Aftermath Of Rent Control Measures

[Fernando]

In the Bay Area, there were many rent control measures on the ballot. Before I didn't know how to deal with such an issue when I was writing the appraisal reports. Now I know.
Those which didn't pass rent control, the thaw in 2-4 unit buildings should be over and prices should go back up.
Those which passed and tighten rent control will hurt tenant occupied buildings.
The scenario is clearer and appraisers need to keep up to date on such matters. Politics affect real estate values.

 

[Tim The Enchanter]

L.A. has had rent control for years. It does not seem to make much if any diff compared to adjacent county areas with no rent control. But, I avoid crossing those lines for comps.

 

[Fernando]

San Francisco has rent control for over 30 years and I can see the difference. The rent limits and the eviction restraints have kept 2-4 unit buildings lower than it should be. Prices have increased but compared to adjacent county, S.F. landlords got screwed.

 

[Tim The Enchanter]

Maybe SF laws are more restrictive than LA?

 

[techbiker]

My understanding is rent control is theoretically bad for tenants and landlords, irrespective of building grade.

1. Rent control disincentivizes improvements to existing buildings. Why would a landlord invest in his building if any improvements don't translate to higher NOI?
2. Rent control disincentivizes new building construction. A developer would often rather build in a city that does not enforce rent control since he has a chance of realizing higher future rents.

Less development results in an artificially low rental inventory, shutting out would-be renters and contributing to urban sprawl, traffic, etc. Further, existing buildings are not repaired/improved as aggressively resulting in generally lower quality units.

I do not know how visible these theoreticals are on the ground though.

 

[Tim The Enchanter]

L.A. rent control only applies to apts built pre 1978.
Limits rent increases until tenant leaves, then rent can go to market rates.
Simplified version.

 

[Restrain]

Look at what happened in New York with strong rent controls. Before they were eased, buildings would set, empty and burned out, only having the facade still standing. It was not economically feasible to repair or renovate a building. Even New York realized that something had to be done.

 

[Fernando]

My understanding is rent control is theoretically bad for tenants and landlords, irrespective of building grade.

1. Rent control disincentivizes improvements to existing buildings. Why would a landlord invest in his building if any improvements don't translate to higher NOI?
2. Rent control disincentivizes new building construction. A developer would often rather build in a city that does not enforce rent control since he has a chance of realizing higher future rents.

Less development results in an artificially low rental inventory, shutting out would-be renters and contributing to urban sprawl, traffic, etc. Further, existing buildings are not repaired/improved as aggressively resulting in generally lower quality units.

I do not know how visible these theoreticals are on the ground though.

It's not theoretical. From my experience, more restrictive rent control, decrease in property values.

 

[CANative]

 

[Tim The Enchanter]

View attachment 30287

So, San Fran City is more expensive despite rent control?