> I'm struggling to see why you think landlords would be able to charge above market rate once rent control ends.
It won't be above market rate, but the market rate will go up to account for the call option. It's like if the city mandated all landlords to install AC (assume for this example this is for a region where most units don't have AC). Since this cost is applicable to most landlords, the landlords collectively will raise their rent because their costs have gone up.
As far as I can see it's exactly like being mandated to install AC - in that it would not change supply of housing and it would not change demand for housing.
That is, unless there was a non-negligible number of landlords who would be so infuriated with spending, say, $2k on installing AC that they would take their house off the market (but not sell it) and therefore willingly forego, say, $2k of rent every single month.
I don't see that as plausible, though. If you have an unsold rental unit doing nothing but collecting dust you're wasting money. In rent controlled cities like SF/NYC almost by definition rent is high, so these theoretical landlords would be leaving a lot of money on the table so if you think this effect is real you are obligated to assume that these landlords are behaving in an irrational manner.
the pre-AC prices are already in equilibrium. mandating AC increases the cost of supplying housing, so it disturbs that equilibrium. who actually absorbs that increased cost depends on the elasticity of demand. for highly elastic goods, the producer/seller loses more of their surplus (ie, they cover most of the cost increase). but with a highly inelastic good like housing in a desirable location, it is much more likely that the consumer covers the larger part of the cost increase.
this is basically equivalent to the effect of elasticity on tax incidence. you can view the cost of AC or forgone rent from rent control as a sort of tax.
another good example of an inelastic good is gas. people who commute can't easily change the amount of fuel they consume. if the gas tax goes up, or a barrel of oil becomes more expensive, your local gas station doesn't just make it up from their margin. they increase their prices, regardless of how accustomed people were to the previous price.
tl;dr: the fact that a landlord can charge more after being forced to install AC does not imply that they could have just increased rent in the first place if they weren't so stupid.
A careful reading of my previous comment should make it clear that I alluding to precisely that, in fact. Also it was explaining why it would 90%+ fall on the landlord in high rent locales like NYC/SF.
Why you think it shouldn't fall on the landlord in high rent markets just because the supply of property is relatively inelastic isn't so clear to me.
do you not agree that housing demand in nyc/sf is highly inelastic then? the rest kinda follows from that. or are you arguing that the supply itself is even more inelastic than the demand?
I think part of the problem with this example is that $2k is just not very much money compared to rental income in those areas. I agree, it is hard to imagine landlords dropping out of a market where they can rent a studio for $2500+/month over a one-time $2000 expense. I argue it would still happen at the margins, but it might result in a market rent increase that is below the noise floor.
still, it is a mistake to assume that all HCOL landlords are making money hand over fist. places with high rents tend to also have high price-to-rent ratios. landlords with recently purchased, mortgaged properties might not be making much profit, even with sky-high rents. if a lot of landlords are in this situation, the supply could be surprisingly elastic.
>do you not agree that housing demand in nyc/sf is highly inelastic then? the rest kinda follows from that. or are you arguing that the supply itself is even more inelastic than the demand?
Relatively inelastic, but not as inelastic as supply. There are people who would gladly move to NYC tomorrow if rents were cheaper and vice versa.
>I think part of the problem with this example is that $2k is just not very much money compared to rental income in those areas. I agree, it is hard to imagine landlords dropping out of a market where they can rent a studio for $2500+/month over a one-time $2000 expense.
Ergo why the incidence falls squarely on the landlord.
This also explains why they bitch the most about things like property tax hikes and building regs while renters do not care. A double whammy of it hits their net profit and hits the value of their property because it reduces the profit it can generate.
>still, it is a mistake to assume that all HCOL landlords are making money hand over fist.
Right. If they're not it's because they're leveraged in which case there is even LESS reason to suppose that they would be the cause of a drop in supply because instead of not making as much as they could by not renting their apartment out, they'll be LOSING money hand over fist.
I do agree that property prices will likely bake in the cost of having to install aircon or having to abide by rent control regulations. It might be the proverbial "last" straw for some who might sell up but that won't reduce supply because they'll sell it on to somebody else who will rent it out (or live in it).
I also believe that what say may be right in, say, rural Alabama where rent control might well disincentivize the construction of new housing where land is not at a premium. But, NYC is a different kettle of fish.
...for the current tenant. When he leaves it goes up to make up for it, and then some to make up for the free call option.