I wrote about President Biden’s proposal for a “temporary” and “limited” form of nationwide rent control in the most recent Capital Letter, suggesting that it presaged worse to come and that the signals it sent to prospective landlords, even if they were not covered by the rules being put forward by the administration, were likely to prove counterproductive.

One aspect of the proposal was that it was not to apply to landlords building new rental properties or carrying out substantial renovations. I doubted how much prospective landlords would be reassured by exceptions such as those.

In that connection, it was interesting to read this in a (must-read) analysis of the president’s proposal by the Manhattan Institute’s Judge Glock:

Some proponents of Biden’s rent control proposal note that it would be in effect for only two years and would apply only to already built homes, and therefore wouldn’t affect new construction. But almost all rent control laws make such promises; governments often can’t help themselves and keep expanding the laws’ reach anyway. New York began regulating older buildings’ rents in the 1950s with the implicit promise that new construction would remain uncontrolled. But in 1974 it extended control to apartments built into the 1970s. Landlords and developers, twice bitten, remained shy for decades.

Even if rent control remains only on older buildings, the effects can be devastating. One comprehensive look at 206 rent control studies shows that these laws cause landlords to withdraw units from the market or cause tenants, including wealthy ones, to stay put. As a consequence of reduced rental housing supply, rents go up in the noncontrolled apartments. The studies also show that housing quality declines rapidly, since landlords can’t afford upkeep. Rent control was one of the main reasons the Bronx in the 1970s was littered with collapsed or dilapidated apartments.

And so to a recent story in TheRealDeal about a rent-stabilized building in the Inwood neighborhood in northern Manhattan. The building, which is not distressed, was sold for $3.8 million, apparently just $79,000 per unit, even lower than the average for the area.

According to Suzannah Cavanaugh, the author of the article in TheRealDeal, “The low-ball price . . . reflects the market’s perception of rent-stabilized properties and the high mortgage rates being offered.”

Two factors are in play there, both mortgage rates and rent stabilization, but it’s not hard to see how the destruction of the capital value of a building disincentivizes a landlord from investing in renovations and upkeep.

In February, TheRealDeal ran another story on the impact of New York City’s rent stabilization on property values:

The New York market has put another number to rent-stabilized deterioration: 64 percent.

That’s the haircut investment firm BentallGreenOak took on 120 and 125 Riverside Drive when it sold the buildings to New York-based Aya Acquisitions last week. BGO unloaded the properties for $31 million; it had purchased them for $85 million in 2013, PincusCo reported.

Neither firm returned a request for comment.

Rent-stabilized building values have plummeted since the 2019 rent law severely limited rent increases. Some owners have since tried to unwind their holdings, and after interest rates jumped, more became willing to sell at steep discounts…

Landlord groups’ attempt to strike down the law failed last year after the U.S. Supreme Court declined to hear their challenge. In the aftermath, the Community Housing Improvement Program, one of the groups that brought the suit, said it would put its energy behind a bill that would allow owners to raise rents after renovating vacant units. Tenant advocates scared off some sponsors of the bill soon after it was introduced last year.

Of course.

Unsurprisingly (“Biden-Harris administration” and all that) Kamala Harris endorsed the president’s rent-control proposal. Reason notes that she also praised Oregon for adopting the nation’s first state-level rent controls in 2019.

Click on the link to read this:

Oregon’s new law caps rent increases at 7 percent plus inflation per year, and it imposes new restrictions on landlords’ ability to kick out tenants.

The law resembles the rent control system in San Francisco, where Harris was once district attorney. There, the price controls on rental properties resulted in exactly what most economists warn will happen: The supply of rental housing fell, and rents increased citywide.

Of course.