that Rent Control actually has an ADVERSE affect on prices for renters and actually works AGAINST making housing more affordable.
Here’s what they found:
-Rent controlled tenants were 20% more likely to stay in their unit.
-Renters were more likely to move elsewhere if they didn’t have the incentive of having their rent capped where they currently were living
-In the priciest neighborhoods, turnover was HIGHEST as landlords actively try to remove tenants to achieve market rents
-Landlords of rent controlled buildings were more likely to convert their buildings in such a way that it wasn’t rent controlled, reducing the amount of housing by 15%
-The loss of available housing drove up prices of rental units. It was found that a 6% decrease in housing supply led to a 7% increase in rental prices.
The net result is that, based off these studies, rent control ends up restricting the supply of new units into the market. While some renters may get a bargain and win the lease-agreement lottery, most people NEVER get access to low rent-controlled prices, and if they do, they are incentivized to never move out because it’s so cheap, lowering supply.
First, landlords of rent controlled properties have NO INCENTIVE to fix up their units. If they have a tenant paying below market rent, they want the tenant out. Because of that, they will do the bare minimum to keep the unit habitable and nothing else, hoping that eventually the tenant will get fed up and leave…allowing the landlord to re-rent the unit for market prices. Generally, rent controlled units are falling apart. Landlords do NOT take care of them as they should.
Second, when it comes to owning real estate, it’s a business…and any sustainable business out there is driven by money. Landlords will spend whatever it takes to increase the value fo their property if it means they’ll receive a higher rent.
Third, my personal experience is that rent control doesn’t always benefit the person it was intended for - it benefits the person who happened to sign a lease agreement at the right time, regardless of how much money they make or whether or not they actually NEED the assistance.
It’s a complex situation, and there isn’t necessarily a one-size-fits-all approach that will make EVERYONE happy, but here’s my thoughts.
In order for a solution to work, we need to place our focus NOT on rent control, but expanding zoning so that we can build more dense housing. Until then, the problem will continue to get worse…and if rent controls are enacted even further, landlords will be less likely to maintain their properties, more likely to take their units off the market, more likely to convert them to units that aren’t rent controlled, and all of this will further drive up housing costs as inventory dwindles.
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All Comments (21)
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“Government programs must be evaluated, not on their intentions but on their results.”
-Milton Friedman -
That awful feeling when you try to help people but end up making things worse.
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My grandmother's condo was a 10 minute walk from the beach in venice. Purchased for 250k, sold after she died for 3 mil.
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It's supply and demand, let the people build more homes with less regulations then the rental prices goes down.
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Whats up Graham its guys here!
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Graham, this video really showcases how articulate and versatile you can be - well done.
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Note to self: Don't buy any place built before 1978.
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Great video Graham, from what I've seen rent control is easily abused and ridiculously unreasonable in flexibility. Have known situations from like 8 years ago where tenants in the Santa Monica area were paying less than $300 a month
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They're doing that in Anaheim. Building houses taller and closer together to fit more people in a smaller area. As a result, there are more vehicles on the roads, but the roads aren't being expanded to handle the extra traffic.
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Take a shot every time Graham says “rent”.
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Sounds like greed is the problem. Not rent control
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Ask further, why is there a shortage of supply?
Regulations/permits, sure but what else.
Increasing lack of people in construction, why?
Because you can now get paid better for sitting in an AC controlled office doing menial work. Because the work to reward ratio is not favorable in construction. People aren't interested in back breaking work starting at 7 for a wage that isn't proportional to what that work demands of you. -
You have some very valid points in here but when it comes to tax revenue it’s good for a city to have more of it in theory but when it comes to LA and California’s case they’re really not good at managing money
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Then if rent is raised time and time again, how will people be able to afford it? Will they have to tell their grandma who lives in the back room that she needs to start a job to help pay? It’d be nice to have a wider area of “clean” and “safe” neighborhoods all across from Glendale to SM and Venice. So many houses look like crap. WHY CANT THE GOVERNMENT SPEND MONEY WHERE IT MATTERS
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How does rent control on buildings built before 1978 prevent new construction? Older stock is constantly being replaced by newer larger buildings for owners to get out of rent control. I’m grateful for my rent control unit, though I do have to foot the bill for much of my own maintenance and anything considered an upgrade but the exterior is well maintained to attract new tenants at market. Rental prices are out of control in L.A. due to a constant transient influx in population. The homeless problem is apocalyptic and I fear my family would be among them or among the mass exodus from California were it not for rent control. I understand your perspective though, I’m sure it’s frustrating.
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When you realize Graham probably isnt wearing any pants.
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Prep for some hate! Definitely got hate on my rent control video from early September -- all of them pro-rent-control folks didn't like the use of studies apparently. (Doubt they even stayed to listen to the info.) Sad.
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Thank you for sharing your thoughts! They make so much sense and I completely understand.
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As a contractor I did quite a bit of work in subsidized housing early on in my career and OMG, don't even get me started.
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Graham, this is your best video. Thank you
