Law firm to help city in rent moratorium suit
Original post made on Mar 23, 2008
Read the full story here Web Link posted Friday, March 21, 2008, 2:30 PM
on Mar 23, 2008 at 8:56 am
Funny they need to raise rents by 9% at a time when property values and interest rates are dropping. Maybe homeowners walking away from homes worth less than their mortgages are creating increased demand for rental units.
From a landlord's viewpoint, rents have to be high enough to cover costs (and hopefully generate profits), but low enough to be competitive with other housing and affordable to enough potential tenants. They also want "good tenants" and low vacancy rates. When the rental market rises by a certain amount, they become willing to risk vacancies and unknown new tenants in exchange for a chance to raise rents.
From a tenant's viewpoint, they can afford a certain amount of rent and they want the best housing they can find (location, size, quality, style, etc.) that can be had for that amount. When rents rise faster than incomes, tenants have to find household expenses to reduce (hard) or debts to increase (dangerous), or they have to bear the inconvenience and cost of moving to what could be a less desirable apartment, especially if they have little time to look.
Rent increase limits ("rent control") has failed as a solution. But leaving it to the market hasn't worked either. Is there a better way? Here are a couple of ideas. I don't claim either is without its flaws.
- In a fast-rising market, it can take more time for a tenant to find substitute housing. For every 1% rise in rents, a landlord could be required to give 1 month's extra notice to the tenant. For a 9% rise, 10 month's notice. This provision would create an incentive for the landlord to minimize increases or give tenants plenty of notice.
- Sometimes, a landlord's costs rise because of factors they can't control, like increased energy prices or labor costs. They may be able to counter those increases by investing in efficiencies. But it is often cheaper in the short run to pass increases on to tenants than to secure financing for efficiency improvements. A community could give landlords incentives to invest in efficiencies rather than pass current cost increases on to tenants.
Are there approaches other cities have devised that work better than rent increase limits?
on Mar 23, 2008 at 8:48 pm
A decline in property values only helps new buyers, not existing real estate investors. As for interest rates, take a look around at 30 year jumbo rates. I'm not sure those rates have budged at all, despite all the Fed's interest rate cuts.
As I understand it, the 9% raise is based on recapturing some past rent increases that were permitted at the time, but not carried out. My guess is that current rent is below market.
How is it that the market hasn't worked? The market always works. It's just that some people don't like how it works. Home buyers complain about the market when house prices are rising fast. Home sellers complain about the market when house prices are dropping fast.
on Mar 23, 2008 at 9:54 pm
> the 9% raise is based on recapturing some past rent increases
Perhaps .. but the whole Bay Area has seen a 9% increase over the past year .. this has been well documented in the local papers.