Moreover, the relative value of investing in old vs. new apartments is not particularly relevant, because what really matters is the value of investing in building new housing as compared with all other alternative investments, including real estate in other cities or stocks or anything else. And the prospect of rent control at any point in the future lowers the net present value of those investments by the corresponding amount, causing reduced investment in building new housing.
Worse, if the old buildings have rent control and the new ones don't, the tenants will prefer a rent controlled apartment, driving rents up in the old buildings and down in the new buildings (because, unlike investors, tenants do specifically need housing in that city so the relative difference matters), which both increases rents on existing buildings and reducing the incentive to build new buildings.
Rent would only be cheaper in "rent-controlled" properties during periods of extreme growth in market rents. The primary issue in such cases is not "mis-matched" tenants (if anything, reducing churn should increase effective supply). While it would provide less incentive for retirees to move out of the city , it also limits the degree to which the impoverished are forced to leave the city. Once the period of extreme growth passes, all rents will stabilize back at the market price.
So yes, this can lead to slightly higher market rents for new tenants during periods of extreme growth, but it does this because fewer people are forced out of the city.
> And the prospect of rent control at any point in the future lowers the net present value of those investments by the corresponding amount, causing reduced investment in building new housing.
You think you can predict accurately which cities will have rent-control laws 15 years from now? While I can see how current or near-term rent control can affect a properties value, the incredibly marginal effects of this 15 years out is complete washed out by the much larger unknowns that affect the value of the property 15 years from now. One could has plausibly even argue that seeing a law like Oregon's being passed reduces the chance of seeing more draconian rent control laws introduced, which should INCREASE the attractiveness of investing in rentals in Oregon.
> Worse, if the old buildings have rent control and the new ones don't, the tenants will prefer a rent controlled apartment, driving rents up in the old buildings and down in the new buildings (because, unlike investors, tenants do specifically need housing in that city so the relative difference matters), which both increases rents on existing buildings and reducing the incentive to build new buildings.
>Worse, if the old buildings have rent control and the new ones don't, the tenants will prefer a rent controlled apartment, driving rents up in the old buildings and down in the new buildings (because, unlike investors, tenants do specifically need housing in that city so the relative difference matters), which both increases rents on existing buildings and reducing the incentive to build new buildings.
This is completely wrong and confused.
Somehow you have created a situation where in your mind where:
1) the tenants expects to pay less rent (over the next X years) on OLD buildings
somehow implies
2) the investor expects to be paid less rent (over the next X years)on NEW buildings.
Obviously, one of those expectations must be wrong which means your argument is invalid.
If you do see lower initial rents on newer buildings, you only see them offered to the degree that landlords expect to make up the difference in the following years.
If you do see higher initial rents on older buildings, you only see them paid to the degree that renters expect to make up the difference in the following years.
As an example, One of the major problems for developers in building both housing and office space is how cyclical the markets are. When prices are spiking, developers rush to build. This can lead to gluts, causing big price crashes later on as they try to pay their mortgages.
It's perfectly possible that smoothing out the spikes of short-term price increases results in a more stable, predictable market. That would not only mean it'd be better for tenants, but it'd be better for landlords in that they are more confident they'll have good ROI over time. Risk mitigation can be very valuable in long-term investments.
And of course there are many more possible complex interactions. E.g., if lower turnover means richer social connection and better neighborhoods, then renters might be willing to pay more over the long term, keeping landlord property values up. Or more stable prices mean that people are less likely to, say, vote to expropriate large landholdings and shift to the sort of socialized housing we see in other countries.
So no, I don't think there are two possibilities here.
There are two possibilities here. One is that the maximum rent control rate is above the market rate of housing cost increases, in which case those rent control laws do nothing. This is better than most other rent control, but still no better than no rent control. The other option is that it isn't, and then the rent control laws do something bad, i.e. reduce the incentive to build more housing to fight the expanding market rate rents, and screw new renters a lot to benefit older renters a little. There is still no circumstance where they cause good.
Also, since which possibility happens isn't known ahead of time, they reduce the incentive to build housing today by landlords who expect rents to increase by a lot in the future, even if they turn out to be wrong.