exposing the dark side of rent control...

Lets talk about the reality of Rent Control, the economics behind it, and why it’s ultimately a flawed approach to a housing shortage - enjoy! Add me on Instagram/Snapchat: GPStephan

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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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[zoraster]

“Government programs must be evaluated, not on their intentions but on their results.”
-Milton Friedman

[InvestingBookSummaries]

That awful feeling when you try to help people but end up making things worse.

[ThatGamerDude]

I live in a non-rent controlled apartment. Landlord/property manager still want to invest the bare minimum to maintain the apartment. While rent control may make a landlord less likely to maintain a unit, landlords in general don't want to maintain their property to begin with. They just want a "passive income, " which means putting in as little money as possible and charging as much as you can. It's not a crackden apartment, but I've got cracks in my ceiling, large dark spots in carpet, mice in walls, warnout carpets, kitchen appliances from the 70s, and they charge $1500+/month rent.

[Svartr.HrafnSvartr]

You made this video four years ago and the rental situation is worse than ever now. Either, zoning hasn't changed, things aren't being built fast enough, or this isn't as great of a solution as you thought.

This is my situation, and I've never felt more anxiety about becoming homeless than now. I've been in my rent controlled apartment for just over a decade and I really don't want to move. Being disabled in our 50's, my husband and I have very specific needs that this apartment satisfies. We also don't have any support so if we were forced to move, it might literally kill us (my husband is medically restricted from lifting anything above 10lbs and I can't stand/walk for longer than five minutes without intense pain).

My current rent is 38% of our combined income and is sitting at about half of its market value; the average market rates rose nearly 32% over the past year and a half in our city. Because our disability benefit is so stagnant, if we had to start paying market for this apartment, rent would become 75% of our income. This doesn't include our renter's insurance and we would also become responsible for paying all utilities, boosting total shelter costs closer to 82%. This would basically be a death sentence. We're already in one of the cheapest complexes in my city so we have zero choice than to fight to stay.

My corporate landlord made the choice to get into investment real estate and had the resources to play the game. I'm just trying to live my life and survive on $1700 USD per month with my husband. I can't control what laws landlords are bound to. I can only fulfill my financial obligations and pay my rent in full and on time. I recognize that my landlord has a huge incentive to find a way to evict us and I was honestly getting nervous with how wide the gap was getting, but I don't know what I can do about it.

Right now, I'm just trying to squirrel away what extra money I have because I can sense disaster inevitably smashing my world. With everything being unaffordable and everyone becoming more and more broke by the day, the chances of finding any sort of traditional employment is slimmer than nil with the barriers I have. I obviously have a huge income problem and I'm brainstorming what I can do about it, but due to serious trauma in my life (in addition to having a very shy and introverted personality), I suffer from a severe lack of self-confidence and self-worth and it's very paralyzing.

[GIboy]

My grandmother's condo was a 10 minute walk from the beach in venice. Purchased for 250k, sold after she died for 3 mil.

[mandala_monk]

There is no rent control in a canadian province where I live. They still won't fix up older units and jack up prices every year to match up with the market's pace. Yet the prices keep skyrocketing with no intention of stopping, so maybe something more nefarious is brewing in the background, like an unrelenting thirst for more and more profits. Because if landlords aren't exponentially increasing their earnings what is the point right? There must be a way out of this vicious cirlce and a more humane method of dealing with the problem, but the government is too corrupt and is used to lining their pockets by virtue of the lower and middle class

[dhender]

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.

[DeedeeDirt]

My rent in California has more than tripled in the last four years and it's fucking insane, minimum wage has gone up but not THAT much

[MeetKevin]

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.

[netman]

It's supply and demand, let the people build more homes with less regulations then the rental prices goes down.

[networth]

Note to self: Don't buy any place built before 1978.

[seetheious]

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.

[tsebregnis]

Rent control has merits letting people stay in their home and strengthening the community, otherwise increasingly higher and higher rent will uproot tenants. Mega cities will only be resided by one type of people, millionaires whose fortune is built by collective and societal endeavors.

[themelonpatchbydeb]

Not having a cap on rent and just building more apartments is not going to solve the problem. You still will keep going up on the rent. There should be a cap on rent control. People that are on a fixed income, even people that are not, need stable rent. Going up on rent every year is not the solution. And why is it that you have to go up on the rent? The number of tenants that are paying rent in the building part of that should cover your property tax at the end of year. I lived in an apartment for 7 years paying $1250/mo. and never had my rent increased. It was a modern up-to-date with a gated garage with 2 parking spaces, with A/C, 3 small balconies, 2 fireplaces, 2 walk-in closets, full kitchen w/refrig/stove/oven/dishwater, 2bdrm, 2 bath, spiral staircase w/loft. They sold the building to an Arab and started going up on the rent every year to the point it got ridiculous. Several of my friends had to move from their apartment building because the landlord raised their rent to $1200 more a month. For a small 1 bdrm apt that was $1250/mo. A lot of landlords are just greedy and don't care if you are good tenants are not, that you pay your rent on time, you take care of your place (respect the property)they just want the money. YES! We need rent control! Because you landlords are out of control. All you are doing is creating a way bigger problem, there will be a whole lot more homeless people. Because there isn't any more affordable housing. Which will create an even larger problem, if you can barely afford a place to stay, you only buy essentials, so store merchants get effected too, less to none shopping for electronics, clothes, etc. It will affect everyone! And the way things are going it is on its way to being just that.

[nortfishlsweetnr]

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.

[mrspartan]

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

[GoldenFlowerAbbey]

So.. the real problem is that rent control is only applied to older rental properties

[Alessandr-]

I am from Munich, Germany and last week I have been to Los Angeles. It was a nice vacation but i noticed a few things compared to Munich.
It takes forever to get from one place to another since the city is so huge. You would always be stuck in traffic and even on a 6laned highway there was traffic.
Also there was no quick Metro System like i am used to.
There was smog all over the place and it was not as enjoyable to watch the skyline as it could have been.
Almost no houses were multi family houses but only single houses.

In Munich there are no single-family homes unless you are living in a „richer or older“ part of the city where the wealthy families live. Also in the suburbs there are single-family homes.

I found that the Munich way is way more enjoyable to live since the living space is almost the same but you are likely to live way more central than for example in LA. In Munich you will almost everywhere find a metro station which means you’ll probably don’t even need a car and that’s also a reason why our streets are not as crowded and there is no smog.

Munich does not allow any skyscrapers over 100m (nothing can be higher than the „Frauenkirche“) and that makes sure that’s it doesn’t get like New York.

[themaskedmartyr]

Graham, this video really showcases how articulate and versatile you can be - well done.

[pedroribeiro]

You are wrong about what restricts supply. Tenants staying in the same place for 10 years doesn’t restrict supply, if they were to move within the same area supply would remain low. You mean to say they move, you mean to say the poor get displaced so the rich can move in. What happens if the rich get priced out? Rent control, if done the European way works, it depresses the market on the short term but stabilizes it in the long run attracting regular consumers to compete again.