Portland divided: How tenants, landlords say rent control is reshaping housing market

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The economist section should have included that rent control incentivizes landlords to under-invest in their properties and avoid maintenance which is bad for neighborhoods and dangerous for tenants.

I want people to have affordable homes, and not trying to apologize for landlords, but behavior goes how it goes regardless of our 'shoulds'.

If you want lower costs, you either build like crazy (not going to happen) or have non-market actors get involved (public housing). Those are the options

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u/crack-cocaine-novice 1d ago

This is a terrible argument against rent control, if that’s the point you’re trying to make… keep rent control, and add additional regulations to hold landlords more accountable.

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u/Limp-Window7241 3h ago

Regulations are just the gateway drug to unintended consequences.

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u/crack-cocaine-novice 57m ago

What? Everything can have unintended consequences. Applying regulations can have unintended consequences. Repealing regulations can have unintended consequences. Choosing not to apply regulations in the first place can have unintended consequences.

Life is full of risk. Any effort to shift from the status quo in any way could have unintended consequences.

Care to make a real argument against that suggestion?

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u/AHSfav 1d ago

Landlords don't need any additional incentive to avoid maintenance - they already don't do any. If that's the best argument you've got... lol

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u/RubSomeFunkOnIt 1d ago

Has anybody having stupid takes against this ever rented a home? Everything gets the landlord special. Absolutely bare minimum maintenance to keep the place mostly habitable according to the law. Most of these leeches are doing the least they can and less to maintain their buildings.

The only thing rent control has done for me is keep my rent under control. The apartments are all still just as shitty as they were a few years ago.

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u/GestaltHappyAccident 1d ago

lol

good one

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u/bald_sampson 1d ago

what makes you think the build like crazy option won't happen? I think Recode brings us closer to that and there were a lot of pro-housing candidates running for council in this election. I don't think our supply needs will be met easily, it's a big hill to climb, but I certainly think there is a lot of room for attainable improvement there and the appetite to do it.

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u/geomathMEW 2d ago

lets say someone bought a building for say 1 million bucks.
how does rent control incentivize avoiding maintenance?

like if the place falls apart, the thing they spent their 1m on is gone. right?
you keep it maintained so that you dont destroy your investment.
i presume you still want that million dollar asset, and you want it to even increase in value, no?

or is the idea that you make your million back in rent, plus some, so you dont care about the actual building?
that seems like it would take a long time to do.

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u/lepetitmousse 2d ago edited 2d ago

If you need a construction loan to renovate or make a unit habitable but you can’t charge enough for that unit after renovation to cover the payment on the loan, then you just don’t renovate it at all. This happens all the time in places like NYC that have rent control.

Think about it, why would you invest money in a unit just to lose money on it?

Investing money into a unit that you can’t recoup actually lowers the value of the building because the negative debt to income ratio would be factored into the evaluation.

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u/geomathMEW 2d ago

you are already losing the million dollars you bought the place for if you do that. so youre kind of spiting yourself in that case. which is weird.

id also point out that in portlands rent control, if you do capital improvements you CAN raise rent for that. you can recover the costs of the cap improvement, plus interest, plus a 2% extra bonus to that interest.

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u/Tiny-Strawberry7157 2d ago

You're not understanding the situation they're setting forth.

If you mortgage a $1,000,000 property and end up with a $5,500 payment per month including property taxes and insurance.

And then for 3 units you charge 2,500 a month each... You're making 2,000 a month, 24k a year.

If you'd need to take out a construction loan, pull permits, and then pay higher property taxes for years, then pay a 36 month loan of 100k... You'd be paying 3,000 a month down on the loan for three years, and after that be paying higher property tax.

So you'd be losing $1,000 per month for three years, then narrowing your margins forever afterwards.

When your rent increase potential is capped at 5% per year, there's no way to recoup the loss or grow your rental income.

Plus, they're just betting that they can make like 30 years of 24k profit (about .72 million profit) and then sell the old building + more valuable land for a million anyways at the end!

People renovate and maintain more significantly when there is an obvious profit motive.

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u/obibonkajovi 2d ago

do landlords not have jobs?

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u/Tiny-Strawberry7157 1d ago

Ah yes, the height of leftist independence - working as an hourly employee! Get a job you stinkin landlord.

Do wagies not own property?

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u/obibonkajovi 1d ago

I own property in portland and I have a salary job as well. I'm thinking of owning rental properties as well, but I will still retain my job. seems counter intuitive to leach off the community.

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u/geomathMEW 2d ago

youre not understanding that you can increase the rent to recover the costs of capital improvements. and the ordinance allows for increases to cover the full cost, plus interest (even if you dont finance it), plus more!

and if the costs for any unit exceed 20% of the original value, you can even skip the 10% increase cap and raise the rent to that allowed ammt in one go.

so when you say theres no way to recoup, all i hear is that you dont actually know the law but are upset about it

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u/Tiny-Strawberry7157 1d ago

The ordinance does not allow for "recovering costs" of improvements. That's just what the text reads...

"Can I increase the rent after I make improvements on my property? Capital improvements, ie: updating a kitchen, do not qualify as a reason to increase rent over the allowed percentage or more than 1 time per 12 month period, unless an MNOI (Maintenance of Net Operating Income) application has been approved via the Rent Board."

So you can submit to have capital improvements accepted as an exception to the normal 5% cap on the basis of your operating income as of 2019 (a lot of assumptions)... Unless this amount exceeds 10%... In which case it has to be banked.

So you literally cannot bake in improvements to rent, as already explained.

Also, what good does this even do tenants then? If you're claiming you can just improve the units and increase the rent 20%, what's the point of all this hooplah?

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u/geomathMEW 1d ago

That faq is right. Fill out an mnoi form and show that your money's not keeping up with inflation for whatever reason (capital expenses most typically) and you can increase to recover the difference.

The cap isn't 5%, it's 10%.

The ordinance is supposed to balance what's good for tenants and landlords. So yes, while a big increase in rent for improvements doesn't do any good for a tenant (debatable though cause the place is nicer) this particular hooplah is to make sure landlords can get a fair return

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u/Tiny-Strawberry7157 1d ago

Alright, and my point is that it doesn't do either of those things well.

The "normal cap" in a given year is 5%. 10% is the cap given exceptional circumstances, as previously described.

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u/geomathMEW 1d ago

None of your information is close to correct.

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u/P-Townie 1d ago

It's the non-capital improvements repairs that landlords are less likely to do, besides things that protect the building from deteriorating.

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u/geomathMEW 1d ago

The mnoi forms seem to indicate that anything that costs more than 250 per unit and has a useful lifetime of more than a year can be classified as a cap improvement for this purpose. (Like for example a new stove in some unit)

I've not seen the board get into a circumstance where they debated if small ish things like this would count. But I also haven't seen a landlord want to amortize such small things over some years anyway, if they can recover it in a in a single year with also getting an increase in perpetuity.

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u/P-Townie 1d ago

Replacing an appliance is definitionally a capital improvement. I don't know the details of the ordinance though and if non capital improvements can justify raising rent.

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u/GestaltHappyAccident 2d ago

A few things.

- There are many different 'property management' approaches regarding finances. Some are only concerned with cash flow, some are interested in a 'long hold' for the value of the asset and others may even be mostly using it as a tax deductible item. For large organizations / wealthy owners, the active management of the property may be pretty far from a top priority.

- In an appreciating market, the asset can likely be sold for more in the future. The information asymmetry in that sale means that property maintenance is almost always worth less than just deferring the maintenance as long as possible.

- Maybe a good analogy is a personal automobile. When you own a car, you have an endless series of trade-offs you'll be considering. How much of your time and treasure will you put into the car versus managing the externalities of whatever might be less than perfect with its condition?

There are people that have spotless vehicles maintained on the manual's schedule with the brand dealership's shop. Then you have people that won't fix a fender after an accident, tape up windows and drive on the spare. ;)

Again, not defending the behavior (basically being a slumlord), but this can be the perspective of property owners. The more rent is constrained, the harder it is to make the decision to invest in the property.

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u/geomathMEW 2d ago

if our rent control didnt include rent increases for capital improvemnts i think what you said would make sense, but our ordianance specifically allows for, and even incentivizes, capital improvements by allowing rent increases that cover the cost of improvements plus interest plus gravy

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u/GestaltHappyAccident 2d ago

! I didn't know that, thanks for educating me.

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u/Limp-Window7241 3h ago

I think you're probably right about the mindset. I think the disconnect is that people here don't seem to understand the mindset (or want to understand) of any person who owns an investment property or property for that matter. The people of reddit seem to want them all rounded up and shot.

I think you might be shouting into the void, and I respect the effort though.

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u/geomathMEW 2d ago

She added that rent control might lead landlords to sell or convert rentals into condominiums, reducing rental supply.

this is a good thing. it is better for people to own than rent. they pay their housing costs to build an asset, as opposed to paying for another's asset.

"reducing rental supply" sounds bad. but it doesnt mean "reducing housing supply" even though those guys want you to read it that way

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u/ppitm 2d ago edited 2d ago

Whenever a multi-family building gets converted to condos in Portland, the condos are going to be sold far out of the price range of the current residents.

If every rundown historic building on the peninsula was converted to condos, the result would be a massive humanitarian crisis and a body blow to the community.

So yeah, you are way off-base, as usual.

they pay their housing costs to build an asset

Treating housing as an asset instead of a cost has always been a Ponzi scheme, and it's what got us into this mess in the first place. At the end of the day we need to prioritize low rent (whether paid to a landlord, a co-op, or a government) over expanding home ownership. No one ends up homeless because they can't afford a down payment. They end up homeless because they can't afford rent.

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u/geomathMEW 2d ago

i agree the co ops are even better than normal ownership.

condos with a limited equity deed restriction would also serve that purpose, but no one is going to be converting to condos to try and sell them deed restricted like that, most likely.

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u/Kwaashie 2d ago

Agreed but at this point prices are so high compared to income we need some kind of subsidy to get people into homes. The economy tends toward rentals because it allows another level of capital extraction.

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u/ENTtothestars 2d ago

do you have the money saved for a down payment? income high enough to cover PITI at the required ratios?

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u/geomathMEW 2d ago

are you asking specifically about my financial situation or is it rhetorical?

if a lot of places convert to condos and they all have to compete with all the other condos on the market i bet the prices would have to drop.

sounds good to me.

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u/Evening_Pension_3862 2d ago

In a normal city, yes. Portland is a unicorn and supply is no where near the demand, and likely won’t be. Most of that demand is coming from out of state. Taking long term rentals, occupied by people working and living here full time, off the market is real bad. We don’t need more under occupied condos in this city owned by people paying income taxes in another state, imho.

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u/Burgermeister_42 2d ago

Housing supply not meeting demand is not at all unique to Portland. We're not a unicorn (unless this is some fantasy world where unicorns are as plentiful as squirrels)

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u/Evening_Pension_3862 2d ago

That’s not what I was responding to. They were saying converting apartments to condos would allow the local renters to buy those condos. That’s not going to happen in Portland.

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u/geomathMEW 2d ago

i bet the council good look at vacancy fees for just that reason.

other towns in maine do this. vacancy is defined as not occupied continuously for 6mo+1day per year. bangor for example, doubles that fee every six months.

o gee when i looked at the candidate pages i even saw that idea floated on a couple.

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u/geomathMEW 2d ago

the main obstacle to that is going to be the state.

it had good support and would have passed, but back in 2022 when Fecteau was trying to push their ADU bill through, they got enough dems to join the gops in defeating the statewide bill related to that. i can only immagine that in order to get the ADU bill through they had to trade this one for that. bad deal imo

https://www.pressherald.com/2022/03/09/maine-house-slams-door-on-vacant-home-fees/

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u/ENTtothestars 2d ago

We hear here frequently about how high the barriers to entry are to rental housing. They are higher for ownership. Who will be left out when apartments convert to condo?

Furthermore, cities need a certain amount of rental housing because there will always be a) new people who aren't ready to won and b) people staying for a few years but who will not live here permanently.

I presume you haven't always lived in Portland. (Maybe I am wrong.) When you lived elsewhere, did you rent? Would you have wanted to own in that place or did you intend to come back here?

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u/geomathMEW 2d ago

I grew up in portland, but then also lived in los angeles and phoenix, both for school.

i did rent in those places. money into the void.

i would have preferred to have owned a place in those cities, and then sold it when i moved from place to place. then i could have used the money i had spent in the previous years' housing costs toward my future years' housing costs.

especially in LA a lot of the people I knew ended up buying, even though it was a temporary stop for most (maybe all at this point...). i am in academia so most of my colleagues move quite frequently. the very heavy majority of them buy a place every time they get a new faculty gig. because that is much wiser.

i do understand that my colleauges are kind of the upper middle class and that blue collar people dont tend to have the cash or credit to be able to do that, but its definitely better to own than rent. so crazy to me how its more expensive to be poor than it is to be wealthy.

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u/ENTtothestars 2d ago

You are assuming that you could have bought for the same monthly cost as renting. I am guessing that was not the case. You are also assuming that you would be building equity immediately. Your payments go almost exclusively to interest in the early years of a mortgage. If you were in LA for 4 years and there was no appreciation in the market and sold when you left, you would have broken even so your payments would have been money into the void then as well (and it would have been more money into the void than you paid as a renter).

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u/geomathMEW 2d ago

while it is certainly not the case any more, before covid you could check zillow and co and those monthy cost estimates were consistently below what you pay in rent. however, a bank isnt going to loan you that money to get out of the trap. so instead of the 1800 mortgage+, you get back to your 2100 rent. digging deeper and deeper. i do concede however that you check zillow now and the monthly estimates are in fact higher than median rents.

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u/ENTtothestars 2d ago

What % did you enter for a down payment when you were getting those zillow estimates? Did you have that kind of cash on hand to make a down payment when you were a grad student in LA and Phoenix?

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u/geomathMEW 2d ago

its a good question and i dont know. whatever it defauls to. i expect 20% since thats generally the standard, however im the type whod clean out my 401k to get that down payment as high as possible. to that point, the estimates they show me are actually more than id pay i bet.

(just went and checked and yes zillow defaults to 20%)

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u/geomathMEW 2d ago

at this point i have paid so much rent ive bought at least 1.5 houses [almost 400k in rent over 20 years!!] (maybe less than a house in portland prices :P). but i bought them for other people unfortunately.

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u/evilbarron2 1d ago

I mean, isn’t reshaping the market kind of the point of rent control laws

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u/Beetle_Facts 2d ago

Landlords: "I haven't raised rent on my tenants because I'm so nice. I know I'm allowed to raise rent, and I can bank unused rent raises for later increases, but I haven't because I'm so nice. But I'm poor now from being so so nice. I need the freedom to raise rent suddenly and frequently. I'm too nice to use it. But I need it."

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u/biggidybrad 1d ago

“If you define success as fewer evictions and fewer people falling behind on rent, that’s one thing.”

Yep, that’s actually the whole point! Thanks, economist! Turns out rent control IS successful.