A landlord argues Washington's new 10% rent-cap law actually harms tenants by discouraging downsizing, reducing housing supply, and driving up rents for larger units. He claims caps prevent landlords from covering rising costs, leading to disinvestment and worse conditions.
Chapters
Rent control is terrible for tenants. It's amazing for landlords. Now, if you don't believe me, I'm going to show you exactly why and how this works. I have the perfect example. I invest in Washington State. We just this week that I'm filming this passed rent control. It's officially in place. We have capped rent increases in this state. So what hasn't this done? There is no maximum rent. We don't have a cap on rents. We also do not have any maximums or rules around what we can place tenants at. So it's still a free market as far as placing tenants. Someone moves out, their old rent doesn't affect the new rent, which is very important. However, what does capping rent increases actually do to the market? Why am I going to make a ton of money, and all the other investors going to make a ton of money here? And why is this not as good for tenants as it seems? Well, let's talk economics. Price on this axis, quantity of units on this axis. So this is the amount of units available, and here is the price per unit. This is a standard supply and demand curve with no rent controls or any other outside factors in a free market. Where supply meets demand, you get the price per unit. In our hypothetical market here, let's say it's $1,000. What does rent control actually do? If we're limiting what you can increase the rent to, people tend to not move out, which means you get unit inefficiencies. For example, say someone rents a 4-bed apartment with their family. Their kids move out, they have a breakup, something hap— whatever the case, they're now the leaseholder, needs a 1 or 2-bed apartment. They don't need 4 units. In a normal market, they would move out and find a more appropriate unit that houses the right amount of people. They'd get a lower rent for downsizing. In this case, they might have had their price locked in. If their price is locked in, it could be more expensive for them to go to a smaller space, in which case they're never going to move out. So you get market inefficiencies where they're taking up a 4-bed unit even though they don't need one. There's now less units and less housing actually available for those who need it. So we move down the supply curve artificially And let's say we end up somewhere around here. Now their rent may be locked in at $800, which feels great for the tenant, but what has it done? We have artificially, right in here, we have decreased the amount of supply available. The demand curve is now off. This is a weird place to be. There's less units, there's more homelessness, there's more displaced people. Families have a harder time finding housing in this market. What ends up happening to those families when a 4-bed becomes available? Because now demand is suppressed, they end up actually paying more because their unit unit is harder to find. There's people who are in the wrong size units. You have people who shouldn't be able to afford that because they no longer have that family size. They're taking up a 4-bed. Families now have to pay a premium to rent the larger spaces. Now, more homelessness usually isn't what you're targeting when you say rent control. That is why it's one of the effects. What is the other effect? Well, when you put a cap on how much we can increase rent, we do not want to fall below this. Here's our 10% line right here. I can increase from here to here. In one year in Washington State, I can make this jump. Everything below this line, I now have market inefficiencies. It could no longer make sense for me to rent the unit if I am stuck in a market where I can't increase them. This is where you end up getting slums. This is where people can't afford to fix up their buildings. As rising prices happen, as material cost goes up, you guys may have noticed we're in a bit of a tariff battle right now. Prices are in flux. If you look back in 2020, 2021, we had major supply issues in shipping, in construction. When We artificially affect the market. If prices go up on landlords, you end up with slums. They can't afford it. They can't pass these costs on. Most people don't want to pay to provide housing to other people. So you get stuck in this weird zone where everyone who can't make the jump, a 10% jump, the deals don't make sense. The properties don't trade anymore. They don't get fixed anymore. You end up with slummy properties that are being incorrectly run with not as much profit as they should get to the landlord, and the tenants all suffer as a result. So either you get more homelessness You get slummier properties. Either way, what's going to happen to the rest of the market? Every landlord is terrified of falling behind. They always increase the rent. In a normal market, you'll see ebbs and flows of rent increases. I've had many times where I don't do a rent increase because they're already at market rent, or maybe market rent didn't change that much this year, so they got a 2% bump in rent. Now, if we ever don't bump by that 7 to 10%, we're going to fall behind. Congratulations, Washington State. Rent gets more expensive every year by default because if you fall behind this curve, there's a chance that you can't catch up. And if you can't catch up, you can't sell your building to the next person because they can't just come in and magically increase the rents. They're stuck with the same problem. Rent increase caps are bad. You want a free market where your supply meets your demand. You don't want a market that's overbuilt because you don't want too much supply. You don't want too much demand where too many people are moving in before you can build. Either of those are economic problems, but you want a simple curve. When you introduce these other factors, you artificially affect the curve. It becomes very, very hard to be a real estate investor in this type of environment. Now, the only real winners in this scenario end up being the landlords. The landlords continue to get their rent increases. They all have to do their rent increases. Rent goes up at an accelerated rate for a significant period of time. While you'll never see a mega spike in rent because it's now capped, You just see it averaged over the long haul for everyone who owns today, and arguably for anyone who buys over the next few years, you're going to reap all the benefits of being a landlord in a market that is artificially trying to affect the supply and demand curve. But economics rule, you can't just change the rule and get the desired outcome. There's always an economic effect when you restrict supply or demand, it affects along the curve. Don't believe me? Look what happened in New York. Look what happened in California. Look what happened in Oregon. Look what happened in parts of Colorado where they've tried this stuff. As a landlord, it puts us in a weird position because we really do benefit from bad policy. The more bad policy they push through, the more we tend to benefit. And this is true of business everywhere. If you push through bad policy, people who understand how money works are always going to be the ones who profit. Your tenants or the end user is almost always the one who suffers from overregulation and over-restriction. My opinion, I think government should get out of rentals altogether and let the professionals do it. Historically, every government everywhere is really bad at housing. There's been very few exceptions to this. Some smaller countries have had some really interesting levels of success. Outside of that, generally always fails. It ends up in slums or it ends up in the rich getting much, much, much richer. Now, while I'm happy to be on the rich side of this equation because I am a landlord, you can do the same thing. If you don't know how to buy rentals yet, regardless of how much money you have, check out Multifamily Strategy, the mentorship group. There's an actual group of people who have funded over $21 million of their own deals together, people who started with no to low money a community who's learned how to use creative financing, who's learned how to understand a deal, buy for cash flow and increase their income and move from the tenant side to the owner side. I've built hundreds of units doing the same thing. You can do it too, and you can be the one benefiting from stupid policies like the one Washington implemented this week.
