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Comment by pmoriarty | Hacker News Reader

"A friend owns a three-unit building in San Francisco, occupying the top floor himself. The two tenants underneath have fled. One lost a job and the other kept the job, but decided to lose the California tax rates and mask/shutdown protocols. Both units are now vacant.

"I asked how much rents have fallen and he responded with "30 percent." Why not rent the units out at the current market rate? "If you ever rent to someone in San Francisco," he replied, "you can never raise their rent more than about 2 percent per year after that. You're locked it at whatever rate you start with. So I am waiting until the shutdown ends, hoping that market rents will come back closer to what they were when I bought the building."

Tax property more when it's vacant.

Problem fixed.

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> Tax property more when it's vacant. Problem fixed.

Besides leaving properties vacant, rent control distorts the market in other ways. Because rent control also lowers the supply of rental unit, builders are more incentivized to sell to owner-occupants (since rent control depresses the value of rental units and thus a landlord's willingness to pay for a given unit). This increases the pool of housing available to richer people who can afford to buy a house, and decreases the pool of housing to people who can only afford the rent.

Rent control also incentivizes renters to stay in their current housing, even when moving would be more efficient. (Consider someone living in an rent-controlled below-market rate apartment in San Francisco who gets a new job in the South Bay. They would like to move, but that would cost them extra in rent.)

Even if you create policies that address these issues, there are likely more problems rent control creates. At what point do you give up and conclude that rent control is the issue?'

If you want to control gentrification and enable people to stay in the neighborhoods that they grew up in, there ways to achieve that which don't have the negative side effects of market-wide rent control, like below-market-rate housing for people who make less than a certain amount or have lived in an area for a certain amount of time.

This is a failure of the market.

Since builders do not want to build, then the State needs to provide leadership, take control, establish eminent domain, and send in the army, to build government backed buildings. Then rent these out to people that need them, at affordable rates.

The sacred market, is ultimately what is killing the quality of life in California.

> Since builders do not want to build,

Show me a builder that doesn’t want to build, and I’ll show you a city planning department that makes it impossible to do so.

Builders are like any business. They want a margin. If they can’t make a margin, they don’t build.

The only way government can build cheaper than a builder is to bypass its own regulatory morass. At which point one might ask, why not just let the builders operate on the same rule set.

This is true. California has such stupid over-regulations, such as requiring solar panels, on all new housing, at a cost of about $30,000, that gets footed by the consumer. And this is on top of already expensive housing!

All these regulations increase the cost of building, and decreases the builder’s profit margin.

The only solution here, is to roll back these burdensome regulations and environmental review policies.

My wife works in home building in the bay area. I can assure you that home builders want to build homes. The inability to construct new homes in the bay area is almost entirely due to objections from local commissioners and planning councils.

Problem not fixed for the tenants.

I know landlords of rent controlled units in SF, and believe me, those tenants are making a huge tradeoff. Yes the rent is low, but forget about ever really liking the place you spend your life in. There is zero incentive to upgrade anything ever. If your toilet is leaking it will be fixed. But get ready to live with 30 year old fixtures, cabinets, carpets, etc. So sure, rent is low and that’s great. But it doesn’t come free. It’s definitely a major sacrifice to be making as a tenant.

Yeah, not scared. Paying $3K/month for a matchbox is a major sacrifice, living with 30 year old cabinets is not.

Rent control is why you have to pay 3K/month if you want to rent an apartment in San Francisco. Someone has to subsidize the cat lady living downstairs from you paying $800/month, and it's not the landlord - it's the new renter paying so much that's allowing her to pay so little.

No, it's the enormous bargaining power of the landlord obtained through luck and lobbying. Nice try fobbing responsibility off on the cat lady, who is a comparatively minor cost of doing business.

Your argument doesn't even have internal logical consistency. You claim that landlords have "enormous bargaining power" and yet assume that they are too weak to charge higher rents based on the knowledge that their property is subject to rent control, so that they will be compensated for the risk of seeing a long term tenant.

How can this be?

Of course they will charge more in rent to adjust for the fact that a percentage of their tenants will be long term, and therefore short term tenants end up subsidizing long term tenants, exactly as I claimed.

I get that you don't like landlords. But think this through and try to use reason rather than emotion.

Landlords have enourmous bargaining power because there is high demand and low supply. Markets determine price based on that. The idea of you "subsidizing" the old lady downstairs is sickening, as she has nothing to do with the fact that housing supply is so low. Who blocks proposals to build new housing? Landlords do.

I'm no fan of rent control, but your argument doesn't make any sense to me. Who is this landlord that's only charging more for one of their units because the other units are rent controlled? If they could charge more for a unit, why wouldn't they? Can you imagine someone who says to themselves... "I could get someone to pay me $3000 a month for this unit. Thank God that rent controlled tenant moved out of one of my other unit. Now I only have to charge $2500 for this one to make ends meet. I didn't want that extra $500 anyway."

Rent control is bad because over time it screws up supply and demand, and increases the the rent that the market can bear. Not because it gets in the way of the landlords' natural charitable instincts.

People are willing to pay more for rent controlled units. So when laws forces everyone to buy rent controlled it screws over those who don't intend to stay long since they pay the premium without getting anything for it.

market power means you can capture all of the benefit for yourself - e.g. you charge what the market will bear for a service rather than what it costs you to provide that service.

So you cannot argue that you will make a unit more valuable, thus increasing demand for the unit, but that a landlord who has market power will not be able to raise prices to fully capture that benefit.

Rent control is such a benefit that makes a unit more valuable, and landlords are able to charge more, fully capturing the benefit to the average renter.

This means long term renters underpay, short term renters overpay, the landlord does not pay any more, on average, given the mix of short and long term tenants, but the short term tenants subsidize the long term tenants.

So all of these plans to pass laws preventing or obligating landlords in some way will always result in higher rents to fully push the value of that benefit onto tenants, assuming that landlords have market power, which is a safe assumption in constrained areas like San Francisco.

That's not what the comment I was directly replying to was discussing. I am not going into the effects of rent control for everyone else here.

Just pointing out that if you happen to get that $800/mo rate locked in, it's a pretty sweet deal, 30-year-old cabinets and all.

The parent comments made it look like it's not.

Well, it is a sacrifice. It’s just that in your case you’re ok with it.

That just means rents will go up even more to compensate landlords for the risk of having to pay higher taxes when the unit is vacant.

Look, you are not going to cause rents to fall by adding more costs to landlords. To get rents to fall you will need to either build more units (increase supply) or make the city less desirable (decrease demand). For example, don't allow construction of office space in the city unless it's matched by construction of housing units.

"That just means rents will go up even more to compensate landlords for the risk of having to pay higher taxes when the unit is vacant."

Landlords will always charge the absolute highest rate that they can get away with, regardless of the taxes they have to pay.

So raising taxes on vacant units will not raise rents even one single penny, as they'll already be as high as it's possible for landlords to charge and rent in that market (or, in the case of vacant units, even higher).

That they can "get away" with means demand. By increasing demand for the unit, for example by putting it under rent control, then landlords will be able to charge more. You are assuming that demand for the unit with rent control is the same as demand for the unit without rent control. This is why you think the rent control is "free" -- that it doesn't raise prices for tenants even though they think it's very important and are willing to pay more for such units.

So if rents go down, even temporarily, you potentially get trapped underwater? Who would want to rent out apartments in that environment?

I'm not sure why there's an assumption that property owners should make money. If rents go up they make money and if they go down they lose money. That's the way the market is supposed to work.

Nah, it’s called the profit incentive and it is the bedrock of free enterprise. There are profits to be made even in a tough market, but at no time are people morally obligated to lose money just because losing money has become the norm, particularly with government restrictions that will make it more difficult to profit in the future.

Fortunes don’t magically rise and fall with the “market”, the market is merely an abstraction that represents the multitude of transactional choices that anywhere from thousands to billions of people make on a day to day basis.

But if landlords make too little money, then there will be fewer landlords and more owner-occupied buildings. There will be less construction of rental properties. In the long term, economic theory predicts that such a supply shortage would increase rents, pricing out the poorest from being able to afford to live in that area.

I am not arguing that we need landlords to make more money. But until leftists overthrow our current capitalist system, we do need to incentivize capital owners to invest in rental properties to increase the supply of rental properties (which should decrease the cost with all else equal). (That last sentence is positive and not normative.)

Yes, shortages increase rents. Solution to that: allow people to develop. The fact that houses cost so much more than their construction cost is due to the fact that the government bans owners from building as many units as they want. Thus houses get artifically high prices in attractive areas because developers aren't allowed to meet the demand.

Sure, but if the gov’t caps the upside, the only fair thing is to cap the downside as well.

It’s not a problem if they lose money, but it is a problem if they have an expectation that they’ll lose money. Would you invest in anything that you’d expect to lose money on?

"If the old lady swallowed a fly. Just have her swallow a spider to catch the fly. Problem fixed."

The Board of Supervisors would love to impose some punitive tax increases to increase their slush fund and fritter it away on non-profits and unions.

They just have to ask voters nicely first, and if tenants really are fleeing in numbers and new tenants can’t or won’t move in at these prices, that’s not looking more likely to happen.

We could cut rent control, then landlords might want to rent out at a sane, well, saner, price again.

“Just one more market-warping law! That will fix everything!”

He'll just live in all 3 of them. Problem solved.

Even better. Tax property based on yearly or quarterly mean rent price. This is what Switzerland does. The owner pays the same amount of tax if they keep the building vacant, rent it or live in it. So landlords are incentivized to rent vacant real estate and parking money into real estate and keeping it vacant might not be such a great idea.

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