Thursday, October 10, 2019

Impact of Rent Control - Part 1

(first of four parts)

Several states, including Illinois, have recently had proposed legislation to bring Rent Control options to municipalities within. Some cities and states have been under rent control for years.

The problem is that, generally speaking, the politicians behind it are proposing and backing Rent Control for the wrong reasons. They see it as a means to attract more votes. By showing lower income citizens that they have taken steps to prevent rent increases and will save them money, they reason that those residents will want to keep their local politician in office.

Many low income tenants are not thinking about how it impacts their future in that residence. One of the conditions is (in the majority of cases) placing a freeze on the amount of rent charged to the specific tenant residing in their specific unit.

However, if and when said tenant moves out, the landlord generally has the right to increase the rent for a “new” tenant. Because of this, landlords often have an incentive to discourage lower paying tenants from staying in place.

For example, in San Francisco, there have been instances of landlords spending literally thousands of dollars to relocate individual tenants in order to accommodate new renters at higher prices.

Suppose market conditions show that a landlord could be charging $450 per month more in rent than they are currently getting by performing a simple upgrade. The landlord sees this as “losing” $5,400 over the following year by having this tenant under the “freeze”.

This landlord finds another unit convenient for that tenant, and offers to pay the deposit, moving expenses, and a couple of months in rent to “help” the tenant to relocate. Let’s say the landlord does this for $4,400. The landlord then rents the “upgraded” apartment for $450 per month more, which over the course of that first year, brings in $1,000 more than the previous tenant would have generated.

What we have are politicians looking for votes to help themselves in the short term, and landlords finding ways to buck the system. Hardly the intended purpose of Rent Control.

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