Welcome to Spotlight Vancouver, Washington. I
am your host, Doug Varinas, licensed real estate
agent in Washington and Oregon. Today, we're
going to talk about Washington State's new rent
control and why this is not a good thing for
Washington State for renters and investors. So
let's get right into it. Thanks for joining.
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link is in the description. So, Washington, why?
Why did you do this? I kind of get it, but I
don't think it's a good thing for the state,
and I don't think it's a good thing for renters,
and I don't think it's a good thing for investors.
And if this is the trend line we're going to
see in Washington state, we're going to lose
a lot of investment, and we're going to go downhill
a la Oregon PDX area as far as what we're seeing
there. I don't think it's a good idea, but let's
go over it. It doesn't seem completely unreasonable,
but I do not think it's a good thing overall.
Looking at overall the House Bill 1217, the rent
cap. So landlords are going to be prohibited
from increasing rent by more than 7 % plus inflation
or 10%, whichever is lower, within any 12 -month
period. And this is set for 15 years, expiring
in 2040. Yikes. Can't even overturn this or take
a look at it and the effects it's having. There's
some exemptions here. So manufactured mobile
homes, if you own your homes but rent the land,
the annual rent increases are capped at 5%. Landlords
cannot increase rent during the first 12 months
of a new tenancy. But they... landlords are able
to increase rents to market rents when a tenant
moves out. So these are primarily for existing
tenants. There are some exemptions. So new constructions
are exempt for the first 12 years after they
have built. Affordable housing is exempt. And
small owner occupied properties like duplexes,
triplexes, and fourplexes, where the owner occupies
one unit, are exempt from this. You know, overall,
this doesn't seem like the most draconian rent
increase, but I don't like the trend. I don't
like where this is going. This isn't good. And
I'm going to get into it. So I think everybody's
first reaction to this is going to be like, this
is a good thing. This is great. We need to protect
tenants from unreasonable increases in rent.
And this is an overall positive for... renters
in Washington state. Unfortunately, I don't think
this is what's going to happen. And I don't think
this is the trend overall. So I'm going to put
a link to a Freakonomics podcast where they talked
about rent control and why it's not so great.
They're going to explain it generally better
than I will. But I'm going to give you the high
level overview of why it's not really good. So
I've been a renter and I've been a landlord and
I have experienced extreme rent increases that
really weren't fair. And so when I was living
in Northwest Portland in that Knob Hill area
and a Pearl District adjacent, this was 2004
to 2007. And there was a lot of rent increases
there. There was a lot of people moving in. They
were doing a lot of renovation there. And what
they were doing basically was like jacking up
the rents 100%. in order to get people to kind
of move out because they wanted to renovate the
property to sell it or just to increase the rents.
And so, yeah, it didn't feel good to have rents
go up. It was like 100%. And so I ended up moving.
My rent was pretty cheap to begin with. So I
didn't cry too much about it. And I didn't have
a family, so I paid $400 a month for a 400 -square
-foot studio, which is a pretty sweet deal, just
me hanging out, having a good time. And then
they decided to renovate the building. They jacked
up everybody's rent. I was going to be paying
over $800 for the same place. That's never good.
And I don't want to see that happen to people.
So I want to get that out in the air. I don't
think that's a good thing to do. And I think
generally, yeah, that's wrong. And that is not
good. So I don't think anybody wants to see that.
So from the landlord's perspective, it's a business
and the rents are determined by the market, what
people are willing to pay for that. type of property,
whether it be a studio, one bedroom, two bedroom
house. And so the rent is a reflection of what
people are willing to pay in the market. And
then the rent increases typically are a product
of increases on the expense side of the owner.
So this typically takes the form of increases
in insurance premiums and property taxes and
any renovations that they might have done or
repairs they might have done. that the tenant
benefits from. But it's typically insurance and
property taxes. And so are those being capped
with this bill? No. And so that puts potentially
a disproportionate burden on the landlord to
have their margins hit by these rent caps. And
you're thinking to yourself, boo -hoo, poor landlords.
It is a business and landlords are providing
a service. And as a landlord, I appreciate my
tenants and I want them to be able to pay the
rent. So I don't have an incentive to increase
rents above market and to these extraordinary
degrees. I don't know who's doing this or what
the issue has been. I haven't heard about this
from investor friends or in the market in general
where rents are being jacked up. you know, 100%,
50%. I'm not seeing that. And I think if that
happens, that is wrong. And that's not good business
because, A, I think that if you jack up your
rents too much, you're going to lose tenants.
They're going to go someplace where it's less
expensive for an equivalent place. So I can't
just jack up rents whenever I want to for however
much I want. Like people aren't going to pay
it and I'm going to lose tenants. And anytime
I lose a tenant, I lose money because it's a
vacancy. There's nobody renting that place. And
then I need to like do some repairs to turn the
place around. Maybe I need to paint. Maybe I
need to do, you know, some repairs after a tenant
leaves. So I'm losing one month, two months worth
of rent. So I'd rather keep a tenant in place
happy with how much they're paying. some money
on the property. They enjoy living there. They
can afford it. And so these rents just don't
come out of the sky. Like I don't just decide
I want to charge this amount. And no, they're
a product of how much I have to pay to service
my loan on the property. So the principal, the
interest. the taxes and insurance. And so the
principal and the interest are pretty fixed.
Those are fixed costs with a 30 -year mortgage,
but the insurance and the taxes aren't. And especially
with the cost of borrowing money, the interest
rates are higher. And so that means investors'
monthly payments are higher, and that means the
rent is going to be higher. That's just the simple
math of property owners looking to rent out their
places. There's a misunderstanding that everybody
who has a rental property is some evil person.
I had a lot of tenants think the rent that they
pay is what I take home, which is not true. You
pay $2 ,200 a month or $2 ,400 a month. I don't
see $2 ,200 a month. I have expenses. It's not
to say I don't do well, but it's not what tenants
tend to think. It is a business. There are expenses.
What happens in rent control? And it hasn't really
worked. It's in New York. It's in San Francisco.
It's in Oregon. And what happens is that if you're
not able to recoup those expenses via rent increases
because they're capped. you're going to find
other ways to do them. And so that could look
like not including any utilities or services.
So maybe now you're going to pay garbage fees
or water fees or something that was included
in the rent. But now, because I cannot increase
the rent to cover my cost, you're just going
to pay for it, possibly increased services in
the form of utilities or garbage. The second
way I'm going to recoup that. difference is going
to be like, maybe I'm not quick to repair things.
I'm not on top of it. And that is not providing
a good service. Landlords shouldn't want to do
that. I know there's a lot of landlords out there
that do try to skimp on maintenance. It's not
uncommon. I realize that. But in general, you
want to see maintenance done on your property.
It's in your best interest as a landlord to have
your property in good shape. But if I cannot
cover my expenses, With rent increases, then
I'm going to look for other ways. Like the tenant
is still going to pay for those increase in expenses.
Whether they think they are or not, they're going
to be paying for it in some way. And that's just
that simple economics. Another thing is it discourages
investment if investors cannot get market rent
and cannot increase rents according to whatever
the market dictates. So you could see less. housing
inventory, less rental inventory, less new construction,
less people investing, people pulling out of
the state, which I definitely would consider
doing because there's other places that don't
have these rent controls where the market determines
what the rent is, and it's a little bit friendlier
for investors. So that can lower inventory, which
could actually increase rents over time, despite
The purpose of it being to keep rents capped
at a certain degree. The other thing is it could
encourage people who would normally move on to
stay in a rent controlled apartment. So I know
this happens a lot in New York where these people
have been living in these apartments for like
20 years with the same rent. And if you're younger
and looking to. looking for a place to rent or
you're moving to the city looking for a place
to rent, there's going to be less inventory because
people are just sitting in these rent controlled
apartments. And so overall, I don't think this
is a great trend for Washington. I think it tends
to lower investment. And the other side of the
coin with this is is when you get these no -cause
evictions and you're not able to evict tenants
when they're not paying rent. So have you seen
that in Portland? Or you have to pay relocation
fees. So when I owned rental property in Portland,
I couldn't get people out. There was no way to
get a tenant out, even if they weren't a good
tenant. Maybe they didn't pay the rent. They
had a lot of legal protection, and they took
advantage of that. I had tenants who definitely
took advantage of the fact that they couldn't
be evicted without a very long process. Meanwhile,
they're not paying anything. And then, so in
Portland, they had a thing where, and it's still
around, where there's no -cause evictions. So
even if the lease expires and maybe you're on
a month -to -month and you give significant notice,
like 90 days, 60 days, I still had to pay the
relocation fee for my tenants. So even with significant
notice, I had to pay, you know, it was like $3
,300. For this tenant's relocation fee, which
is just nuts, nuts. And that we're on the way
there. Like this is the trend. This is the trend
that we're seeing. And again, these are well
-meaning regulations like the rent cap. And again,
this doesn't seem. crazy, crazy, but it opens
the door to more and more investor, sort of anti
-investor legislation, which in the end is going
to lower the availability of rental houses, which
is actually going to increase rents in the long
run. Investors are going to leave. That's the
short of it. So again, are these horrible right
now? No. they don't look unreasonable. But again,
are they capping property taxes at 7 % increases?
Are they capping insurance premiums at 7 %? If
you don't have a corresponding cap on the other
expenses, you're going to hurt landlords, which
is going to force them out, which again, is going
to lower inventory, which is going to make housing
more expensive and less available for people.
So I understand the idea behind it. We don't
want to see these crazy rent increases. I can
tell you that In general, this isn't what landlords
are looking to do anyway. So I feel like this
is pandering to people who don't understand what's
going on. They don't understand the basic economics
behind renting and between landlords and tenants.
And so it's easy to tell them, like, we're going
to cap these rents and this is great and then
vote for me. But in the end, you're going to
see people, investors leave the state. And that
is not good. You want to attract people and investors
into the state so you can have more housing,
so you can have more units, which has more competition,
which conceivably will stabilize rents. And let's
be honest, rents are always going up because
expenses are always going up. That's just how
general inflationary economy works. Like everything's
getting more expensive. And I get it. It's crazy.
I don't lack empathy for people that are spending
50 % of their income or more on housing. That
is nuts because we haven't seen wages keeping
up with the cost of housing. So I don't mean
to sound like I'm coming with a lack of empathy
for renters. That's not the case. But I am providing
a service that involves certain expenses. There's
certain... There's expenses and there's, it's
a business. And so I want to provide a product
that meets the needs of my tenants. And I want
them to be able to comfortably pay a fair rent.
And I'm not looking to jack up rents that much.
And I don't know anyone who really is. Now, will
they raise rents when appropriate? Yes. That's
just part of it. And so I don't like the direction
the state is going with these more tenant -friendly
laws. I just, I don't think it's good. So I could
be, you know, let me know what your experience
is. has been, either if you're an investor or
a renter, let me know in the comments. I'd love
to hear what your experience has been, what your
thoughts are. Again, I'll put a link to that
Freakonomics episode podcast about rent control.
It's really interesting. They do a good job of
presenting both sides. And so you can check that
out. And I hope this has been helpful for you.
Take care, and I'll see you on the next episode.