I think I know what rent control is but not having it in this state I don’t really know all the basics. Also, what states use rent control?
some sections of LA (west side and Santa Monica) and San Francisco have it.
How exactly does it work? What limitations does it set in these markets?
Hi Rich,
Having grown up, appraised and owned property in Santa Monica and the entire west side of Los Angeles, I am very familiar with rent control. It was enacted by a vote of the tenants who wanted to live in high end apartments paying low end rents. You can imagine the destruction over time to a property owner’s asset . . . reduced cash flow resulting in the diminishing condition of the property. One owner I know even emptied his building before the ordinance became effective, fenced the propery and let sit . . . for years . . . overgrowing with weeds.
It started out where an owner could only raise rents from 1-3% every year (if they filed the appropriate required paperwork by the deadline). Some areas of Los Angeles were a little better in that they allowed what was called ‘vacancy de-control’ . . . when a unit became vacant, they could raise the rent to market. But what is the real market when you have rent control?
In Beverly Hills and Santa Monica, which we used to call the ‘United Republic of Santa Monica’, they did not go to this vacancy de-control until the 90’s.
Rent control is a very destructive mechanism. It does not allow for the market conditions to prevail whereby an owner can maintain the property and the tenant profile needed to pay the rent necessary to do so. Typically you will find it in areas where the tenants are mostly liberal and don’t really care that an owner has to maintain the property. Not owning property themselves, they have no clue about how the market is supposed to work. If a tenant can’t afford to live in an area, they need to find another area where they can afford to live. Unfortunately, tenants think that all property owners are made of money which really belongs to the them.
Hope this helps.
Cate
“Rent Control” in NYC started in WWII, with a parallel system called “Rent Stabilization”, for tenants occupying units in buildings with 6 or more units stariting in 1971. It’s a NY state law covering certain localities, NYC being the major one.
The original rent control, started in WWII, applied to everything, even 6 units and under. Because it also applied to qualified descendants of the original tenants, there are tenants that occupied a unit since WWII, with children or grandchildren still living in them today.
I looked at rental units where the rents are below $200/month where market rents run over $1,500/month. In one case, an old lady was paying $105.00/month for a 2 BR apartment over six commercial stores. These low rents are due to small increases allowed under law through the years, that run maybe 2% to 3%, whereas inflation ran 10% or more back in th 70’s.
“Rent stabilization” started around 1971, and tenants moving in after 1971 is covered by it. Tenants start with market rent on move-in, but when they stay, only increases set by a “rent board” is allowed. Also, the law provides that children can stay on, so tenants who’s been there over 30 years enjoy low rents, but not ridiculous ones under rent control.
Because of this, slums developed where new immigrants with low paying jobs move into areas where 6 units and above apartment buildings are located. I looked into these, and most require a resident manager speaking a foreign language. Rents in controlled areas run half that of market rent areas.
Because of the clout of the tenant lobby, the state is unable to legislate it out of existence. Their solution is to decontrol units renting over $2,000/month, when it was discovered that “millionaires” were living in "controlled units. The theory is, in the next 20 or 30 years, when rent in slums run up to $2,000/month. rents are automatically decontrolled.
Another horrible aspect is you can only recover so much for capital improvements, after filing paperwork. Even here, tenants complain why the increase should go on forever even after the owner recovered the costs.
And if you don’f file the proper paperwork, you don’ get the increases.
This explains why some “rent controlled” apartments are so cheap. If some lady is paying $105.00/month, the owners and management companies do not want the bother of filing pages of paperwork to get a 2% increase, about $2.00/month, and over the years, the rents never quite catch up.
http://en.wikipedia.org/wiki/Rent_control
I guarantee that you will find a huge percentage of “rent control” states to be “Blue states” on the map…Massachusetts, NJ, NY, California, etc.
It’s all about government controlling everything. It is very socialistic…
Keith
What a crappy system. When the rents are $200 in a place where the market will allow $1500 I don’t see how that could “help” the tenant with the exception of cheap rent. The owner wouldn’t be able to keep the lights on let alone do any maintainance. Sure the rent would be cheap but I can see that bringing the building to a whole new level of slum.
Rent control is not a thoroughly thought out plan. It’s not a blue state thing, it’s an urban thing, just so happens the majority of the population prefer blue states to establish cities. 
Rents of $200.00/month does not even cover expenses.
For the last 20 to 30 years, owner of apartment buildings turn them into coops, then selling the units individually. You can buy a unit to live in, or buy one to rent out.
In theory they are not controlled since it’s individual units. However, occupied units with tenants are grandfathered so the tenants can stay on and still pay the cheap rents.
What the do is they sell a package of units, some occupied, some not, so the buyer won’t come out short. Eventually some investors sold off the “good” units’ but stuck with controlled ones.
Monthly charges for 2BR coops run $600.00 and up, for heat, taxes, and maintenance, and I’ve heard of investors collecting $200/month in rent or less, and paying $600/more in expenses, Even with ZERO mortgage, there’s negative cash flow.
The irony is the units all worth a fortune, empty, and the only hope is you pay the tenant to move to a nursing home, and hope for an unfortunate accident.
It’s not unheard of for owners to burn the building down, or let drug addicts live there rent free, hoping the tenants will move on.
The property I looked at where the old lady is paying $105/month is one where the seller is frantically trying to get her into a nursing home, so he can easily sell the place.
The 2000 Bush vs Gore election, blue vs red state, gives a good clue on the demographis of the USA, as well as some lessons on Real Estate.
Here’s my theory.
Gore and Bush each got 50% of the popular vote. Yet, on the electoral map, Gore got mostly the coastal states, blue, and on the map, almost the entire electoral map was red. Geographically, Bush got 90% of the country by area, but only 50% of the vote.
While California turn out to be a blue state, a county by county electoral map show it to be 90% red, inland. Only a sliver of blue along the coast, yet it was a blue state.
I checked statistics some more, and 150 million out of 300 million lives 6 to 10 miles of the coast. With 3,000 miles coast to coast, the other 150 million people lives in the remaining 2,900 miles.
With half the population living along the coast, little wonder it gets crowded, prices go up. In some cases, rent control is considered necessary.
In some cases, rent control is considered necessary.I agree, something [b]like[/b] rent control is necessary. However, it's a very complication problem that was given an overly-simplified 'solution'.
Massachusetts used to be a rent controlled state, but not anymore. Cambridge got rid of their rent control years ago and so did Boston. Can’t think of any area in this state that still has rent control. You did have really low rents back in the day when there was rent control though. Occasionally you hear talk about people trying to bring it back in Boston or Cambridge, but so far nothing has happened.
There are people in Manhattan that are paying $1500.00 a month for rent, and their apartments are rent stabilized. That is why rent stabilization and rent control exist. Yes rent control is extreme but rent stabilization is necessary! A place for the rich only cannot function, all classes need to exist for the world to work. Someone making less than $50k can barely make it in nyc. The other day I saw an ad for an apt. share with a doctor, the rent was $10k a month.
Call me a fool but how exactly would rent control on a $10k a month apartment help the average working class person? Who cares how much the 5 star apartments rent for, it doesn’t affect the average joe one bit.
That is why I say it is not about the money it is about the lifestyle. How much better is the lifestyle you have living in Manhattan than the lifestyle living in Houston, Texas or Birmingham, Alabama? Is living in a 2 bedroom 1 bath apartment for $1500 in New York better than living in a 5,000 sqft house with 3 car garage on the golf course with a deck overlooking your own pool? This house is for sale for $325k which means that you can get it for payments of about $1500/month. All this in a town where real estate actually works. I just don’t get it. I always say you should live like people not like bees. In this case you can live like a rock star or live like normal people.
It costs the same to be poor everywhere in the USA. I can find ground beef for 99 cents a 5 pound bags of rice for a buck and a place to live for $300/month in every city in the USA. But where is it cheap to be rich? That is where I want to go. I call what people pay in NY or California lifestyle tax. They pay a whole lot of money to live there but they give up being rich for location. They give up the lifestyle for living in California or New York.
Interesting points Blue. When thinking about super high priced places like NYC or California, I’d consider them giving up a big, inexpensive house for a different lifestyle. I’ve never been to California, but to NYC several times a year, and I always saw it that it was the lifestyle they were paying for, not giving up. For me personally, I’m out 12-14 hours a day. When I come back I don’t need a big fancy place to sleep, I could dig a hole in the ground and sleep in it and be just as comfortable. It’s the life of the city, the constant motion, the never ending noise that some people equate with living the good life.
I guess it’s if you’d rather live like a rock star at home, or live like a rock star when your out during the day.
Good point. You know you are right. I have been to California (going there next week) and I love going to New York also. I am never in my house. All weekend I have been rehabbing my latest house, all day I am at work and go straight over to the rehab after work and stay there until dinner (which is right before bed time). I may as well sell the house and move to a condo or something. But no maybe when I finish this rehab I will be able to sit by the pool…but no, I just got a call from my real estate agent last night and my offer was accepted on another house. This one is an 1800 sqft 4 bed 2.5 bath 2 gar with an ARV of $130k my offer of $101k was accepted. It will need about $10k rehab. I guess no sitting by the pool for another month. Maybe I should just dig a hole.