You have the cart before the horse. Rent control comes because of high demand and high prices. Rents go up for newcomers because of a shortage of housing partially caused by rent control, but mainly caused by demand…aka a highly desirable location.
You are both right @Elt1 @manch. High Demand (desirable) location results in legislators passing rent control, which then just exacerbates the high prices by reducing supply —> which then causes prices to go up even more.
Statewide rent control may actually benefit places like SF. SF rental housing prices already factor rent control into the mix. If Statewide RC takes effect, it is likely to be less restrictive than SF-specific RC where rent increases can only be a fraction of CPI. The allowable rent increase for statewide RC is likely going to be higher than CPI.
The big thing I see happening though is that statewide RC will actually pushes home prices up. The supply of rental housing will decrease with statewide RC. Here’s the scenario ---- let’s say you own a house in LA. If you want to move to SF, you’d normally rent in SF and lease out your house in LA to cover the mortgage as you get your bearings in SF. However, with statewide rent control and just cause eviction, you would think twice before you do that… because you might have a very difficult time getting your tenant out of your LA house! So if you identified a house in SF you want to buy, you wouldn’t be able to sell your LA house quickly enough to raise $$$ unless you gave your renter a buyout package. So, any rational person in this scenario would not rent out their LA house … and would just push up their schedule to buy in SF.
This pushes the price of rental housing up. This then will drag the price of buying that same house up as well. And, the IPOs of AirBnB/Uber/Slack/WeWork/etc. will make that price increase happen even quicker.
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I don’t agree with this baby boomer blame game - here’s why:
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They paid market rent once upon a time. While nobody could have predicted the birth of SV driving rent and housing prices sky high back then, if you are a millennial paying $3K per month for a 1 bedroom apartment now, that same unit could hypothetically be rented for $10K 30 years from now (while you are still paying, say, $4K after all the CPI adjustments, if you are so unfortunate as to be still renting).
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High rent motivates people to buy. This point was mentioned in your post. Boomers are not incentivized to leave hence they never bother to grow their income.
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Anybody with this type of victim mentality (blaming boomers for unaffordable rent) is doomed for failure. Work harder to bring yourself to a better place, not blaming others for your own incompetence. I know where you are getting at because all landlords want to abolish rent control, but I don’t encourage this kind of blaming behavior.
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You underestimated the bad politicians. David Chiu will keep SF’s rent control in place, but will introduce statewide rent control to South Lake Tahoe and Sacramento.
David Chiu is #1 on my list that should go to %$#@. He showed up at my kids’ school once to celebrate a holiday. While he was on stage, it took every single bit of self restraint I had to not stand up and tell him to go to %$#@.
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OK, I understand your point that boomers paid market rent at one point in time. However, I lost your reasoning afterwards. My point is that boomers paid market rate long ago, but, since then, have been incentivized to hang on to that rent-controlled unit forever and ever because their rent grows slower than CPI. Can you explain you point here again please?
I agree that high rent will motivate someone to buy if they are in a market-rate unit. However, high rent I contend motivates someone (like a boomer) to NEVER BUY and NEVER MOVE if they are in a rent-controlled unit since rent increases are slower than CPI.
I am blaming boomers because in my own social circles, I see soooooooooo maaaaaanny 50/60/70 somethings paying nearly nothing for rent. like, $2500 a month for a 2 bed 2 bath 1800 sq ft apartment near Nob Hill… while their own neighbors are 30-somethings that are paying 2-3x that amount. I’m not saying that millennials are blaming boomers for unaffordable rent. I’m saying I, a GenXer, am observing lots of boomers who make life much tougher for millennials.
Aside from that, I understand your point for #3 - you are not condoning “Divide and Conquer” tactics. I get it. I am learning from our president. 
My point - that seemingly high rent of $3K for a one bedroom apartment today could be considered a “steal” 30 years from now. According to the blame game, the offsprings of Gen Z (or later) would be blaming millennials for living in a rent-controlled unit for $3K (let say the rent on this unit becomes $4K after all the CPI rent adjustments 30 years later) when the market rent is $10K. If you are comparing everything to today’s dollars, it’s meaningless. It’s the same as blaming someone for buying Palo Alto for $100K some odd years ago and now they are sitting on a gold mine. Doesn’t make any sense.
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OK, I understand your point now. If the boomer hung on to a RC apartment for 30 years — of course I blame the boomer! Why didn’t that boomer better him/herself over 30 years so that he/she didn’t have to rely on subsidies from multiple generations of people to live in SF? That boomer should have bettered him/herself, moved out of that RC unit after a few years, and then let someone younger than them enjoy subsidized housing for a few years while that younger person found their legs in society.
Similarly speaking, if a millennial moved into a RC apartment today and held on to it for 30 years, then yes, Gen Z or Gen ZZ (or whatever) should rightfully be upset with that millennial for living a subsidized life for so long.
There is a finite supply of RC units in SF (the number doesn’t grow) and boomers seem to hog most of them.
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This is not the same. Living in an RC apartment for 30 years is having your neighbors (paying market rate) subsidize your lifestyle for 30 years. While your neighbors pay market rate, you pay a reduced rate and spend the excess cash on living it up.
If you bought a PA home for 100K 30 years ago, no one is subsidizing you for the past 30 years. You just made a wise/lucky move 30 years ago. In this situation, good for you!
Same here.
I , a GenXer, am observing lots of boomers who make life much tougher for millennials.
I guess @aalj 's point is that “Millennials must be aware of the impact of rent control on themselves when they decide whether or not to support Rent Control”. This is different from blaming game. Awareness of the issue is the first step to reach the right solution.
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That’s my point and why millennials don’t play the blame game (at least I hope not). This is pure human behavior and anybody in that situation would generally do the same thing.
My point #2 is that someone who never buys and never moves at the end of the day is worse off because their standard of living will be forever stuck in that rent controlled unit (i.e. they will never be eligible for an upgrade). If you think paying high rent is bad, it’s subject to your interpretation. In a somewhat distorted way of looking at it, it’s helping millennials and encourages them to buy.
Similarly, if you choose to rent in a unit subject to rent control 30 years ago, in the tenant’s POV, it’s a wise move. I don’t buy this subsidy theory. Landlord chooses to rent in a RC city (unless the laws were enacted after they started renting, then that would be a different story), they are essentially taking a risk that their neighbors could potentially charge much higher rent in the future.
I think I need to explain the subsidy angle more because the subsidy angle has nothing to do with whether or not the LL chose to lease units out in a RC city.
Let’s say a landlord has 10 units in a rent controlled building.
Let’s say in year 1, LL leases out all units for $1000.
Now, it is year 5. Tenant 1 is still there. Tenants 2-10 all move out.
Let’s say after factoring in CPI, $1000 is now equal $1250 in year 5. Does the LL lease out units 2-10 for $1250?
No. The LL will seek to make units 2-10 subsidize the abnormally low rents in unit 1.
The LL will charge $1278 for units 2-10 while unit 1 is still paying $1000. In this instance, the LL is getting $1250 average for all the units, but, in actuality, units 2-10 are paying $28 more than they should be because they are subsidizing unit 1.
YES. Thank you.
In this scenario, it only makes sense if the units are rent-controlled, otherwise why wouldn’t the landlord increase the rent on unit 1 to $1278 if that is market rate? Your example has everything to do with the units being in a RC city. If the landlord can charge $1278 for rent, he/she will do so not because they need to make up for the deficit in unit 1, but because of profit maximization. If you can charge $1278 for all 10 units, why would you charge $1250 each instead? Retention? But if you want to keep the tenants for the remaining 9 units you would not have charged $1278 in the first place.
Subsidy is not the right word. In your Nob Hill example, the educated couple is not being subsidized by their neighbors. They are enjoying cheap rent at the expense of lost appreciation for not buying a home. If they are paying $2500 for a 2 bed 1800 sq ft apartment, they must have been there for at least 15-20 years. Think about the appreciation from that point up til now.
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You got it - we are talking about a rent control example.
In the RC example, we assum that RC allows 0% increase each year in rent, and that CPI is 5% every year. Therefore unit 1 HAS TO STAY at $1250. It cannot increase. This is because unit 1 has the same tenant from year 1 through year 5.
Exactly. Rent Control City.
Without being so black and white to say that “profit maximization” and “deficit” are not on both sides of the same coin (this is not engineering black and white! 
)…The landlord is maximizing top line in units 2-10 so that the bottom line of all the units, including unit 1, remains the same. Units 2-10 are subsidizing unit 1 to the tune of $28 each.
In a perfect world where no other inputs change, the landlord would charge $1250 for units 2-10 in year 5 as there is turnover for those units and rents can be reset. $1250 is the 5-year-CPI-increase from $1200 in year 1. However, because rent control causes the LL to want to keep the same bottom line, the LL charges $1278 for units 2-10 in year 5. This shows why rent control causes some units’ pricing to exceed CPI rate while other units’ pricing is below the CPI rate.
The point of this particular discussion that I was trying to make is
a) Show why RC makes some units increase in price above what one would normally expect
b) Illustrate what goes on through the LL’s mind in a RC situation - certain units need to subsidize other units w.r.t top line so that bottom line remains the same.
I will have to disagree with you on this one. This is a tax on the rest of the population so that one person can enjoy cheaper living. Its just that instead of this being a direct tax levied by the government (for instance welfare), this is an indirect tax that the government causes by distorting market supply — and the government uses LLs to collect the tax.
Rent Control is a very sophisticated way for governments to raise taxes on some elements of the population for “welfare payments” benefitting other sections of the population without appearing to be the bad guy that is levying the tax.
Actually —
→ missing out on the appreciation for 20 years is the opportunity cost of that couple using excess cash (from artificially cheap housing costs) to find more lavish lifestyle instead of investing in an appreciating asset.
→ but someone needs to fund the artificially cheap housing. The government is not cutting the couple a check every month. The landlord doesn’t want to give a freebie. Its the neighbors who are newer that are funding the artificially cheap housing.
There is an old saying - “Businesses Don’t Pay Taxes. They Collect Them.”
Okay I think I am confused because your initial sentence about the example was that it doesn’t have to do with the landlord renting out units in RC city or not, but in fact it does.
What I’m trying to say is, instead of labeling tenants in RC units as parasites (which I’m not saying they aren’t), think of them as “investing” in rent protection, which was why I used the $100K PA house example. To be clear, I am not supporting rent control, but simply saying the fact that landlords renting out units in a RC city should treat it as the cost of conducting business. If the laws are enacted after the fact, I see how they get screwed over, but I certainly don’t sympathize with those who knowingly purchased properties in a RC city and realize the pains in dealing with rent control after. There is no point for them in demonizing the tenants. There are people who take advantage of the system everywhere, such as people who brag about using food stamps at grocery stores. It’s not news.
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Rent vs. buy is about where you are in life. Very few single people buy real estate. It’s just not a priority and doesn’t fit their lifestyle. Every person I know who was adamant that renting was better bought after one of 3 life events: marriage, while pregnant with first kid, or shortly after having the first kid. Millennials are getting married and having kids later. They’re still going to do it. They’re going to buy a home when they do it.
Young and single people are going to rent. Married people are more likely to buy. Married people with kids are very likely to buy. That’s why it makes sense to cater to young and single with rentals. You have the largest pool of potential renters. It’s why a 2-bd apartment in downtown San Jose rents for more than a SFH in West San Jose.
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Ah ok. Wording confusion. I was try to stress the word “chose” but I did not bold it, and then you picked up on the word “Rent Control.” My apologies — now its neither here nor there.
That is a very insightful observation — good user story from the renter’s POV. I think I would point out though that in this case the renter actually isn’t putting any equity in to “invest” in rent protection, but I get your point.
Yeah totally agreed. 
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