>Landlords who choose to increase rents at the maximum rate permitted each year do so at the risk that they will be undercut by competing property owners who do not do so.

Price ceilings (even non-binding ones) can create market power for suppliers by providing a focal point for tacit collusion.

[0] Knittel and Stango (2003), Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards https://pdfs.semanticscholar.org/3848/b5c04ae02c17c0b5135841...

[1] DeYoung and Phillips (2009), Payday Loan Pricing https://pdfs.semanticscholar.org/c587/58d243ad0653b052b1c77a...

Fascinating. Makes sense from a game theory perspective.

That’s how large corporations behave, but what the OP is voicing is a common sentiment for smaller investors or people doing landlording as a side gig or housing hack to financial independence.

If the market can support it, these laws guarantee the maximum increase. If the market cannot, well you are already at the top of the market aren’t you? So no benefit here.

>>> If you made a viable investment in a property and are currently renting it out, wouldn't rent increases just need to equal inflation in order for you to maintain the same level of profitability?

Not necessarily - taxes on property owners don't follow inflation. They may go up greatly compared with inflation.

>>> I hardly see why maximizing profits should be seen as a necessity---especially when it comes at the cost of pushing people out onto the streets.

Because if don't allow it to be profitable people won't do it. Particularly in California it can be quite risky the rent out a property. It's an extremely tenant friendly location, so much so that evictions for major infractions can take several months, or in some cases years.

Maybe more people selling property instead of collecting money forever for winning the land lottery 50 years ago it is a good thing.

That would remove rental units from the market and further increase cost of living for folks who can’t purchase.

What would be the positive effects?

It also takes a tenant out of the market. So the net effect on other renters is pretty slim.

In Chicago, a lot of multi-units (2+ flats) are converted to single large SFH, so the net effect could be worse especially if prices were to go down that it would be attainable to do that.

Interesting! I wonder about the economics of that?

Do they just knock down a wall in the middle? Or is there any new construction involved? (Usually the developer wants to go for higher intensity to sell more units per land.)

> Not necessarily - taxes on property owners don't follow inflation. They may go up greatly compared with inflation.

Except in Cal where they go up much lower than inflation...

One example I could imagine is that a landlord may not want to raise rents significantly on a long-term reliable tenant, but would want to increase rents when the reliable tenant leaves. “Market price” probably doesn’t include the cost risks of having a nightmare tenant.

Don't those laws usually allow a reset when you switch tenants?

(However, your example would still work, if the reliable tenant turns into a nightmare tenant.)

There's not much risk to it. Sure, others could undercut you, but when you see that happening you're free to lower the rent and have a tenant again.