I just got notice that my landlord is raising my rent by $500 (after a $130 increase just this February, and an increase every year since my lease expired and he refused to renew it). Interestingly, this is above market value for what the building offers. This is an increase well in excess of 25%. There is no logical way to justify the price, and it’s called “rent gouging.”
It is also 100% legal in California, given the building was built later than 1978 (otherwise rent control limits increases to 4-5% per annum). Now I finally understand why dozens of older buildings in my neighborhood have been demolished in the past few years, only to have new apartment buildings constructed in their place: you make up the enormous cost of construction pretty quickly by skirting laws that regulate what you can charge for rent.
“Oh,” you say, “but the free market balances. Supply and demand! It’s only fair!”
Not so much when the item being sold is a life necessity. If I feel a Wii system is overpriced, I can shop for a bargain, buy it used, or not buy it at all, and I’ll live. With housing, frugalities eventually become dangerous as you chase affordable living into dangerous areas and dilapidated buildings that qualify as “slums.” And even in those conditions, you remain at the mercy of a landlord who legally has the right to charge you anything he wants.
I mentioned that this increase puts my building above its market value. By that I mean: for what he intends to charge, I could get any of a dozen nearby buildings that have far better amenities. He’s totally outclassed in this new price range. While lots of apartments in L.A. are suddenly raising rents by $100, he’s going for this insane amount, and why? Obviously, I don’t know, but I’m guessing he’s gambling that other owners will look at his prices and bump theirs up accordingly. After all, that’s what they normally do.
Because the suppliers only look at each other for their cues. The demanders don’t even enter the equation. And that’s how you get an entire housing market that is “overvalued”. Suppliers looking at their costs, and passing on the costs of fixing their stupid mistakes (ARM mortgages, anyone?) onto the demand side rather than having to sell or let the bank foreclose. If they built Playstations that weren’t worth what they charge, people would stop buying. But with an essential like housing, there’s infinite room for “whoops” on the supply side – it can always be passed onto the demand side.
Think about it: how do you get “overvalue” in a free market? How can all housing be getting sold at prices above its value, if the market works like its average proponent claims? Answer: it doesn’t work the way people want to believe. Not on necessities.
“But shoes are necessities,” you muse. “Why are there always cheap, affordable shoes available in Los Angeles, but not cheap, affordable housing?”
Because shoes are portable. I can order them from another country, if no store will sell what I want at a price I find acceptable. Even life-saving medicines can sometimes be bought on the cheap from elsewhere. But housing is part of the landscape. It’s tied to our jobs, which also aren’t portable. It’s tied to our kids’ schools, which represent their chance of future economic success. It’s tied into everything we need to survive, and that makes it infinitely exploitable – but only from the supply side.
My situation is atypical. What we’re seeing right now in L.A. is a lot of buildings raising rents by $1-200/month. Because they’re all doing it at once, of course the market will bear it: the demanders have no cheaper options. But why did they start raising the rents? Did the demand side do something to trigger it? No.
- A lot of landlords have those insane mortgages because they opted to tear down old buildings in the past 5 years and put up new ones to avoid that 1978 cut-off date. While individuals who took out those mortgages are losing their homes, landlords just pass on their huge business mistakes to the demand side. There’s infinite room for stupid on the supply side when it comes to housing.
- Unavoidable costs for things like water and electricity are also going up – there, I don’t have a problem with landlords raising rents, as the retail cost is still based on the wholesale cost. Unfortunately, I’ve never seen rents go down when the cost of water or electricity does, which bears examination.
Regulate the market just a little, and profits can still be thrilling without individuals being at the mercy of a subtle version of price fixing.
If anyone’s concerned about me, I’m lucky. My friends who’ve recently had $100 increases in rent are unable to find cheaper housing anywhere nearby, and either have to start paying more or commuting further (taking more time from families, spending more on gas, releasing more gas waste into the atmosphere, having less time for exercise and healthy cooking). Because my building was already overpriced, this was just the kick I needed to go hunt down something significantly cheaper so I have that much more savings per month to throw into my downpayment fund. I intend to buy a house in a couple of years, when the market is at its bottom and housing is actually something like its real market value.
But for those who got drummed out of the housing industry a long time ago – those homeless people who live on all our streets here – that option isn’t available. While some of them may have made bad choices that caused them to end up homeless, the hard reality is: it could happen to anyone in this town. And once you lose your home – even a rented home that was never really “yours” – you lose that address you need to put on a job application. You lose a place to receive mail and communications. You lose touch with the entire world.
All because in a country that could easily provide modest living arrangements for everyone, it is so much more important to have a race to see just how much profit can possibly be made. Isn’t it ever enough?