91% believe rent “stabilization” in Colorado should be implemented, what happened in the legislature?
In a recent survey done by New Era Colorado where they polled 506 Coloradans between…
Every time I turn around there is yet another proposal to implement rent control. The newest house bill concerning requiring just cause for an eviction recently passed its first hearing. On the surface it sounds harmless, but the details are the most troublesome of any real estate bill I have seen so far. It prohibits rental increases on lease renewals. The costs to property owners and ultimately renters will be astronomical.
The bill prohibits a landlord from evicting a residential tenant unless the landlord has just cause for eviction. Just cause exists when:
The following conditions constitute grounds for a no-fault eviction of a tenant, with certain limitations:
A landlord that proceeds with a no-fault eviction of a tenant must provide relocation assistance to the tenant in the amount of 2 months’ rent plus the amount of one additional month of rent if any of the following individuals reside in the residential premises at the time the landlord proceeds with the no-fault eviction:
If a landlord proceeds with an eviction of a tenant of a residential premises in violation of the new provisions, the tenant may seek relief as provided in existing laws concerning unlawful removal of a tenant.
Under the bill, property owners would be required to offer a lease renewal that includes “terms that are substantially identical to the tenant’s current rental agreement” Essentially this bill would prohibit property owners from increasing rents on lease renewal and if they did “substantially” increase rent then the owner would have to pay 3 months rent to the current tenant.
In the bill it does not define “substantial” so any increase would be considered substantial. There is no debate that this is rent control that would by all purposes prohibit property owners from raising rents.
Property taxes in Colorado are increasing on average 36%. I would define this as a substantial increase, yet under this bill these tax increases could not be passed onto the tenant. Furthermore utilities have risen on average of 50% over the last 18 months and insurance has also increased substantially due to increased rebuild costs. This is on top of higher labor, material, maintenance costs, etc..
Under this bill these items could not be passed onto tenants in lease renewal as they would be considered substantial increases and subject the owner to pay out to the tenant 3 months of rent.
Rent control is not widespread in the U.S. According to a recent study by the Urban Institute, 182 municipalities in the U.S. out of about 89,000 have rent control regulations, and all of them were in New York, New Jersey, California, Maryland, or Washington D.C. The reason it is not widespread is that rent control doesn’t work and over the long term has the opposite effect.
According to the Brooking institute, a liberal leaning organization:
DMQ find that rent-controlled buildings were 8 percentage points more likely to convert to a condo than buildings in the control group. Consistent with these findings, they find that rent control led to a 15 percentage point decline in the number of renters living in treated buildings and a 25 percentage point reduction in the number of renters living in rent-controlled units, relative to 1994 levels. This large reduction in rental housing supply was driven by converting existing structures to owner-occupied condominium housing.
When I think of rent control, the first city that comes to mind is New York (hopefully everyone remembers the sitcom friends based in rent-controlled apartments). So how has NY fared as a result of their rent control ordinance? Not so well. According to the NY Daily: Median apartment rents in the city have increased 75% since 2000 — a rise 31 points greater than in the rest of the country, according to a report released by the city controller’s office. Over the past decade, 400,000 affordable housing units renting for $1,000 or less have disappeared, Stringer said.
Just cause for eviction is a terrible idea. Every major legitimate study done by both liberals and conservatives has proven that implementing rent control leads to less affordable housing and increased costs for tenants. We have already watched this movie in cities throughout the country as rent control decreases supply of affordable housing as units are converted and or sold. Without the ability to raise rents on renewal as costs rise, the loss of affordable housing will decline at an increasing pace. This has been proven time and time again and will happen in cities throughout Colorado.
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Written by Glen Weinberg, Owner Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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