It is a huge risk right now to take on someone that is poor as a renter because of the moratorium. It is completely unsurprising to me that landlords have priced this risk factor in.
Interestingly, if landlords were allowed to use larger security deposits, some would choose to do this instead of raising the monthly rent. My friend is looking to rent out an ADU, and the first idea was to have a sizable security deposit in order to filter applicants who fully intended on paying rent from those who would be more likely to use the eviction moratorium.
But apparently California tightened the rules around security deposits in 2020, which actually exacerbates this problem. Landlords used to be able to ask for up to two month’s rent as a security deposit, but now they can only ask for one month's rent.
This leads to upward pressure on rents, as landlords adjust the only lever they have left. I wonder if applicants can/do offer to prepay several month's rent, to signal that they are serious long-term tenants who have the ability and interest in paying rent (even if they legally could avoid payment).
That's horrible to hear, I was only able to get my first apartment in California since I could offer a double deposit.
Chicago on the other hand has fantastic housing supply and so many rules on security deposits, most buildings just don't do it. Access to housing permeates every aspect of a culture, people are significantly nicer when they can afford a place to live.
Has your friend been able to get out of California ?
Chicago does have a large supply of housing and land that can be converted into housing. This helps keep the cost of housing closer to the cost required to construct units.
In CA, the cost of a home has almost nothing to do with the input costs other than land. There are areas that could be built up (tons of land just west of 280), but which is protected by environmental laws or restrictions. Full development of this land would lead to traffic nightmares, for sure, but one could imagine that some of it could be developed as we move toward more efficient modes of transport.
San Francisco also has 26 skyscrapers to Chicago's 130. 80% of the Bay Area is zoned exclusive for single family, to Chicago's 41.1%.
It's not landscape and it's not rocket science: it's zoning. San Francisco could build up, letting people live closer to their work & be much better for the environment than encouraging sprawl, but chooses not to. Y'all decided to make housing expensive, so it is.
Zoning is absolutely a big part of this. Though I would expect SF to have fewer skyscrapers than Chicago even if it weren't for zoning differences, given the earthquake risk.
doesn't it largely stem from Prop 13 which incentivizes all current land-owners to block any possibility of increasing density, at the expense of the rest of society?
It's interesting to me that such a universally easy sell as, "no new taxes" can result in such a distorted and, IMO, grotesque unintended consequence.
It's even simpler than that. Had a conversation with a man who owns some tiny 60's vintage apartments on an ocean-view lot. He turns down market-rate offers from developers looking to put in family-size units because with his Prop. 13 tax tailwind, he makes out well enough despite the lower rents.
California Proposition 13 is about how limited the state government can charge on property tax (one percent)?and how much the appraisal can go up year after year.
Nothing to do with density, although there are numerous county and local laws on density zoning (which is not Prop 13)
Of course, it has been 1973 when this happened and I think only twice has the state government tried to changed it by “stealthily titled” proposition and failed.
What rules are you referring to regarding security deposits? Are they new? I have had only abusive experiences in Chicago (and, to be fair, Michigan and California) with security deposits.
<<The penalties that the RLTO imposes on landlords are often grossly disproportionate to the infractions, largely because the ordinance allows tenants to recover their reasonable attorneys' fees and court costs, even in legal proceedings brought to recover something as nominal as a $100 statutory penalty (and even if the penalized omission was utterly harmless). What’s more, dozens of Chicago lawyers specialize in representing tenants in these types of cases.>>
Anecdotally, landlords are moving/moved to having move-in fees over deposits due to the legal technicalities of handling them properly.
In CA, only an abusive experience with a high security deposit. Tried to charge $800 for cleaning cobwebs off the exterior and roof of a house at move-out. The more of your money they have, the more of your money they will keep.
This comment is spot on. Rent premiums are often not greed, but just a risk premium and buffer-collection for a catch all of issues from future non-payment to other BS.
Prices are negotiated. Two parties must agree on the price. If there is a "greedy" landlord overcharging people there must also be a person "willing" to pay the overpriced rent. Of course there are cases of vacant properties but I don't think this is a problem for most rental markets.
> Prices are negotiated. Two parties must agree on the price.
Yeah, that's true of hostage negotiations too. The issue is one of choice and efficiency. Moving is a larger risk (via cost, opportunity, travel, etc) than changing rent or services performed, usually.
I'm pretty sure vacant properties are a problem in every market, it is just a matter of grayscales -- how many days do you keep units empty waiting for a creditworthy tenant. Perhaps the unit is empty 10 days, perhaps 15. Willingness to keep a unit empty is part of the negotiation -- a landlord is saying "I'd rather keep the unit empty for another couple of days than take a rent that wont adequately-compensate for the 4% chance i get nothing for 10months (i.e., eviction)"
Of course, even eviction timelines vary vastly from one jurisdiction to another
You need to come up with 6 month worth of rent to start renting? That's massive. It basically means most would need to borrow that money. Is that supposed to be a good thing?
I'm glad that illegal here, that's abusive. Personally I avoided any ad that required more than 2 month total upfront. Thankfully the local market allowed it. If I wanted to put a massive deposit I'd buy, not rent.
A lot of people have that on hand in Denmark or can get a loan from their bank. You also don't have to pay rent the last 1 to 3 months for your previous place, so it's not as bad as it sound.
People in USA live a lot more paycheck-to-paycheck than in the rest of the world.
For sure. Think about the damage that can be done to hardwood floors during move-out, for example. That's one easy way that a unit can be accidentally damaged, even by a tenant who is generally very careful.
Of course, you can still recover payment by suing, but that's obviously more difficult (especially if the former tenant has moved to another city/state).
Low end 1 bedroom apartment, moratorium on eviction = suddenly no rent paid. Here in Australia there was significant $ from Government for those in such a position, including rental assistance. We got nothing. And I am not about to hound a person financially at the bottom who likely lost their job and had enough shit already.
But no point messing around with the lowest end market now that we can afford not to. Sell it.
Hmmm - I just paid 2 months deposit in 2021. Googling seems to say that is allowable.
"Effective January 1, 2020, landlords may not request a security deposit of more than one month’s rent for an unfurnished unit, and two month’s rent for a furnished unit, if the unit is rented to a service member."
The one month limit seems specific to service members.
Wow, confusing language in there. But NOLO makes it clear that the service member limitation relates to both clauses, not just the last one. [1] Good catch!
Seems the limit for non-service members is still 2 months, or 3 for furnished. Landlords can add 1/2 month for a water bed, curiously.
Security deposits are legally the tenants funds held in escrow by the landlord until the end of the lease. They tend to be heavily regulated in tenant law, with stipulations on how large they can be, what can be deducted from the security deposit upon lease termination, how long after lease termination the landlord has to return the remainder of the deposit, whether they have to be held in an actual escrow account[1], etc.
Prepaid rent is just that - it's rent for some future period that the landlord is just receiving early, so doesn't come with all the legal strings attached[2]. The landlord recognizes the income when they receive it and it becomes their money to do what they want with at that point.
The nuance goes beyond just semantics, too. If a tenant files for bankruptcy, the security deposit the landlord is holding in escrow is considered an asset of the tenant's estate. Whereas prepaid rent is not, unless the contract was executed super recently and the judge determines it unfairly harmed other creditors and wants to claw it back.
[2] I'm sure this isn't a universal truth - in the US alone, tenant law tends to be an overlaid mishmash of federal, state, and local regulations. So I'm sure some places attach strings to it. But many if not most places do not.
It has a similar signaling effect, but someone could prepay 6 months rent and then just stop paying. With a security deposit, you have that as a buffer until the person leaves.
Perhaps the best way to accomplish this without having the landlord perpetually hang onto large amounts of tenant cash is to have a large deposit that slowly decreases over time, as trust increases. So perhaps it would be 5 or 6 months of deposit that is used to offset every 3rd month of rent during the first year.
The article does cite eviction moratorium effects, but from a different angle:
Landlords stuck with tenants who can’t pay may try to offset these losses by raising rents on everyone else. Rents in lower-end units tend to already be close to operating costs, Schuetz noted, so landlords may have slim profit margins.
Not only this, but there will be a eviction-moratorium risk premium that tenants will implicitly pay for years to come, to adjust for the added risk and to help keep a virtual buffer for future moratoriums.
There was an article a saw a few weeks ago about some guys based out of Oakland (maybe someone else can find it) who has accumulated 5 figures worth of rental debt. It talks about how he had just moved into an expensive place at the beginning of the pandemic, got laid off, then couldn’t pay for the whole year.
IIRC, he eventually moved, but still couldn’t pay rent and started accumulating even more rent debt there. I can’t imagine who would rent an apartment to that guy.
I know the exact article you mentioned. The real story is actually more nuanced. The guy off course got laid off and could no longer afford the rent. But he racked up rent also because even if he moved earlier, his contract would have made him pay a ton of fines to even get out of it. So he decided to stay.
Yeah it’s not like it was really that much of his fault or anything (though I found it a bit fishy why he couldn’t get another job). Everyone’s mentality up until ~September was “oh just another month or two then everything will be back to normal”.
But my point is how could you expect landlords to rent to anyone without a very stable income? They could be out tens of thousands of dollars.
Well in this case, the landlord can simply allow the tenant to break the lease without such a harsh penalty, rather than playing this game which encourages people to use the law against them.
> though I found it a bit fishy why he couldn’t get another job
What line of work was he in? If he lost his job during the pandemic, is it possible there simply were very few jobs available that he was qualified for?
It's probably because of speculation. If there is a chance that the moratorium will end in July it's better to not have any tenants for a few months than bad ones you cannot evict and will trash your place. Also, unoccupied properties are always more valuable.
Occupying a home reduces its value. Letting someone live somewhere "for free" (to them) is still worse to the owner of the house than leaving it vacant.
The more modern trend of businesses passing risk sort of flies in the face of the old rationale of business ownership taking on risk which justified the rewards of doing business.
Now you're just doing business wrong if you don't minimize risk or figure out how to shift and transfer risk away from yourself.
You try to minimize all risks, not only in business but in all aspects of life. That has always been the case. The caricature you presented has never existed.
It's crazy that we live in an economy where you have to pay just to live somewhere, but when the eviction moratorium ends, there's going to be a huge financial reckoning as there's no way anyone is paying all that back rent.
Biden is going to have to either bail out tenants or landlords and banks. I'll be taking bets on which one he does.
I grew up in an economy where it was. When I was born, we were living in a 4-people, 3-generational, ~500sqft 1.5 room flat (the large kitchen was subdivided to make a tiny bedroom); later, the govt decided that we deserve better and I ended up growing up in a 4-people, 2-generational, ~650sqft 2-room flat. I wonder what my parents, two engineers, would have been able to afford in the USA?
I think I had a very happy childhood but comparing these things kinda allows you to reflect. Interestingly, the low standards stick; when we bought a small 1100sqft house with my wife (in the USA), some of my friends back in Russia were like "oh, a big house, are you planning for kids?" ;)
I lived in a country where housing (at the time) was provided by the government. It's not as great as it might sound. Want to move? Do the paper work and wait for a few years. Want a bigger place? too bad. Not to mention single room for the whole family, shared kitchen and washrooms.
The quality of the housing is going to be proportional to the wealth of the country per capita. In the US, we simply allocate quality of housing based on ability to pay, so many people have incredibly bad housing conditions.
Right, of course the only choices we have are government provides housing or everyone sleeps on the street. Not like we have any examples of any other system.
Our highways are free because they're a public good (in the economics sense) and prone to monopoly pricing due to geographic constraints on competition.
While it isn't inconceivable that housing could be public, the same underlying economic rationale isn't there, and private housing works really well. You'd be solving a non-problem (or, to the extent that there is a problem, it's one that's easily addressed by simply increasing private housing stock) and risking a lot to do so.
> Our highways are free because they're a public good (in the economics sense) and prone to monopoly pricing due to geographic constraints on competition.
And homes are not? Certainly not at the same scale, but we are seeing the same problems with landlords that we see with monopolists.
Landlords are able to charge extremely high rents and there is not enough available/affordable land to build competition, especially in cities experiencing NIMBYism and gentrification.
> You'd be solving a non-problem (or, to the extent that there is a problem, it's one that's easily addressed by simply increasing private housing stock)
It's clearly a problem. That's why we're here talking about it in the first place. It's also clearly not "easily addressed", or that would have happened already. Sure, we need to remove barriers to increasing housing stock, but that isn't likely to be enough; especially in the short term.
Homes aren't a natural monopoly. Highways largely are.
"there is not enough available/affordable land to build competition"
There definitely is in the large majority of places. The only city that can possibly say that honestly is Hong Kong, but even there they could go a bit more vertical and more dense if they needed.
"It's also clearly not "easily addressed","
Whatever lobbying hurdles you need to overcome to reduce regulatory interference on increasing the housing stock, you're going to face those same hurdles (and then some) if we're talking about public housing. So it doesn't make sense to immediately go for the radical and untested solution when an easier and proven solution is waiting. If we build vertically and it doesn't work (which it will, but nevertheless) - only then does it make sense to consider something more radical and more difficult to push through.
It's crazy that we live in an economy where all you have to do to live until 80 years is pay to live somewhere. We don't even have to hunt our own food.
Unlike food, land simply exists. That's why rents are so abhorrent. You are taxed by nobility simply because its theirs, not because they render any service. For food, you are paying because someone had to perform labor for you.
Land can be parceled out using any system people can devise. Rent is completely artificial. Strangely, the people that do nothing for you charge FAR more than the people who hunt for you.
An interesting metric to consider is how much would at-cost rent would be if land was free and only construction, repairs, and utilities needed to be paid for. If you run the numbers over the lifespan of a building, you'll be surprised.
Rents are not completely artificial, and you do get services for paying them. Part of it goes to paying property taxes to fund things like 911 services, local schools, libraries, public parks, sewers. Other part is for maintaining the property, things like roofs and furnaces eventually deteriorate and need to be replaced. Your landlord will replace those things for you, but it comes at a cost and it's called rent.
You could argue you don't get your moneys worth, but you do get services for them...
The homestead act was part of westward expansion. The free "unclaimed" land (it was Native American land) provided a relief valve for the American system. When the poor became too uppity, the government would provide them with an escape valve of free land and adventure. When we finally reached California, that escape valve disappeared.
What you claim are rights, I dispute. The ability to control other people's living situation and extract rents is not a natural right. If anything, it's an abomination.
...either bail out tenants or landlords and banks.
Not quite. This crisis will be handled just like the last one. No tenants, homeowners, or landlords will be bailed out. That they go bankrupt and have their property repossessed is the whole point of the exercise. Big lenders will get the bailout on top of the collateral.
