So many are under the strange belief that there is something terrible about not owning the house in which you live.

So we massively subsidize home ownership, and try to actively interfere with renting.

Except when we do rent control, which turns renting into a form of owning, and allows us to take real property and de facto give it to current renters.

A lot of this is pure attempts to punish and exclude the poor. If you can’t afford a downpayment, we don’t want you living here. Go away.

Some of it is the belief that when you rent, you are being ‘taken advantage of’ and that such a deal could not possibly be fair.

Some of it is that if you don’t own, you don’t have the incentive to drive up property values. Which means you won’t properly work to ‘improve’ your local area, especially that you won’t conspire to block housing.

The result of this is that if you’re not willing to commit to living in one place for years, or you can’t afford a down payment, you get punished, and punished hard.

Owning Versus Renting

The graph below is pretty astounding, although ignore the explanations on it.

Roon: asset values especially in big cities are incredibly massive forward multiples of actual rents these days. probably due to quantitative easing or something but that’s beyond my pay grade.

Ash Perger: good ol’ ZIRP did the job, no QE necessary.

My understanding of what happened is that in 2020 and 2021 was that there was huge demand for more house due to the pandemic, combined with extremely low interest rates. So people were happy to pay high sticker prices for houses and lock in very low mortgage rates. Then interest rates went back up, where you were paying 3% before now you’ll pay 7%, so cost to buy shoots upwards.

If one thinks the high interest rates are permanent, then prices should fall back down, but prices are highly sticky downwards in housing, and people expect interest rates to fall again, so the prices are not adjusting much.

The flip side of this is, if I lock in a 3% mortgage, I can’t cash out my economic profits from that, so I’m sure as hell not going to sell. Instead, if I move, I’m going to rent out the old place and buy a new one. So that house goes on the rental market. That keeps home prices higher since there are fewer places to buy, and encourages even high end potential buyers to rent instead while waiting for interest rates to fall.

Build To Rent Is Good Actually

Congress was all set to pass a somewhat useful pro-housing bill, and then a bunch of jokers decided they would use this opportunity to try and ban build-to-rent houses.

That could knock out 10% of all new single family housing construction.

Have you ever proposed a bill so transparently destructive and vile that people think there must have been a drafting error? Well, too late, bill is locked, also Elizabeth Warren claims it was intentional and 90 senators decided to vote for it.

Eleanor Mueller: Schatz says on the Senate floor “there is a problem” with the housing bill.

“There was an original idea to go after hedge fund ownership of housing. … There is also a section that does a very bizarre thing, which is … anybody who owns and rents out more than 350 units … must sell.”

Schatz calls the build-to-rent language “a drafting error.”

“There is literally no reason to do it this way and it would take like a two-line fix. But what we were told last week is: The bill is closed.”

ICYMI, this is the same provision that housing groups flagged last week.

The Treasury Department has also privately relayed concerns with the language.

Igor Bobic: Warren says the housing bill does *not* have a drafting error, as Schatz said today. Rare Dem leadership split.

“The policy is to block private equity from taking over the single family home, and that is quite deliberate. There are some folks in private equity who don’t like that, but it’s a very deliberate choice that is supported on a bipartisan basis by 90 senators.”

Renting is great, and this bizarre hatred of ‘I build a useful thing and then sell access to it’ does a huge amount of damage. You can at least understand not wanting to allow existing housing stock to become rentals, but building new houses to do it? How could that possibly be an issue unless you’re simply against building houses, or think those who can’t afford a down payment shouldn’t be allowed to live in a house?

However bad you think the arguments for this restriction might be, they’re worse.

Oren Cass: I’m also perplexed by people asking “why are BTR apartment buildings OK but BTR houses not?” Um, because your typical family can’t buy an apartment building, never has bought an apartment building, doesn’t want to. Nor are they built in the same places.

Patrick Hedger: Do you know what a condo is?

Marcus Abramovitch: Wait what? You know people usually buy or rent just one unit in an apartment of like 500 units. They dont live in the whole thing. An apartment building is basically stacked houses with some minimally shared things like pools and elevators.

Or a co-op. I live in an apartment. I own that apartment. Build-to-sell is common.

He also claims that supplying more housing does not increase housing supply.

Oren Cass: BTR does not bring some new and marginal supply online where we otherwise would have nothing. To the contrary, BTR firms are operating in a supply-constrained market — for land, for permits, for workers — where we’re trading off different types of construction.

Of course, the primary goal of housing policy reform is to accelerate the expansion of supply. But BTR doesn’t relieve constraints; the absence of BTR isn’t a limiting factor. It’s good to both expand supply and promote more desirable business models therein.

As in, a claim that it is physically impossible to build more housing than we do. So if you raise costs and restrict methods, that won’t reduce supply.

Yes, I’m picking on an unusually terrible economist, but there aren’t any good economists supporting this proposal that are making better arguments.

The best challenging question I’ve heard is this one, but it has a good answer:

Austin Ahlman: Again I ask: Is the “Wall Street wants to turn single family homes into an asset class” stuff an exaggerated myth, or is it an essential plank of the abundos’ housing agenda?

Alec Stapp: Messing up “stocks vs flows” is a common mistake people make in policy conversations.

Two things that are true at the same time:

1. Institutional investors own <1% of all single-family homes in the US.
2. Institutional investors build ~8% of new single-family homes in the US (and rent them out).

So as a share of the total single-family housing stock, Wall Street is a rounding error. But as a share of new builds, Wall Street plays a decent size role (though still a minority).

If you care about increasing housing supply & improving access to the suburbs for renters, then banning institutional investors from owning homes would be counterproductive.

Elizabeth Warren, Full Supervillain

Her position is actually even worse than that. She’s against rental housing, period.

Why does she hate the idea of people having housing?

Alec Stapp (March 27): This is why we must hold the line against slopulism in housing policy.

At first Warren’s position was “investors can build as many apartment buildings as they want, they just can’t build single-family homes to rent.”

Now she is sending menacing letters to institutional investors who build multi-family apartments and manufactured housing.

People had previously been pointing out that the first position didn’t make sense, and I cautioned that pointing out the inconsistency might not go the way you’d like.

Reed Schwartz: The Warren team seems to believe both that 1. investors are harming tenants by building new rental stock and 2. this is fine so long as the buildings are apartments

Zvi Mowshowitz (March 25): I worry that pointing this out is less likely to create support for building houses and more likely to get them to try and ban apartment buildings.

And indeed, that is what has happened only two days later. She is paranoid that someone, somewhere, might make a dollar along the way, so no house for you.

The good news is that the House pushed back against Warren’s insanity.

The Better Case Against Corporate Housing Ownership

The standard arguments against corporations buying housing are Obvious Nonsense.

The arguments against corporations building new housing intended for rent move beyond Obvious Nonsense into comedic levels of absurdity.

There is one potentially much better argument:

Michael Vassar: This argument is sound so long as they don’t have political influence on housing production. But you definitely don’t want concentrated interests in reducing the supply of necessities.

[The Jones Act] for real estate is what we don’t want.

As in, if corporations own the real estate then they become NIMBYs. That could indeed become quite bad.

Then again, if corporations own the real estate the rest of us become YIMBYs, and as a comment points out it is not so easy for Blackstone to get people showing up to a bunch of local meetings to block individual construction proposals. It’s not obvious Blackstone would do a better job of blocking housing than individual homeowners. Think about optimal Skin in the Game distribution.

Another solution is if the owners of housing also own a broad interest in the overall economy. If Vanguard owns a bunch of houses, but also owns a lot of the stock market, then they will still want to build houses.

Or there’s this rather clean counterargument:

Matthew Yglesias: The fact that the panic over “corporate” landlords does not extend to multifamily housing underscores how irrational this whole thing is.

Do the ‘corporate’ landlords in multifamily fight against new construction? I mean maybe a little, but they also typically want to themselves keep building, and the barriers to new construction seem mostly to lie elsewhere.

My guess is that corporate ownership of real estate is not substantially detrimental to the ability to build new houses. I’d like to see those who study public choice study this more, simply because it is such an important question, but I’m not worried.

The ROAD Act Bans Building And Then Renting Houses

This is very obviously not something you want to be banning. It’s absurd.

And yet the vast majority of Senators voted for an amendment to do exactly that.

The bill is not yet law, but it might well be, complete with section 901 (“Homes are for People, Not Corporations”) which ensures that corporations won’t be able to buy newly built homes and then rent those homes to people, which means many of those homes won’t get built in the first place.

I love a good rant, so Alex you have the floor.

Alex Tabarrok: ​No one objects to institutional investors owning apartment buildings. But when the same investors own single-family homes, it breaks people’s brains. Consider how strange the logic sounds if applied elsewhere:

“…a growing share of apartments, often concentrated in certain communities, have been purchased by large Wall Street investors, crowding out families seeking to buy condominiums.”

Apartments are fine, hotels are fine, but somehow a corporation owning a single family home is un-American. In fact, the US could do with more rental housing of all kinds! Why take the risk of owning when you can rent? Rental housing improves worker mobility.

When foreclosures surged after 2008 and traditional buyers disappeared, institutional investors stepped in and absorbed distressed supply — helping stabilize markets. Who plays that role next time?

Institutional investors own only a tiny number of homes, so even if this were a good idea it wouldn’t be effective. But it’s not a good idea, it’s just rage bait driven by Warren/Trump anti-corporate rhetoric.

What does “Homes are for People, Not Corporations” even mean?–this is a slogan for the Idiocracy era. “Food is for People, Not Corporations,” so we should ban Perdue Farms and McDonald’s?

Quite so.

The rest of the bill is good.

It streamlines NEPA reviews via expanding categorical exclusions. It gives flexibility to community development block grants and gives them a better allocation mechanism.

It deregulates manufactured housing, eliminating the permanent chassis requirement and creating a uniform national construction and safety standard.

That one could end up being quite a big deal, especially in the AI age.

 

Rental Covenants

Often commercial mortgages include a rent floor on any leases, to ensure that the tenant can sustain the building. The problem, finds a paper from Daniel Stackman and Erica Moszkowski, is that when the rent minimum binds the building is forced to remain vacant, and between 2016 and 2020 this raised vacancy rates in Manhattan by 14%, although presumably it improved tenant quality somewhat.

The bank presumably knows that if rents decline this could leave the building empty indefinitely, but (again presumably) figures that in that case the building was going to fail either way and they’re willing to gamble, and also this is how the owner can credibly signal their ability to extract a high rent? The obvious solution is to require such covenants to lower their thresholds in the event of overall commercial rent declines in the area, but that seems hard to do.

Extended Eviction Delay After Nonpayment Is Mostly Bad

There are cases where there is a legitimate dispute and justification for nonpayment. And of course you want to give people warning before throwing them on the street. But it’s terrible for the system that tenants can in many places effectively ‘steal’ the apartment for months on end, and force the landlord to hire a bunch of lawyers. Cities should not be funding the defense in such cases.

Moses Kagan: Drives me crazy that “eviction defense” is treated in these articles like an unalloyed good.

According to data from the LA Controller, 93% of 3 day notices (the precursor to eviction) are for non-payment. The costs of eviction to society and to the people evicted are high – of this, there is no doubt. But the costs of allowing non-payers to remain in occupancy for month after month, because city-funded lawyers stretch cases out, are also high… it’s just that these costs are “off balance sheet”, from the perspective of city government.

They come in the forms of:

1. Stricter screening criteria for prospective tenants, since allowing marginal applicants into apartments is so much riskier than before
2. Owners having their apartments “stolen” and having to pay for their own lawyers to try to get them back
3. As a result of 2, developers building fewer units than they would have otherwise, slowing supply growth and thereby, eventually, increasing rents for everyone

Elizabeth Van Nostrand: When a landlord stole a deposit from me I couldn’t find a single non-profit to help. All of them focused on eviction delay.

Los Angeles Renting

Found a way to build anyway and considering renting it out? Ready to give up and rent from the existing housing stock? Not so fast.

Politico: Los Angeles limits rent hikes in historic vote.

Under the new rules, Los Angeles landlords whose buildings are covered by the city’s rent stabilization laws — about three-quarters of the market — will be allowed to increase rents by between just 1% and 4% each year, depending on inflation. Currently, landlords are allowed to increase rent between 3% and 8% annually.

Over 1.5 million Angelenos live in the city’s 651,000 rent stabilized apartments. Generally, the limits on rent increases apply to apartments built before October 1978. State law prevents the city from changing that date, though landlords of more recently built apartments in Los Angeles and elsewhere in California must abide by less stringent rules prohibiting larger rent hikes.

Jake Glaser: The results are in:

LA City Council votes in rent increase formula of 90% of CPI with a 1% floor and 4% ceiling.

They also eliminate 1-2% additional increases for master-metered buildings.

A blow to LA’s housing market, but much better than the 60% of CPI they were pushing.

Megan McArdle: This is bonkers. They have set annual rent increases at below cost growth, forever.

The statewide law caps yearly increases at 5% plus inflation. I think that’s a defensible limit, as it allows the rent to rapidly move towards market value while giving the tenants time to adjust and preventing the landlord from creating a ‘hold up’ problem where you have to either pay a lot above market or pay for a move, and allows the tenant to invest in living there in all senses. Good compromise.

A cap that is intentionally set permanently below CPI, lowering real rents, is bonkers.

The good news is that the state law presents a limiting principle. Los Angeles is not allowed to alter the cutoff date, so new construction is still reasonably safe – although a reasonable response is ‘new construction?’ – and renting out apartments built after the cutoff is reasonably safe.

If you’re built before the cap, then you’re hoping this stays at 90% of inflation, but it’s likely going to get even worse. Your building will stop turning a profit, and the tenants will effectively own it. Act accordingly.

Sufficiently Advanced Rent Control Is Indistinguishable From Ownership

Not quite, it does mean you’re not allowed to move (or at least that you can’t transfer it to someone else, at the limit you’d keep it for the option value even if you did move), which is a huge economic destruction of value. And you also can get punished for improving the property, along with various wars you fight with the nominal landlord.

But it’s damn close.

Zeta: one of my coworkers lives in a rent controlled apartment in downtown Manhattan that costs $436 monthly and the combined income of her and her siblings who live there is $650k

AND IT HAS IN UNIT WASHER DRYER

To be clear they split the $436 so they only pay $109 each.

Inherited from her dad who moved in there with his parents in the 60s.

oh it’s very real and feels like you stumbled into narnia like this cannot be a feature of the west

this is going to sound weird but I actually think I’m super fortunate to not have this because she’s single late 30s and has lived in the same place her whole life- zero motivation to move or adventure or take risks when you have such a golden goose

The landlord ends up taking losses year after year, on the hope that they will somehow eventually get control back or the law will change.

Will Los Angeles taking this next step be what pushes SCOTUS over the edge to finally overrule Yee vs. City of Escondido and invalidate rent control? As a matter of law I think Yee is incorrect, and rent control imposed or modified on exiting leases is very obviously a taking, especially in light of Cedar Point Nursery vs. Hassid but also on first principles because it is obviously a taking. Gemini 3 Pro thinks it’s roughly a toss up to get fully overturned and 75% to be gutted or narrowed.

Rent control for new leases seems to me to not be a taking, since you can choose not to rent under the terms offered, but it is still quite terrible.

Here’s another example from Santa Monica, as a man explains why he is selling his house rather than rent it out. Well, a tenant would be subject to rent control with a $60/year rent increase limit, indefinite tenancy, no ability to evict to sell, severe restrictions on eviction in order to move back in and he’d have to remove all furnishings.

So yes, renting the place is a lot like handing out an indefinite free option on your house. Sane rental contracts are banned, so either you live there or you sell the place.

Bill Allen: This reminds me of a colleague of mine a few years back. He’s an Indian guy from Mumbai who at the time had been in the U.S. for about 10 years and was naturalized. In conversation he mentioned that he had an apartment still in Mumbai. I asked if he rented it out since his family was from the Delhi region. He told me that the rent laws in Mumbai were such that if he ever rented it he’d never be able to set foot in it again so it had been sitting empty for 10 years. Sadly, people never seem to learn the lesson of unintended consequences.

Another consequence are what are called ‘ghost apartments.’ New York City has over 30,000 of these, apartments that are permanently vacant because they would cost more to renovate and maintain than you are allowed to charge in rent.

There’s a reason the Washington Post Editorial Board has now come out strongly against rent control. Well, so many reasons, but it boils down to it not working, indeed massively backfiring, every time anyone tries it.

England Tries To Ban Renting

I’m not saying they will fully succeed but this is a remarkably strong effort.

Simon Alexander: On a recent webinar given by legal experts it was stated that you need to be aware of a potential pitfall regarding contracts and rent payment.

According to the new act, you can’t ask for the month’s rent until the tenant signs the contract. You need to be aware that once the contract is signed, if the tenant then refuses to pay over the rent, the contract must still stand and you will have to hand over the keys.

If the tenant then refuses to pay thereafter you have to go for Section 8 proceedings for arrears, but you can’t do this until at least 3 months rent is outstanding and you have to give 4 weeks notice for that so effectively you can’t do anything for 4 months to just get the process started. Nightmare scenario.

This sounds nuts and initially GPT-5.1 pressed X to doubt, but I had it check sources.

1. The part about not being able to ask for rent in advance is true.
2. The part where they can demand the keys anyway is not settled law and could plausibly go either way, but is an actual real risk.
3. It takes three months of unpaid rent before you can act and then you have to give four weeks notice, so yes in practice 16-20 weeks. You can try to use discretionary grounds but a court decides if it is ‘reasonable’ so it doesn’t look great.

Claude Rental Discounts

Alec Stapp: Landlord offered to renew my lease at the same rent for another 12 months.

Usually I wouldn’t spend the time to negotiate if they’re not trying to raise the rent, but figured I’d let Claude have a go and negotiate on my behalf. Claude did a market comp analysis and drafted the counteroffer for me. Landlord just came back and agreed to an 8% decrease in my rent.

Thanks, Claude.

Alec Stapp: Also, thank you to the YIMBY capital of America for making this possible. When you build a bunch of housing, renters like me have more leverage to negotiate.

A lot of things are like this. You could have done this yourself, but it would have been unpleasant and a bunch of work and you wouldn’t have known if you were acting crazy. Thanks to Claude, Alec knew he was on solid ground, and now that premium subscription has paid for itself and more.