Posted On: Friday - February 17th 2023 8:12PM MST
In Topics:   Economics  Inflation  Zhou Bai Dien
This is a point that should have been made in our initial post on the effort of Zhou Bai Dien and the Congressional Commies to implement national rent control. Those pushing this obviously unConstitutional - but who cares? - rent control will be the first to tell you the purported reason* for it is that, due to inflation, the rent is too high!
Well, we know, but they may be too stupid to know, price inflation is a given when you increase the money supply without a corresponding increase in productivity. Whatever, that "wage/price spiral" deal is not the cause but a symptom, and the rental market is not immune to that sort of thing. Costs go up, so the rent has got to go up. What are the biggest costs? Property taxes are right on up there, other than the initial cost of the property, which, of course, must be considered. You've got maintenance costs, and you've got insurance, and sometimes utility bills. (I think it best to leave those for the tenants or they will naturally be wasteful with said utilities.)
It so happens, Peak Stupidity has calculated some numbers that apply in various old posts. In Checking in on Housing Bubble 2.0- Bubble or just high inflation?, we saw a 7.6% annual compounded** inflation rate in the '12-'20 period for housing in 20 American big cities. You've got to cover your payments, or if a rental house has been paid off, get your money back out in a profitable manner.
In the post Real life inflation anecdotal-data(?) beside some bean and soup calculations***, we did a calculation on the ubiquitous 2x4, as a stand-in for building materials, and came up with 3.5% - 4% (Note, this was before the recent HUGE price increases.) In On Inflation, Oil, and Roofing Shingles, we came up with a 7% average yearly increase over an 18 year period. Well, you need drywall, and paint, but I can guarantee you, especially for the latter, that they've gone way up too.
In case you cover utilities as a landlord, Peak Stupidity covered that, with just our own local example over a 22-23 year period, in Inflation Note: Utility Bills. Water/Sewer: Base Fee up 6.9%, Charge per ft3 up 4.2%. Electricity: Base Fee up 4.5%, Charge per kW-hr up 2.6%.
I haven't done house insurance calculations, but I can give you a number now based on apples-to-apples over a few decades. I got 3.3%. "Yeah, but the house has gone up." Yeah, but you still gotta pay it.
So, before the recent inflation surge due to the recent US Gov't higher-spending spree, a landlord's costs were going up 4% to 6%. He's gotta raise the rent accordingly to keep up financially. Zhou Bai Dien and the Commies are trying to prevent his doing so, just as costs are going through the (expensively-shingled) roof. This would take houses off the rental market and keep many a small guy from even getting started.
What about the big guys, the Blackrocks and the institutional investors? Won't they have a problem too? No, the lawmakers will make sure that they are exempted, because anyone who follows the new rules will be, except that these new rules will specify special legal or financial requirements that the small guy can't handle. That's the way ya' do it. Moova, moova.
* The real reasons are to gain more control of the population and help wipe out the small businessman, oh, and get votes and grift money.
** For all of these calculations, compounding has been included.
*** That's at least the 2nd time I wrote a post after having forgotten I'd written about the same point. Our recent post Inflation Note: Chicken Soup for the toll was about Campbell's soup as was one section in that "Real life..." post. I used different time frames, hence, prices, but the inflation numbers matched - average 3.5% to 3.9% yearly.