Rent Control: The Landlord’s Enemy

Just like The Joker is to Batman or Dr. Evil is to Austin Powers, Rent Control is the enemy to a Landlord. I know the claims of many renters and government representatives: “Without rent control, people couldn’t afford to rent!” I ask, what happened to the basics of economics – the law of supply and demand?

I’m not an Economist, but I do understand that what the “market”, in this case a renter, is willing to pay for any particular unit is what that unit is worth. If you, Mr. Landlord, raise your rents too high then your tenant will leave and you will have a vacant property that you can’t fill.

Rent control is intended to protect tenants from bad landlords. And, I do understand the purpose it was intended for. What it effectively does is create run down properties through the handcuffs it puts on landlords. Instead of putting money into property improvements, landlords of rent controlled properties find themselves paying more for utilities, taxes, insurance, etc. and not being able to recover the costs through rent increases. This means less money for improvements.

Have you wondered why developers no longer build new apartment buildings? Developers choose to build condos instead because it’s very difficult to make money on a newly developed apartment building these days. Rent control is one of the biggest factors why.

Rent Controls are the Enemy of Landlords

Rent Controls are the Enemy of Landlords

In B.C. where we hold a handful of rental properties, the maximum you can increase your rent to a current tenant within 2008 is 3.8%. On all of our B.C. properties, taxes alone on these units increased at least 5% over last year – and that’s just taxes! Insurance on our properties goes up at least 5% each year and I don’t want to even get into what’s happening with hydro and garbage costs. If our rental income can only increase 3.8% each year there is no way we keep up with the costs of owning the rental until the tenant moves out and we can move up the rent at that time – IF the market will bear it. Which is my point, why can utility companies, gas companies, retail companies, etc. all increase their costs to customers when it’s necessary, yet landlords can’t follow suit? When the vacancy rate is at an all time low of sub 2% in much of Vancouver and on Vancouver Island, and housing costs are at an all time high, why must a landlord pay for increasing costs while the tenant keeps paying the same, low amount?

One final point about rent control, if rent control was abolished and landlords in their greedy ways started jacking up rents by 10% or 20%, many tenants would simply relocate. Thus, leaving the landlord with an empty unit and having to spend money to place a new tenant. This would force the landlords to maintain their properties in better condition, and a wise landlord would quickly adjust their practices. It’s much better to keep a good tenant at their current rent than risk losing them because you are increasing their rent too much.

Supply and demand, the market (renters) should decide what your rental unit is worth, not the government.

5 Comments

Filed under investing, real estate

5 responses to “Rent Control: The Landlord’s Enemy

  1. Cris

    I dont know how I would deal with rent controls if we had them.

    I saw an old ecomonics video about rent controls in the 1950 – 60’s in New York, and they showed a bunch of run down and vacant buildings. They said that the landlords could not afford the up keep of the buildings after a certain point.

    http://www.insaneleads.com

  2. Dave

    Hi Cris,

    Yes, you are right about the impact rent control can (and has had) have on landlords and rental properties. Some of our provinces have these controls and others do not. I am not sure if any U.S. states have them, but regardless, they really are unnecessary. It’s bad enough that the government is so pro tenant that it can take upwards of 3 months to evict a non-paying tenant, but we also have to deal with a severe restriction on rent increases (at least in some provinces) even when inflation is skyrocketing!

    Alas, we remain very much in love with real estate investing, even with all the government restrictions.

  3. We saw the extreme result of rent controls while in Lisbon. Tenants and their heirs had their rents held in perpetuity and the landlords could not afford to maintain or keep the properties. The thick rock walls still stand but many of the buildings are in a total state of disrepair – many without interior walls, floor, windows or doors. While the tenants in one room are hanging their laundry on the railing, the winged tenants in the next room are flying around, cooing and redecorating their rooms.

    It is our understanding the government is offering incentives to gentrify these delapitated buildings in Lisbon but unless the tenant heirs move out nothing is done.

    Initially most tenants would likely be in favor of rent controls to help limit their expenses, but when the costs to the landlord become greater than the cost of upkeep the tenant will see and feel the difference.

    Landlords needs protection too! Not all are greedy land barons!

  4. Pierre

    Chris, I hope that you have revised your position after the market crisis.

    Some condos are now for sale down 40%off in Yaletown.

    You can’t let the economy rule everything. It is crazy that because some trader in an office in NY decides that rice is the next big thing to buy, people in Africa cannot afford to eat anymore. What world are we living in ?!?

  5. Pingback: Top 8 Real Estate Articles of 2008 «

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