what would happen if we pegged rent? (1 Viewer)

guidomerkinsrules

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so rule of thumb seems to be that rent should be 25% of gross salary

what would happen if we pegged that? made it so that rent was "controlled" at 25%? (the % isn't important, but more the idea of 'fixing' it)

i think i can anticipate some of the "why nots" but I'm interested to hear the arguments pro/con
 

LombardiGras

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Rising rents are a huge problem, some of it could be addressed via supply and demand. On the supply side, regulate short term rentals. Renting of properties via AirBnB has taken thousands of homes off the market for residents of New Orleans. On the demand side, there is still a lot of blighted space available to build affordable housing, more housing will drive down the cost of rent.

That being said, maybe rent control wouldn't be a bad thing. Or if we can get closer to a livable wage for working people, that would go a long way to solving the problem too.
 

Saint_Ward

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Rising rents are a huge problem, some of it could be addressed via supply and demand. On the supply side, regulate short term rentals. Renting of properties via AirBnB has taken thousands of homes off the market for residents of New Orleans. On the demand side, there is still a lot of blighted space available to build affordable housing, more housing will drive down the cost of rent.

That being said, maybe rent control wouldn't be a bad thing. Or if we can get closer to a livable wage for working people, that would go a long way to solving the problem too.
Every new development I see in South Florida is "Luxury" Homes, condos, townhomes. Always gotta throw that "luxury" term in there to get a $175k town home to sell for $335k.

It reflects the problem with blighted space. Who's going to invest there? The residents who lived there, can't afford to rebuild (or they weren't the owners). No on with money wants to do it (unless they want to be a slum lord or a section 8 housing lord) and deal with the headache. So, what happens? Some huge developer tries to swoop in and buy it all up and turn it into 'luxury' condos and a shopping center full of min wage jobs to help add to the $250k 2/2 condo's appeal (so freaking weird to me how that works for city councils), and then most people with the money don't really want to live there, because the school is still terrible so they don't sell, or the only sell to investors who turn around and rent it to young people with no kids, who are now paying waaaay too much for rent, so they can't do anything smart with their money, or they rent to vacationers (or retired people escaping winter/summer depending on location).

So, if you wait long enough, the blighted area, if ever fixed, becomes too expensive, so new people move in, those who were in the blighted areas find the next cheapest area, it tends to get run down, because the ones who kept up the area will run away to another area slightly out of their financial reach, until we're all straining to live next to our doctors and managers, because those are the only decent public schools.

Sorry, this is a bit raw and I haven't given this enough thought to narrow it down or review more data to see what's real and what's perception.
 

Saint_Ward

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To add, to me, the only real solution is for these altruistic billionaire investors to invest in decent housing (heck, it doesn't even have to be built cheaply, because they can afford the loss, or use it as a tax write off as charity, I'm sure). Basically set it up similar to Habitat for Humanity, but perhaps with less volunteering required. Have an ownership time requirement before you can consider selling the house or whatever. Allow people who qualify (all via this investor person, or via the charity) to purchase homes for an amount based on income (and I'd honestly go under 25% of monthly, especially since many are paid bi weekly, and you have to wait 6 months to catch up, since you only get paid for 4 weeks a month for a while).

Side Note, Section 8 makes you pay 30-40% of your income, but without looking, I'd assume that's after taxes (and not counting EITC if you get it).

So, two things happen. You drastically increase or improve the number of low income homes that most builders or investors don't want to touch right now (unless they're going for section 8 vouchers). So, you are relaxing the strain on the "tier 2 market" for middle class buyers. Some middle to lower middle class could potentially qualify for some of these homes (there could be tiers). It's all my pipe dream anyway.

And secondly, you decrease the bottom end of pricing relaxing some of the false supply side price increase. I say false, because so many over priced units sit empty and either people over pay to squeeze in there or it inflates other properties near by that were a bit cheaper. e.g. if you like a neighborhood and see a series of houses all for $400k, and there is one gem for $300k, you might find yourself in a bidding war with a few others for that cheaper home, now it's $375k and you strain to buy it.

The more I think of all this stuff, the more I realize I need to move out of a metro area. An Engineer and a social worker can't hack it here, I guess.
 

BHM

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but you run to the "welfare queen" extreme to make a point that i'm not sure is valid

the OP was merely about reading/hearing plenty of reports saying where rents should be - then couple that with decades of wage stagnation - i was wondering if there was any fixable on the rent side
You had the OP and you asked what would happen if we pegged rent. I gave you my opinion to your question. No where in my post did I say anything about welfare queens.

I only pointed out that the couple next door to you making 15 bucks an hour at Mcdonalds lives in the same condo you do. You are paying full price because you and your wife sacrificed and planned for it and they are paying very little for the same condo because they made bad choices.

Where you got welfare queen from that is beyond me.

You also mentioned that your and your wife lost your job and that would be a good reason to peg rent. What if a doctor and nurse couple get lose their jobs because a hospital closes, do we subsidize their $4,500 NY condo rent while they find new jobs? If you and your wife lost your jobs and can no afford your 1500 rent, why should anyone subsidize your rent?



BUT
at the end of the day - i think programs that strongly encourage diverse (in all its forms) neighborhoods is better in the long run than homogeneous neighborhoods



While this certainly sounds good what you are saying is why cant we get other people to pay our way.

Subsidizing is not the answer to our problems. We need low income rental properties but then nobody wants to live in the "projects". Where are all the rich liberals stepping up and building nice low income housing communicates?

It was said somewhere in this thread that there are not many investors that will build low income housing in blighted areas because there is simply no return on investment. So where are the ultra liberal millionaires that want so much wealth sharing? Why are they not steeping up and building nice replacement housing in NOLA in the old St. Bernard projects property with their own money? Why are they not going around investing their own money and solving the low income housing shortage.

I just love how people try to justify getting other people to pay for their way through life.
 

BHM

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To add, to me, the only real solution is for these altruistic billionaire investors to invest in decent housing (heck, it doesn't even have to be built cheaply, because they can afford the loss, or use it as a tax write off as charity, I'm sure)..

Exactly what I was trying to say in my previous post. All these billionaire liberals have all kinds of nice ideas and programs to help the poor except they somebody else to fund it. They want government to collect the money form tax payers to build all these nice mix use complexes.

Where is Michael Moore Parc

Where is George Soras Ponds

Where is Bloomberg Centre?
 

Saint_Ward

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Exactly what I was trying to say in my previous post. All these billionaire liberals have all kinds of nice ideas and programs to help the poor except they somebody else to fund it. They want government to collect the money form tax payers to build all these nice mix use complexes.

Where is Michael Moore Parc

Where is George Soras Ponds

Where is Bloomberg Centre?
Well, part of the problem is that, let's say they want to use $10M of their money. They could easily build, what, like 50 single homes for that? It's a good start, but adding 50 low cost homes may barely move a saturated market. I don't know. So, while I bring it up as my idea, I don't exactly blame them either.

I'd rather see the system corrected via higher wages. Maybe it's selfishness, but I want my degree to pay me more, more more.
 

BHM

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Well, part of the problem is that, let's say they want to use $10M of their money. They could easily build, what, like 50 single homes for that? It's a good start, but adding 50 low cost homes may barely move a saturated market. I don't know. So, while I bring it up as my idea, I don't exactly blame them either.

I'd rather see the system corrected via higher wages. Maybe it's selfishness, but I want my degree to pay me more, more more.

Soros alone is worth around 23 Billion. How many billions does he need? What if we called for a dollar for dollar match. For every superpac dollar donated, one dollar goes to building low income housing.


It is selfish but who does not want more money. Nothing wrong with wanting more money but higher wages across the board will just continue raising housing costs more more more.
 

amused

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OK , just more more more money for me , which I promise to spend profligately , thereby stimulating virtually all economies in my immediate vicinity . You're welcome .
 

WhoDatPhan78

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Soros alone is worth around 23 Billion. How many billions does he need? What if we called for a dollar for dollar match. For every superpac dollar donated, one dollar goes to building low income housing.


It is selfish but who does not want more money. Nothing wrong with wanting more money but higher wages across the board will just continue raising housing costs more more more.

George Soros is one of the most charitable human beings alive.

https://www.opensocietyfoundations.org/
 

BHM

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OK , just more more more money for me , which I promise to spend profligately , thereby stimulating virtually all economies in my immediate vicinity . You're welcome .


Spread the wealth my friend. :hihi:
 

Saint_Ward

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Not sure if this should go here, or one of our economics discussions but...

https://finance.yahoo.com/news/renters-making-more-landlords-100009343.html

A popular narrative of the U.S. housing market has been that big city prices are locking out young buyers, feeding a cycle in which a growing number of people are forced to rent at ever higher rates as demand overwhelms supply. Throw in the fact that wages haven’t kept pace, and you have a world where a wide swath of Americans can't save enough to ever buy that first home.





The reality may be a bit more complicated. It's true that, when combined with a lack of government support for affordable housing, this situation has pushed the number of cash-poor renters to a new high. Some 26 percent of U.S. renters paid at least half their income to landlords in 2014, up from 20 percent in 2001, according to the State of the Nation’s Housing report, published on Wednesday by Harvard’s Joint Center for Housing Studies.

On the other hand, the number of homeowners who are severely cost-burdened (paying 50 percent or more of their income) or moderately cost-burdened (paying 30 percent to 50 percent) actually fell from 2013 to 2014, the JCHS study said. And while the poorest renters are more likely to find themselves in dire straits, data compiled this month by Greg Willett, chief economist at property management software maker RealPage, suggests that market-rate renters are keeping up with those rising rents, and are thus able to put some money away for that eventual first purchase.

The median rent-to-income ratio (derived from 4 million apartments tracked by RealPage) has hovered between 22.9 percent and 23.3 percent since 2010. While rents increased over that period, so did the median income of market-rate renters, which rose from $44,000 in 2010 to almost $58,000 so far this year. That’s partly because incomes have risen faster for more affluent renters, Willett said, and partly because changing home-buying behavior has kept higher earners in the renter pool longer.

Those trends have been good for landlords, and they show that most renters are able to find apartments that fit their budgets. The poor, however, are still bearing the brunt of a tight market: The availability of affordable housing falls at the lower end of the market-rate segment, creating greater affordability challenges in lesser-quality apartments. For the bottom tier of rental units, described as "Class D" in the chart below, the median renter is spending more than 30 percent of his or her income on rent.

Plenty of renters remain cost-burdened, and some of them earn good salaries. In 2014, 399,000 households earning $75,000 or more paid at least 30 percent of their income in rent—a number that probably skews to hot markets such as New York or San Francisco. About 1.7 million households earning from $45,000 to $75,000 were moderately rent-burdened during the same period
Then later, this nugget resonates. I stated this before elsewhere.. everything I see in development down here is "Luxury".

New market-rate construction tends to focus on luxury renters, and lower rents take time to filter down. More than 1 million new households were created in 2015, compared 620,000 new homes built, according to new research from the Urban Institute. The shortfall of 430,000 units put more pressure on housing prices, especially at the bottom of the market.
When the bottom has pressure, it moves up to the middle. If you can afford a 500k+ home, you're probably fine in many markets. If not, you're going to have a harder time.

EDIT: This link directly from Bloomberg is better. http://www.bloomberg.com/news/articles/2016-06-22/renters-are-making-more-and-landlords-get-it-all
 
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guidomerkinsrules

guidomerkinsrules

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Not sure if this should go here, or one of our economics discussions but...

https://finance.yahoo.com/news/renters-making-more-landlords-100009343.html



Then later, this nugget resonates. I stated this before elsewhere.. everything I see in development down here is "Luxury".



When the bottom has pressure, it moves up to the middle. If you can afford a 500k+ home, you're probably fine in many markets. If not, you're going to have a harder time.

EDIT: This link directly from Bloomberg is better. Renters Are Making More, And Landlords Get It All - Bloomberg
jibes with empirical observation

no one's really offered a decent "gloom" scenario to show what would happen if price controls were exerted
 

Saint_Ward

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jibes with empirical observation

no one's really offered a decent "gloom" scenario to show what would happen if price controls were exerted
Well, price controls are different than pegging rent as originally stated.

Controlling prices based on neighborhood or only allowing rent to raise 3-5% a year at max would be better controls (or less). My 2015-2016 rent increased 3.5%. Of course, that 5 change isn't small actual numbers, because the rent is a bit high.

Pegging rent based on income just gives owners an excuse to more directly discriminate based on income. You'd end up putting the squeeze even higher on the poor and lower middle class. And anyone heading towards the upper middle class would stagnant at first trying to cover those rents. Sot, it may help the bottom end a bit, but no one will want to rent to the poor and/or it will further push the poor into only a few select bad neighborhoods.

The benefit to the current system, is that eventually, if you do well enough you can blow past that rental cost, and the % of income drops.

Prior to my fiancée graduating, I'd say 22% of our (my) gross income was going towards rent when we had to move to take the kids. It used to be more like 16-17% before that. Then, when she graduated and started working, it's back down to about 15% of our combined gross pay. I'd say our area, if we moved we'd easily jump up to 19%. So, we're lucky in a slightly below market unit, but it's also a slightly below market looking place. It's not bad, it's not great. It's ok. I didn't care, I just didn't want to go broke while she was still in school. And I'm not moving until we are able to buy a house, so God willing, this owner doesn't try to jack up the rent too much.

So, one could say, I could afford more and someone who makes less could squeeze into our spot. But the reality is, that owner would rather I stay there, because they know I won't freak if they want to raise rent a little. Or if I were new, I could, in theory, out price someone and raise the overall market rates in the area too.

However, again I think price controls are fine, but pegging based on salary is bad. Also, I think new homes need to be built in the 'non-luxury' category more than they are.
 

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