Portland Mayor Wheeler’s message to landlords: Tough Luck

“Next to bombing, rent control is the most effective technique so far known for destroying cities.”   Assar Lindbeck, former Professor of Economics, Stockholm University

 

Portland Mayor Ted Wheeler has apparently decided that rental property owners are second-class citizens. 

At a Tuesday, Sept. 8 news conference, Wheeler announced a proposal to require landlords to pay tenants relocation money if they raise a tenant’s rent by any amount. That’s right — any amount. The proposal is expected to be considered by the Portland City Council on September 16. If approved, it would go into effect immediately and stay in effect at least until the end of 2020.

Under current rules, Portland landlords are required to pay $2,900 – $4,500 to assist tenants with moving expenses if their rent is raised by 10% or more over a 12-month period. 

There’s also a state law in place that limits rent increases on properties that are more than 15 years old to no more than 7 percent per year, plus the annual change in the consumer price index. Under Wheeler’s proposal, the state’s limit would be moot.

“Right now, with thousands of renters not able to pay their current rent, it’s likely that any rent increase would force renters to have to relocate,” Wheeler said. “While we’re in the middle of this pandemic, we need to do our part to protect renters from the tidal wave of evictions that we know is coming.”

As for protecting landlords, many of whom are small property owners, Wheeler seems to be making the assumption that all landlords have such deep pockets they can easily cover any escalation in their costs during a moratorium on rent increases. 

He appeared to understand the problem when he said on Tuesday he opposed proposals to cancel rent during the pandemic, saying that would just burden property owners, but his new proposal would clearly burden property owners as well. 

Landlords probably won’t garner much sympathy from the progressives who see  landlords as exploitative villains and are likely to enthusiastically back Wheeler’s proposal.  So it has a good chance of passing, continuing Portland’s slide down the slippery slope of rent control.

If it passes, it will be one more disincentive for investors to put their money in rental housing. As the National Apartment Association points out, that would further limit the availability of affordable rentals, increase the cost of all housing by forcing a growing Portland population to compete for fewer housing units, and reduce the quality of rental housing. In other words, it will harm the very community it purports to help by limiting accessibility and affordability.

Earlier this year, I wrote that Oregon real estate interests would rue the day state rent control became law because the pleas of tenant groups for even tougher rules would accelerate and progressive politicians would respond.

Point made.

Rent control: and the beat goes on

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In early January, I argued that Oregon’s enactment of a statewide rent control law would be just the beginning (Rent control: another bad idea out of Salem). Pressure would build quickly to reduce the law’s annual rent increase limit of 7 percent plus inflation, currently totaling about 10 percent, I said.

No surprise, the push for tougher rules has already begun.

It began with a Feb. 1, 2019 editorial in Street Roots, a weekly street newspaper published in Portland that’s sold by members of the local homeless community.

“The profit motive has been allowed to triumph over the fact that housing is a fundamental human need to survive,” the editorial said. “For too many decades, the marketplace has been allowed to skew sharply toward money over humanity, and Oregon is just too attractive of a market to pass up. It’s time for the pendulum to swing the other way.”

The editorial highlighted the need for the prohibition on rent control action by local governments to be lifted and noted that rent increase limits elsewhere are much lower.

“Rent stabilization elsewhere in the country comes in at much lower percentage,” the editorial said. “Take Berkeley, where a different calculation regulates rent increases to no more than 3 or so percent. In New York, it’s approximately 1.5 percent.”

Mary King, a professor of economics emerita at Portland State University, followed up with a March 1, 2019 Street Roots commentary also arguing that the rent increase limit is too high.

Oregon’s new rent control law was “…designed to stop only extreme rent gouging and limit no-cause evictions” and prohibits cities from passing their own, stronger rent stabilization policies, King said.

Ten percent is just too high a limit, particularly when compared with some tighter limits set elsewhere, King wrote. “Capping annual increases at 10 percent would have only slightly limited the unaffordable growth in rents in Portland over the past five years,” she added.

Oregon’s rent control law represented only “…progress against the worst excesses,” King said. “However, if the state would allow it, Portland could pass a much stronger, more effective rent stabilization policy without harming the supply of housing. Our best next step would be to pass a second bill to lift pre-emption on cities hoping to set their own course – and get to work in Portland.”

The Legislature’s rent control bill was essential because it would establish a “better baseline,” the Street Roots editorial said, “but we expect them to keep fighting. We will too.”

Hang on landlords and tenants. It’s going to be a bumpy ride.

 

 

 

 

 

 

 

Statewide rent control in Oregon: this is just the start of something

 

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Even as a child, you knew the mouse wouldn’t be happy with just a cookie.

Oregon Democrats won’t be satisfied with their first stab at statewide rent control either.

Senate Bill 608, moving swiftly through Oregon’s Democrat-controlled legislature, proposes to limit annual rent increases to 7% plus the change in the consumer price index, except when the dwelling has been certified for occupancy less than 15 years. Lawmakers in the Oregon Senate approved the bill 17-11 on Tuesday, Feb. 12. It now goes to the House.

In January 2019, Jim Straub, Legislative Director of the Oregon Rental Housing Association, signaled acceptance of, or resignation to, the inevitable, given that the Democrats have a supermajority in both chambers and occupy the governor’s chair. “There is a lot here for landlords to dislike, but more importantly we should recognize it for what it isn’t, an industry killer,” Straub said

He’s dead wrong.

Straub figures landlords can live with the bill because the annual rent increase limit is so high, leaving a lot of wiggle room. In 2018, the all items consumer price index increased 1.9 % before seasonal adjustment. Add 7% and the rent increase limit would be 8.9%.

Although annual rent increases can vary quite a bit in Portland, influenced by a building’s location, age, amenities, etc., annual rent growth in Portland overall averaged just 4.3% in 2017 and, largely due to record apartment construction, actually decreased 1.3% in 2018.

ECONorthwest, an economics consulting firm, has estimated that only 5% of buildings in Portland increased rents above what would be allowed by SB 608 in 2018.

But Oregon real estate interests are going to rue the day SB 608 becomes law.

That’s because once it is enacted, pressure to lower the rent increase limit in response to the pleas of tenant groups will accelerate. And government regulations will beget more government regulations.

In  January, Margot Black, founder and former leader of a renters’ rights group, Portland Tenants United, bitterly criticized the high cap on rent increases.

“If this is the version that passes, and if (Democrat Sen. Virginia) Burdick is the one championing it, then I’ll start my campaign to run against her the day after it passes,” said Black. “I will knock on every renter’s door in the district and let them know that their senator thinks they are no better than a used couch put out to the curb in the rain.”

According to the Oregon Rental Housing Association, some tenant groups have also already gone to the 2019 Legislature requesting that all future rent increases be limited to a maximum of around 2% every 12 months, even if a tenant moves out during  that period.

And don’t expect the Democrats to consider the rent increase limit set in stone.

Government is addicted to constant revision of the rules. The federal income tax began in 1913 with a combined tax rate of 1-2% for the middle class. The marginal tax rate for the middle class now is about 22%.

Oregon’s personal income tax has been all over the map since its inception. According to the Oregon Department of Revenue, in 1930, the maximum tax rate on “single and separate” and “Joint and head of household” was 5%. Only three years later, in 1933, it went up to 7% and by 1955 it had risen to 11.60%. It went back down to 9% in 1987, but jumped to 11% in 2009-2011, In 2018 its was 9.9%.

So, don’t be surprised if SB 608 is just the camel’s first move.

“It is the humble petition of the camel, who only asks that he may put his nose into the traveler’s tent. It is so pitiful, so modest, that we must needs relent and grant it.”

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Memo to Portland landlords: raise your rents now

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Oregon House Speaker Tina Kotek (D-Portland) wants to be a decider on regulating the cost of rental housing.

Kotek and other ill-informed Democrats want Oregonians struggling with rising rents to believe that ending the statewide ban on local rent-control measures is the holy grail that will solve their problems.

Don’t be fooled. Rent control is a simplistic political solution to a complex problem.

Though liberals may castigate the free market and favor government intervention, the facts on the ground support the conclusion that the free market works with rentals.

After a rental market boom has pushed up prices across the country, rents in some of the hottest markets are now starting to decline.

While the national apartment market is still performing above the long-term average, the moderation from the unsustainable levels of 2014 and 2015 has come, particularly in urban cores.

“Apartment rents declined in some of the country’s priciest cities during the third quarter, a dramatic reversal that could signal the end of a six-year boom for the U.S. rental market,” said Axiometrics Inc, a provider of apartment and student housing market intelligence.

The market is feeling the effects of the concentrated new supply according to Axiometrics. “In particular, rent growth has declined precipitously in markets with the highest rents in the country, such as New York and the San Francisco Bay Area,” Axiometrics reported recently. “Rent levels declined year over year in the three major markets with the highest rents – San Francisco, New York and San Jose.”

In other words, rent control promoters, the market works.

Not that this will dissuade liberal deniers. So, raise your rents now, landlords, before the know-nothings go into action.

 

Rent control: Kotek’s folly

On Sept. 12, Oregon House Speaker Tina Kotek (D-Portland) said she planned to push for an end to Oregon’s ban on rent-control laws, enabling local governments to move ahead with measures of their own.

Kotek said she also wants to ban all rent increases above a “reasonable” percentage and end to no-cause evictions.

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Oregon House Speaker Tina Kotek

The problem is, no matter how much liberals embrace the concept, rent control doesn’t work. Any short-term benefits, including the applause of some constituents, are always overshadowed by the long-term problems rent control creates.

  • However you phrase it, under rent control, government dictates what private owners are allowed to charge for their private property. Yes, the free market has flaws, but it is far better than having bureaucrats running things.
  • Landlords who can’t raise the rent on their property to a market price are more likely to cut back on maintenance and less likely to invest in improvements. Not only will landlords have absolutely no economic incentive to invest more in their properties, they may not even have the funds because of limits on their rental income.
  • Rent control distorts the housing market by misallocating rental units to those who are already renting them. Whenever government prevents the charging of prices high enough to clear the market, shortages will occur.
  • The imposition of rent control can lead to a “demolition derby” where older controlled rental units are purposely torn down and replaced with higher priced units.
  • Rent control does not guarantee low rents because it doesn’t regulate the starting rent for a new tenant. When a tenant in a rent-controlled unit moves out, any savvy  landlord will set the rent in the new lease at the current market rent, which is likely to be much higher.
  • In a review of 140 economics studies on rent control in Economics Journal Watch, economists overwhelmingly agreed that, “A ceiling on rents reduces the quantity and quality of housing available.” From the abstract: “I find that the preponderance of the literature points toward the conclusion that rent control introduces inefficiencies in housing markets. Moreover, the literature on the whole does not sustain any plausible redemption in terms of redistribution.”
  • A broad survey of economists by the IGM (Initiative on Global Markets) Forum revealed a similar repudiation of rent control. The Forum is a program of the University of Chicago’s Booth School of Business. “Rent control discourages supply of rental units,” said Associate Head of the MIT Department of Economics, David Autor. “Incumbent renters benefit from capped prices. New renters face reduced rental options.”
  • Once rent control is imposed, it is extremely hard to get rid of, even where its futility is eventually recognized. That’s because rent control will have held rents far below the market rate, so removing them is likely to cause immediate and substantial rent increases, something few politicians (and even some rent control critics) will be willing to embrace in the face of a potential public outcry.

As Art Carden put it in The Unintended Consequences of Rent Control, “Suppose that you want to destroy a city. Should you bomb it, or would it be sufficient just to impose rent control?”