In cities like Milwaukee, landlords are making inflation worse by jacking up rents. This is the charge leveled by Chris Krco, Community Land Trust founder and president of Housing for All. Mr. Krco went on to prescribe rent control as the remedy.

By why stop there? If rent control is a good idea, why not gas control and grocery control? Since Mr. Krco correctly attributed housing as a prime driver of inflation and since two thirds of all households live in a home they own, why not regulate and limit the sale prices of single-family homes? We are just a few laws aware from an affordable utopia!

Obviously, should such regulations be implemented, immediate shortages would result and homeowners would revolt. Instead of cheap gas and groceries, there would be no gas and groceries.

Mr. Krco claims without evidence that the negative effects of rent control are exaggerated and that jurisdictions with strict rent controls have extremely high-quality housing. Minimal common sense and even a cursory glance at the facts proves otherwise.

St. Paul voted rent control into existence last November, capping rent increases to 3% annually. Building permits plummeted 82% by January 2022 compared to the same period the prior year. In Minneapolis, where rent controls do not constrain development, building permits increased 68%.

Rapid inflation in rents is caused by demand outstripping supply of rental housing. Rent control makes an existing housing shortage worse. Further, it hurts the very populations it was intended to help. Landlords qualify tenants based on things like income and credit score. When market disruptors like rent control are introduced, tenant competition for what little housing remains heats up. Landlords can raise the standards for qualifying, resulting in less affluent income groups or individuals with lower credit scores being crowded out in favor of higher income applicants with higher credit scores.

There is a better way. Since rents increase in response to demand outpacing supply, increase the supply of rental housing. Here are three ways to do that.

1. Nationalize the building codes. Imagine what it would cost to manufacture cars if every municipality had a say in their design and safety features, but this is how we regulate housing construction. Instead, establish national standards. Yes, there will have to be variations to account for differences in climate, but those solutions should be regional, not local.
2. Turn the approval process upside down. Today, it can take longer to achieve permission to build than the time in construction. Turn this process around. If certain national, easily understood requirements are met, developers may proceed with construction. Local authorities will still have a say in what gets built in their communities, but they will have to be more creative. Local governments could grant tax incremental financing (TIF) subsidies to desired projects and withhold the same from those developments deemed not as desirable, placing them at a competitive disadvantage.
3. Subsidize development. In addition to TIF subsidies, tax credits are already available for developers willing to construct income restricted rentals. Make existing credits more lucrative and extend the standard subsidy to market rate housing.

None of these subsidies will soak taxpayers. TIF subsidies are a forgiveness of future tax revenues that never would have materialized had there not been new development. Tax credits that spur more development are a sound investment. Nothing jump-starts economic activity like more construction. Increased economic activity will generate higher tax revenues. Once rents stabilize, the tax credit subsidies can be withdrawn.

photo by pexels.com

Rent Control in St. Paul Minnesota was just voted into law November 4, 2021, but already the consequences are being felt.  No surprise, developers are pulling apartment projects off the table.  It looks like one development is officially out and another is in jeopardy, having just lost an investor.

In other words, the rent control measure that was intended to deliver a lower cost of housing will have to achieve this goal without the benefit of additional housing supply.  In the meantime, economic activity and the jobs that would have gone with them are also lost.

All of this was as predictable as the sunrise.  Congratulations to St. Paul on your housing shortages and declining housing stock.

One of the most restrictive rent control laws in US history has passed in St. Paul Minnesota on November 2, 2021.  Rent increases are capped at 3% with exceptions for property tax increases and major improvements.

The problems with rent control are well documented and familiar.  Rent control is like crack cocaine – fun at first, then the hangover.  Rent control is government meddling in the marketplace and assumes that government bureaucrats are smarter than individual landlords and tenants.

Further, it discriminates in favor of existing tenants over individuals looking for apartments now or in the future.  In very little time, those existing tenants benefiting from government regulated rent will be in an apartment priced substantially below market rents.  This is a forced subsidy paid by landlords to the benefit of existing tenants.

However, over time, landlords will not have the ability or incentive to maintain these apartments.  The existing housing stock will deteriorate faster as a result.  Fewer new buildings will be built in the areas subject to rent control.  A shortage of housing inevitably develops.

Rental demand for units immediately outside the rent control area will see an inordinate spike in demand with corresponding acceleration in rent prices.

Existing tenants in newly legislated rent control districts no doubt log a win.  Everyone else loses.   

We talked about it being considered, but now rent control is the law of the land in Oregon. In the past, rent control has been limited to certain cities, primarily in New York and California. But for the first time, an entire state has decided to drink this kool-aide.

Rents have been going up fast in Oregon and it’s not hard to understand why. According to the Wall Street Journal, for every 100 new households formed in Oregon, there has been only 63 new housing units built. Rising demand in the face of inadequate supply always results in higher prices.

So why aren’t the builders building more?

Government regulations designed to reduce urban sprawl and preserve land for farms and forests have resulted in sky high land prices and cities with nowhere to go. Take for example Bend Oregon. In 1990, the population was 20,000. Previous state legislation established an urban growth boundary limited to 20,600 acres. Today the population is 95,000 but available land for development is limited to only 24,000 acres. That’s about 75,000 people, nearly four times as many, competing for a 16.5% increase to land area of just 3,400 acres. No wonder prices are going up.

In other words, government regulation created this problem and now the regulators are going to step in to fix it with additional regulation. Rent control always results in decreased supply of new housing. While the ink is hardly dry on this new law, multi-family permits are already down 64% from a 2017 inclusionary zoning policy that forced landlords to rent 8%-15% of their units at below market rates. This new rent control meddling will precipitate further decline.

In the meantime, places like Dallas, Texas are surprisingly affordable and while Dallas has also enjoyed rapid household growth, housing cost have not sky rocketed, for one simple reason: In Dallas, the government will let you build.

If you want to stay in southeastern Wisconsin, we have just the right apartment for you, and affordable too! Where do you want to call home? Fox Lake? Hartford? Milwaukee? Racine? Decker apartments in all of these cities, and many places in between, all the way out to a brand new apartment complex in Madison. Give us a call, we’re right next door.

Also see “Insanity in Seattle – An Update”

Oregon is poised to become the first state to enact rent control state wide. Frustrated with increasing rents, officials believe something must be done.

Never mind that rent control is a bad idea that even lefty economists like Paul Krugman condemn. The problem is, rent control results in diminished supply of new rental units and accelerated deterioration of existing rental housing stock because landlords can’t afford to maintain their properties and why should they? The resulting imbalance of diminished supply to ever increasing demand means that tenants are clamoring to live in poorly maintained junk.

Ironically, exploring the causes of high rent points us right back to government. Government regulation of housing and building codes makes it more difficult and more expensive to supply the market, resulting in higher cost of construction and fewer apartments being built. Higher rents result.

One of the leading proponents of rent control in Oregon is Margot Black of Portland Tenants United. She has this to say about landlords: “Homegrown Oregonians tend to be white and racist…I think the faster they can get out of the landlord business, the better.”

Before anyone reacts to the idea that passing judgment on an entire group of people is itself racist, I want to assure you that as a white landlord, we are all in fact the same! You can generalize about all of us based upon the experience you had with any one of us, particularly if that experience was a bad one.

Rent control will be a disaster for Oregon tenants, but I’m sure Margot Black will get her wish as plenty of Oregon landlords of all stripes abandon the market.

Also see “Insanity in Seattle – An Update”

The insanity in Seattle is leaving us sleepless. OK, the movie Sleepless in Seattle was 25 years ago (1993)! Terrible having to explain these jokes.

But courts in Washington State aren’t finding it funny that the City of Seattle tried to implement some whacky housing ordinances.

Seattle wanted to require landlord to give chronological priority to applicants applying for apartments. This would require landlords to bypass a better applicant in favor of one that applied sooner. Score a win for the unemployed with time on their hands to look for apartments while busy people like you get stuck. And never mind the bureaucratic morass for landlords of keeping track of who applied first.

Fortunately, the courts see it differently and kicked this bad idea to the curb.

Similarly, Seattle would like to prohibit landlords from considering an applicant’s criminal history unless they have a legitimate business reason for doing so. The wording of the statutes is vague – who’s to say what is a “legitimate business reason?” Sounds like a plaintiff’s lawyers’ delight.

Fortunately, this ill-advised housing ordinance idea looks like it’s headed for the trash heap of the unconstitutional as well.

Also see “Oregon Gone Mad on Rent Control”

Not long ago, we shared with you a bad idea from Seattle Washington that will result in more pets getting abandoned by their owners and ultimately euthanized (Bad News for Pet Owners, February 6, 2017). Not to be outdone, now Seattle has bent over backwards to help less qualified renters get chosen for an apartment over there more qualified peers.

Basically, Seattle wants landlords to be forced to accept the first tenant that come that meets the rental criteria. While that might seem benign, let’s examine the spoiled fruit of the tree of good intentions. Continue reading →