Quote:
Originally Posted by mhays
It's hard to answer that without more details, or given that you're just giving an example rather than evidence. However...
When choosing whether to build a building, the developer and financial partners will guess about future rent increases. If increases are limited to 2% for example, many won't build. If they do build, they'll have higher initial rents, because early vacancies are better than being stuck with low rents. Then they'll raise rents 2% per year even in down years rather than fall behind. The effect is diminished with a higher allowed increase.
If rents fall below market rates, there's no much incentive to keep the renters happy, and sometimes actually some incentive to get them to leave, which is related to a lot of poorly-maintained buildings in New York and San Francisco.
Rent control sells among some voters because it sounds good, and much of this stuff is frankly over their heads. But while it helps some people it screws basically everyone else. Except condo owners like me.
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I was giving more an example than presenting a total case, in my experience the rent control just slowed down the natural cycle of prices. It hasn't prevented housing from being unaffordable for lots of individuals. It hasn't really constricted supply as the area with rent control is still adding many more units.
Most of our developers for rental markets tend to be back by very large capital which is seeking stable long returns and need constant cash flow. Those seeking shorter return cycle have been developing condos and off loading the rental risk to the individual investor, which have even higher initial rents.
As i mentioned in my previous post, i think the rental crisis there will ease as the market evolves, tech begins to pull back and migration eases. I just lived a similar thing as oil companies pulled billions off their future capital plans in the wake of the oil decline.