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Marketplace Overtaking Rent Control,
By dan the roommate man, Fri Dec 9th
Rent control is one of those concepts that seems like a goodidea, at least until you think about it for more than 60 seconds-- an unusual event in an era of bumper-sticker philosophies andinstant analysis. The modern rent control era began with the federal EmergencyPrice Control Act of 1942. Such legislation was enacted whilethe country was at war both in Europe and Asia, and there was aneed to prevent profiteering at home. Once the war was over, theneed for price controls went away -- except for rent control. In 1946, for example, despite the fact that we won the war andno emergency was in sight, the "Emergency Housing Rent ControlLaw" was passed in New York state, and that law still representsthe basis for the control of more than 1 million rental units inNew York City today.
Rent control regulations also arose in other jurisdictions,often because of concerns that tenants would be "abused" by"greedy" landlords and -- not incidentally -- because the numberof tenants greatly exceeds the number of property owners, animportant matter when it comes time to vote. But rent control is wrong precisely because it hurts the peopleit is allegedly designed to protect. Let's assume that people are economically rational. Thus, if youhad money to invest, you would weigh such matters as risk,possible appreciation, and personal preferences as you decidewhere to put your money. You might see, for example, that thereis no limit on stock profits -- profits which can often be madehigher by downsizing and moving production overseas -- butincome restrictions on real property in rent control areas.Being sensible, you would likely invest in securities ratherthan local communities. If enough people make such decisions, money will pour into thestock market and realty demand will wane. The result will befewer rental units than might otherwise will be built. Givenless supply and a growing population, the natural result ishigher rents -- precisely the opposite goal of rent control. But not only does rent control turn economics upside-down, it isterribly irrational for other reasons. First, if we impose rent controls we limit property ownerincome. But we do not limit costs for repairs, utilities,management, appliances, or other expenses. And certainly wedon't limit tax increases, the mother's milk of big government.One is temped to suggest some linkage, say an increase in rentsthat is directly proportional to the growth of governmentbudgets.... Second, we do not show equal concern for the poor in otherareas. Imagine walking into a supermarket redesigned with pricecontrols in mind. You could buy apples at, say, 69¢ a pound --but only if you earn less than $15,000 a year and have
four ormore dependents. Those in higher brackets would pay more. Ratherthan a single price for each item, there would be a spreadsheetwhere your price would be determined by the item being bought,your income, age, dependents, and other factors. And naturally,we would need lots of inspectors and regulations to make surethose pricing notices conform to appropriate guidelines. Third, we now discuss the U.S. Constitution almost daily and howit might apply to current events in Washington. The FifthAmendment, in words everyone can understand, plainly says thatthe government cannot take your property without justcompensation. And that's exactly what rent control is -- a"taking" that arbitrarily deprives landlords from receivingincome they would properly earn in a free marketplace. The good news is that more and more states are prohibiting rentcontrol. There's more work to do, but at least we're heading inthe right direction. Question Of The Week Q We have been advised that a land contract can be used to avoidthe due-on-sale clause for an existing mortgage. Is this correct? A This is a debatable issue. Most loans today contain a "due on sale" clause which providesthat a lender may call a loan under certain conditions such asan ownership change. This clause prevents loans from beingassumed by borrowers unknown and not qualified by lenders. A "land contract" is an installment sale where title is nottransferred until some or all payments are made. Some attorneys -- and certainly most lenders -- argue that aland contract can set off a due-on-sale clause because theborrower has given up possession of the property and the rightto future appreciation. Others say that until there is a transfer of title lenderscannot accelerate loans when a property is purchased with a landcontract. There is also the practical issue that if a loan has asufficiently high interest level and payments are timely andcomplete, a lender may not want to call a loan even if it hasthe right to do so. The view here is that one should not suppose an installment salecan prevent a lender from calling a loan. Land contract rulesdiffer by state, not all loan agreements have the same terms,different conditions may apply to FHA and VA financing, andbeing wrong could be costly and terribly inconvenient. Beforesigning anything, please speak with an attorney in the statewhere the property is located. Weekly Resource One of the best sites online for legal information is Findlaw.In addition to a variety of useful features, Findlaw offers anexcellent review of the anti-trust allegations facing Microsoft,including an extensive link collection.
About the author:Since 1989 dan the roommate man has helped 1000's of people findroommates. Need help? Contact him at 800-487-8050 orwww.roommateexpress.com
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