Tag Archives: rent control

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Affordable Housing and Oregon’s Two-Faced Democrats

Talk about duplicity.

Oregon Democrats are taking opposite sides on affordable housing and dealing with homelessness.

First, Gov. Kotek and the Democratic Party trumpet their support for affordable housing and secure passage of  two bills, HB 2001 and HB 5019,  known as the Affordable Housing & Emergency Homelessness Response Package, that will inject $200 million into speeding up construction of affordable housing in Oregon 

Then Senate Democrats turn around and push out of the Committee on Housing and Development a bill, SB 611, that would modify an existing rent control law to cap rent increases at buildings more than 3 years old at 10% or 5% plus the consumer price index. 

So what is it folks? Do you want to spur more affordable housing and cut down on homelessness or do you want to sabotage the housing market with counterproductive restraints on the free market. 

The fact is, rent control doesn’t work. Any short-term benefits, including the applause of some misinformed constituents, are always overshadowed by the long-term problems rent control creates.

As Swedish economics professor Assar Lindbeck has observed, “Rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.” 

Time for some consistency.

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Oregon’s Revised Rent Control Bill: Lipstick on a Pig

When a piece of legislation is flawed from the get-go, fiddling with it is fruitless. 

Oregon’s Senate Committee on Housing and Development voted on April 3 to amend a rent control bill (SB 611) and send it to the Senate floor for a vote. 

The original bill capped rent increases at 8%, or 3% plus the consumer price index, at buildings more than 3 years old. An amendment changed that to 10% or 5% plus the consumer price index. 

But the problem isn’t the percentages. The problem is that 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.

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.”

Oregon foolishly started down this road in 2019 with a law prohibiting landlords across the state from raising rents more than 7 percent per year, plus the annual change in the consumer price index (CPI) at buildings more than 15 years old. Now, rather than abandon the whole idea, Democrats in the Senate, backed up by tenant groups, continue to ignore economic realities. 

Potentially compounding the problem, the legislature is considering House Bill 3503  which would allow cities and counties across the state to enact their own rent control laws.

In testimony submitted to the House Committee on Housing and Homelessness, Ariel Nelson, a lobbyist for the League of Oregon Cities, endorsed the bill, arguing, “The current state preemption prevents local governments from enacting rent control policies that are tailored to the specific needs and circumstances of their communities. Local governments are closer to their communities, more responsive, and are able to act more quickly. HB 3503 will provide local governments with a critical tool to address the affordable housing crisis for their residents.”

But, as with SB 611, the measure would likely do more to hamper than stimulate the construction of more affordable housing in Oregon. 

As Deborah Imse, Executive Director of Multifamily NW told the committee, “… this legislation opens the door for 417 municipalities to enact their own rent control. That is 417 different sets of requirements that not only do nothing to address the underlying cause of rising rents, but create a regulatory hellscape for housing providers in every corner of the state. That is arguably irresponsible state policy and simply not sustainable for any housing provider, large or small.”

But, hey, what do Democrats care. No matter how compelling the case against rent control, advocates can position themselves as saviors against the forces of evil. And that can translate into votes. 

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United Way Is Way Out of Bounds Endorsing Rent Control in Oregon

The United Way has some good programs.  Offering rental assistance. I get it. Last-minute help to prevent evictions. Makes sense. But supporting rent control legislation. That’s over the line.

Not willing to leave the current bad enough rent control law alone, the Oregon legislature is back with Senate Bill 611 that would limit annual rent increases to 3% plus inflation or 8% total, whichever is lower. The exemption would apply to buildings 3 years old or newer. 

The bill has the support of numerous progressive and social welfare groups, including United Way of the Columbia Willamette, which has apparently deluded itself into thinking social justice concerns override economic realities. 

It has also apparently deluded itself into thinking it’s legitimate for a non-profit, which sustains itself on millions of individual and corporate contributions and says it is ”…deeply committed to helping create a just and equitable region where all people can thrive…” should advocate for legislation that contradicts economic realities and is opposed by property owners across the state?

United Way of Board members include:

  • Greg Geshel, Vice President Human Resources at Comcast
  • Ashlee Irwin, Medicaid Business and Strategy Consultant at Kaiser Permanente
  • Mahir Patel, Vice President of Pharmacy Services at PacificSource Health Plans
  • Tichelle Sorenson, Academic Director of the MBA Program at PSU
  • Layla Zare, Vice President and Relationship Manager at Bank of America
  • Kim Spalding, Senior Manager at Perkins & Co.
  • Charlene Zidell, Vice President, Strategic Partnerships & Family Vision at The Zidell Companies.

Do the employers who endorsed placement of all these people on United Way’s board support the deeply flawed rent control bill their employees are pressing so hard for?

Somebody should ask.

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Rent Control: When Will Oregon’s Legislators Learn?

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

During the French Revolution, the National Convention, an attempt at a national legislature, passed the Law of the Maximum imposing a maximum price on dozens of essential goods, mostly food items. The limitations discouraged farmers and producers. They began producing less or hoarding what they did produce, rather than selling food below its real value. Less food made its way into the towns and cities, which only exacerbated the shortages and led to the emergence of a thriving black market 

This is what happens when governments take actions that contradict economic realities.

Welcome to the Oregon legislature and rent control. 

Oregon started down this road in 2019 with a law prohibiting landlords across the state from raising rents more than 7 percent per year, plus the annual change in the consumer price index (CPI). The limit only applies to buildings that are more than 15 years old.

Not willing to leave bad enough alone, now the legislature is back with Senate Bill 611 that would limit annual rent increases to 3% plus inflation or 8% total, whichever is lower. The exemption would apply to buildings 3 years old or newer. Landlords would also have to cover three months’ rent if a tenant has to relocate through no fault of their own, up from the current requirement of one month of rental assistance for a no-fault eviction.

This foolishness is what you get when Oregon’s Democrats are left in charge. 

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.

  • 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.

The bill has the support numerous progressive and social welfare groups, including the Southern Oregon social justice nonprofit Rogue Action Center, Partners for a Hunger-Free Oregon, The United Way of the Columbia Willamette and The Pacific Green Party, all of which have apparently deluded themselves into thinking social justice concerns override economic realities.

Rent control supporters claim its the quickest and easiest way to provide relief to renters in danger of being priced out of their home, but the fact is it just makes the problem worse.

When will liberal legislators learn?

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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.

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Rent control: and the beat goes on

rentcontroldemonstration

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.

 

 

 

 

 

 

 

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

 

ifyougiveamouseacookie

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.”

camelnose1403102

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Memo to Portland landlords: raise your rents now

norentcontrol

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.

 

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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.

tinakotek

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?”