This is what it looks like:
(Though not so nice-and-clean; this theory is all too evident)
· Price “ceilings” are actually below where the free market would dictate the price of a rental.
· The results, economists argue, are that the appropriate supply is not met, insuring the problem does not get fixed.
· The triangle in the center is a deadweight loss to landlords of units. This gap is where all the political conversations lie: the landlord wants to close the gap; the renter wants it to widen.
· Rent control is a re-distributive mechanism which the political left should champion.
· In terms of supply-and-demand, government intervention can influence the supply-side transiently, while the demand end is a pure function of preferences (free markets).
· The point is that Rent Control, the ceiling, is likely to chronically nag below the optimal price threshold. This persistent overhang is the bane of the landlord: ‘cap rates’ are actually “capped” rates, where maximum profits are dictated by government officials.
· Means-testing policies will not happen for landlords because the process is too involved. About as likely that the IRS will realize that annual income is a narrow framework to define egalitarian tax policy. (accountants will smirk at such a juxtaposition)
· The dilemma is that of moral and social sentiment triumphantly taking precedence over the economic sentiments of greed and desire for profits. The definition of entrepreneurship is the recognition of dislocated capital, so as to earn extra-ordinary income greater than normal profits.
Let us take a step back and understand what this means to you…
Ø If you are a SF buyer: and considering ownership of a property that will generate income, you need to understand what a realistic cash flow scenario will look like and how the rent-ceiling will impact you, as such variables will help dictate what a Fair Market Value will be. This is how you gain your negotiation power: be sure to consult with a trusted agent who will navigate you through this process.
Ø If you are a SF seller: and trying to determine the difference between what the free market is manifesting and what the realistic scenario is, due to rent control intervention, then it is advisable to engage a trusted real estate professional as well. Concluding precisely how one can make the best decision and what their options are in an effort to evaluate whether to sell now, later, or carry-on the renting of space is central to a real estate professional’s knowledge base and acumen. Once again, leverage a trusted resource who can share experiences with you to reap the best possible outcome when determining how to manage your real estate holdings. Learn more about my team and me today!