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Rising Rents and Rent Caps

April 26, 2017

Before I begin, I should mention that I was born to Cuban parents in Miami, so the government owning property and putting a cap on an individual's potential has left a bad taste in my mouth since birth. I want to preface this blog by saying that I don't have a definitive solution for the problem of rising rents. My intention is simply to present information to the public so that you can have an educated discussion about the problem of rising rents and rental caps that so many in our society face. This is to aid the discourse, so that perhaps, as a collective, we can come up with a game plan to help out those around us. 


 

We have all known people who have been affected by the choice of landlords to either sell their property, or raise the rent. This has caused so many to lose their homes and caused us all to worry about whether any of us can find an affordable place to live, regardless of income bracket. This situation lends to a desperate state that sometimes prevents us from searching deep enough to find the source of the problem to find a sustainable resolution.


 

One option that has been put into place is Rental Caps. These rental caps target the initially perceived root of the issue - the landlords. They are the ones raising rent so they should be stopped and that would solve the issue forever...right? I mean, isn’t it the landlords’ greed that has caused rent to rise exponentially?


 

Historically, rents rise this much because there are fewer places to rent than the number of people searching for somewhere to live. This means that those places available will charge more money, due to the demand.


 

This means that regardless of whether the government puts a cap on the amount a landlord can charge, there still wouldn’t be enough places to meet the demand. An indefinite cap on rents deters developers from building units because it's a riskier investment. Less units built equals less places to live and the problem only gets worse.

 

So, what do we do?

 

One idea is to have the local government require all new developments in the city to include low income housing. But this solves only a small piece of the problem- an example:

You’ve just graduated from college, and have managed to secure a job that paid you $60K/year in salary,. You know that you should move into your own place, and feel as though you should be able to afford it, as well.

 

Would you qualify to be in the low income bracket so that the required 'Low Income Units' are available to you? No.

Would you make it into the Luxury bracket? Of course not.

 

In this case the middle class gets the hit and the problem is perpetuated.

 

For us to have more places to live, they need to be built. The incentive to building them is making a profit. Piece by piece, the thousands of people involved in the creation of a building make a living from the entire process; Construction workers who physically build it, architects who draft it, city employees who take the phone calls and issue permits, etc… Therefore, a building can only go up if it's not the type of investment that generates a profit. In turn, these jobs/customers can be lost and less people have a place to live.

 

Having said all this, I must also mention that we've reached an extreme. And SOMETHING needs to be done. But over-regulating has proven not to help in the long run.

 

A path to Solutions...

The many moving parts of the economy- seasons, consumer confidence, politics, trends, etc. (government being only one of these pieces) - have their own flow, regardless of the local governments influence. One example of this is that prices can only rise so high before the general public becomes convinced that real estate in a city is no longer a 'good deal.' When prices hit this apex, the market naturally slows down. If the local government decides to enforce strict regulations at the same time as this natural contraction takes place, the result can be devastating for everyone, as we've already seen in history (https://youtu.be/R0h8kfA4i_A)

 

The local government has already created regulations:

- At least 20% of anything that is built must be low-income housing

- Tenants leaving due to 'No-cause eviction' or more than a 10% increase in rent must be paid 'relocation fees' by the owner of the property.

 

Going any farther than this could be disastrous in the near future.

 

In my opinion, our focus should be on the creation of jobs. Local government's light touch on rent prices and unfair treatment is fine- especially if small businesses can thrive, continuing to provide jobs for our citizens and producing useful products and services for the world. Our local economy is already adjusting this year and we should be very careful with what we root for by looking deeply into it first.

 

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