WEBVTT

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Welcome to Spotlight Vancouver, Washington. I

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am your host, Doug Varinas, licensed real estate

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agent in Washington and Oregon. Today, we're

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going to talk about Washington State's new rent

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control and why this is not a good thing for

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Washington State for renters and investors. So

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let's get right into it. Thanks for joining.

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If you like what you're hearing. Hit the subscribe

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in the Vancouver area or PDX, let's set up a

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can answer all your questions and we can figure

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out if we're a good match to work together. The

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link is in the description. So, Washington, why?

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Why did you do this? I kind of get it, but I

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don't think it's a good thing for the state,

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and I don't think it's a good thing for renters,

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and I don't think it's a good thing for investors.

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And if this is the trend line we're going to

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see in Washington state, we're going to lose

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a lot of investment, and we're going to go downhill

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a la Oregon PDX area as far as what we're seeing

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there. I don't think it's a good idea, but let's

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go over it. It doesn't seem completely unreasonable,

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but I do not think it's a good thing overall.

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Looking at overall the House Bill 1217, the rent

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cap. So landlords are going to be prohibited

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from increasing rent by more than 7 % plus inflation

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or 10%, whichever is lower, within any 12 -month

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period. And this is set for 15 years, expiring

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in 2040. Yikes. Can't even overturn this or take

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a look at it and the effects it's having. There's

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some exemptions here. So manufactured mobile

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homes, if you own your homes but rent the land,

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the annual rent increases are capped at 5%. Landlords

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cannot increase rent during the first 12 months

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of a new tenancy. But they... landlords are able

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to increase rents to market rents when a tenant

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moves out. So these are primarily for existing

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tenants. There are some exemptions. So new constructions

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are exempt for the first 12 years after they

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have built. Affordable housing is exempt. And

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small owner occupied properties like duplexes,

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triplexes, and fourplexes, where the owner occupies

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one unit, are exempt from this. You know, overall,

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this doesn't seem like the most draconian rent

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increase, but I don't like the trend. I don't

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like where this is going. This isn't good. And

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I'm going to get into it. So I think everybody's

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first reaction to this is going to be like, this

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is a good thing. This is great. We need to protect

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tenants from unreasonable increases in rent.

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And this is an overall positive for... renters

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in Washington state. Unfortunately, I don't think

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this is what's going to happen. And I don't think

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this is the trend overall. So I'm going to put

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a link to a Freakonomics podcast where they talked

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about rent control and why it's not so great.

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They're going to explain it generally better

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than I will. But I'm going to give you the high

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level overview of why it's not really good. So

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I've been a renter and I've been a landlord and

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I have experienced extreme rent increases that

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really weren't fair. And so when I was living

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in Northwest Portland in that Knob Hill area

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and a Pearl District adjacent, this was 2004

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to 2007. And there was a lot of rent increases

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there. There was a lot of people moving in. They

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were doing a lot of renovation there. And what

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they were doing basically was like jacking up

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the rents 100%. in order to get people to kind

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of move out because they wanted to renovate the

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property to sell it or just to increase the rents.

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And so, yeah, it didn't feel good to have rents

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go up. It was like 100%. And so I ended up moving.

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My rent was pretty cheap to begin with. So I

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didn't cry too much about it. And I didn't have

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a family, so I paid $400 a month for a 400 -square

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-foot studio, which is a pretty sweet deal, just

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me hanging out, having a good time. And then

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they decided to renovate the building. They jacked

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up everybody's rent. I was going to be paying

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over $800 for the same place. That's never good.

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And I don't want to see that happen to people.

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So I want to get that out in the air. I don't

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think that's a good thing to do. And I think

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generally, yeah, that's wrong. And that is not

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good. So I don't think anybody wants to see that.

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So from the landlord's perspective, it's a business

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and the rents are determined by the market, what

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people are willing to pay for that. type of property,

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whether it be a studio, one bedroom, two bedroom

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house. And so the rent is a reflection of what

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people are willing to pay in the market. And

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then the rent increases typically are a product

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of increases on the expense side of the owner.

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So this typically takes the form of increases

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in insurance premiums and property taxes and

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any renovations that they might have done or

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repairs they might have done. that the tenant

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benefits from. But it's typically insurance and

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property taxes. And so are those being capped

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with this bill? No. And so that puts potentially

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a disproportionate burden on the landlord to

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have their margins hit by these rent caps. And

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you're thinking to yourself, boo -hoo, poor landlords.

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It is a business and landlords are providing

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a service. And as a landlord, I appreciate my

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tenants and I want them to be able to pay the

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rent. So I don't have an incentive to increase

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rents above market and to these extraordinary

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degrees. I don't know who's doing this or what

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the issue has been. I haven't heard about this

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from investor friends or in the market in general

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where rents are being jacked up. you know, 100%,

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50%. I'm not seeing that. And I think if that

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happens, that is wrong. And that's not good business

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because, A, I think that if you jack up your

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rents too much, you're going to lose tenants.

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They're going to go someplace where it's less

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expensive for an equivalent place. So I can't

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just jack up rents whenever I want to for however

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much I want. Like people aren't going to pay

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it and I'm going to lose tenants. And anytime

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I lose a tenant, I lose money because it's a

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vacancy. There's nobody renting that place. And

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then I need to like do some repairs to turn the

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place around. Maybe I need to paint. Maybe I

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need to do, you know, some repairs after a tenant

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leaves. So I'm losing one month, two months worth

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of rent. So I'd rather keep a tenant in place

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happy with how much they're paying. some money

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on the property. They enjoy living there. They

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can afford it. And so these rents just don't

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come out of the sky. Like I don't just decide

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I want to charge this amount. And no, they're

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a product of how much I have to pay to service

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my loan on the property. So the principal, the

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interest. the taxes and insurance. And so the

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principal and the interest are pretty fixed.

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Those are fixed costs with a 30 -year mortgage,

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but the insurance and the taxes aren't. And especially

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with the cost of borrowing money, the interest

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rates are higher. And so that means investors'

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monthly payments are higher, and that means the

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rent is going to be higher. That's just the simple

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math of property owners looking to rent out their

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places. There's a misunderstanding that everybody

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who has a rental property is some evil person.

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I had a lot of tenants think the rent that they

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pay is what I take home, which is not true. You

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pay $2 ,200 a month or $2 ,400 a month. I don't

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see $2 ,200 a month. I have expenses. It's not

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to say I don't do well, but it's not what tenants

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tend to think. It is a business. There are expenses.

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What happens in rent control? And it hasn't really

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worked. It's in New York. It's in San Francisco.

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It's in Oregon. And what happens is that if you're

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not able to recoup those expenses via rent increases

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because they're capped. you're going to find

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other ways to do them. And so that could look

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like not including any utilities or services.

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So maybe now you're going to pay garbage fees

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or water fees or something that was included

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in the rent. But now, because I cannot increase

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the rent to cover my cost, you're just going

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to pay for it, possibly increased services in

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the form of utilities or garbage. The second

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way I'm going to recoup that. difference is going

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to be like, maybe I'm not quick to repair things.

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I'm not on top of it. And that is not providing

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a good service. Landlords shouldn't want to do

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that. I know there's a lot of landlords out there

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that do try to skimp on maintenance. It's not

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uncommon. I realize that. But in general, you

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want to see maintenance done on your property.

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It's in your best interest as a landlord to have

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your property in good shape. But if I cannot

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cover my expenses, With rent increases, then

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I'm going to look for other ways. Like the tenant

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is still going to pay for those increase in expenses.

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Whether they think they are or not, they're going

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to be paying for it in some way. And that's just

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that simple economics. Another thing is it discourages

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investment if investors cannot get market rent

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and cannot increase rents according to whatever

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the market dictates. So you could see less. housing

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inventory, less rental inventory, less new construction,

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less people investing, people pulling out of

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the state, which I definitely would consider

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doing because there's other places that don't

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have these rent controls where the market determines

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what the rent is, and it's a little bit friendlier

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for investors. So that can lower inventory, which

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could actually increase rents over time, despite

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The purpose of it being to keep rents capped

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at a certain degree. The other thing is it could

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encourage people who would normally move on to

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stay in a rent controlled apartment. So I know

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this happens a lot in New York where these people

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have been living in these apartments for like

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20 years with the same rent. And if you're younger

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and looking to. looking for a place to rent or

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you're moving to the city looking for a place

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to rent, there's going to be less inventory because

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people are just sitting in these rent controlled

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apartments. And so overall, I don't think this

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is a great trend for Washington. I think it tends

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to lower investment. And the other side of the

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coin with this is is when you get these no -cause

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evictions and you're not able to evict tenants

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when they're not paying rent. So have you seen

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that in Portland? Or you have to pay relocation

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fees. So when I owned rental property in Portland,

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I couldn't get people out. There was no way to

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get a tenant out, even if they weren't a good

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tenant. Maybe they didn't pay the rent. They

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had a lot of legal protection, and they took

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advantage of that. I had tenants who definitely

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took advantage of the fact that they couldn't

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be evicted without a very long process. Meanwhile,

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they're not paying anything. And then, so in

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Portland, they had a thing where, and it's still

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around, where there's no -cause evictions. So

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even if the lease expires and maybe you're on

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a month -to -month and you give significant notice,

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like 90 days, 60 days, I still had to pay the

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relocation fee for my tenants. So even with significant

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notice, I had to pay, you know, it was like $3

00:12:50.620 --> 00:12:55.720
,300. For this tenant's relocation fee, which

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is just nuts, nuts. And that we're on the way

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there. Like this is the trend. This is the trend

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that we're seeing. And again, these are well

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-meaning regulations like the rent cap. And again,

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this doesn't seem. crazy, crazy, but it opens

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the door to more and more investor, sort of anti

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-investor legislation, which in the end is going

00:13:21.350 --> 00:13:26.629
to lower the availability of rental houses, which

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is actually going to increase rents in the long

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run. Investors are going to leave. That's the

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short of it. So again, are these horrible right

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now? No. they don't look unreasonable. But again,

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are they capping property taxes at 7 % increases?

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Are they capping insurance premiums at 7 %? If

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you don't have a corresponding cap on the other

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expenses, you're going to hurt landlords, which

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is going to force them out, which again, is going

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to lower inventory, which is going to make housing

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more expensive and less available for people.

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So I understand the idea behind it. We don't

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want to see these crazy rent increases. I can

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tell you that In general, this isn't what landlords

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are looking to do anyway. So I feel like this

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is pandering to people who don't understand what's

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going on. They don't understand the basic economics

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behind renting and between landlords and tenants.

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And so it's easy to tell them, like, we're going

00:14:29.139 --> 00:14:31.440
to cap these rents and this is great and then

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vote for me. But in the end, you're going to

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see people, investors leave the state. And that

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is not good. You want to attract people and investors

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into the state so you can have more housing,

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so you can have more units, which has more competition,

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which conceivably will stabilize rents. And let's

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be honest, rents are always going up because

00:14:52.980 --> 00:14:55.700
expenses are always going up. That's just how

00:14:55.700 --> 00:14:59.700
general inflationary economy works. Like everything's

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getting more expensive. And I get it. It's crazy.

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I don't lack empathy for people that are spending

00:15:06.750 --> 00:15:10.809
50 % of their income or more on housing. That

00:15:10.809 --> 00:15:13.029
is nuts because we haven't seen wages keeping

00:15:13.029 --> 00:15:15.450
up with the cost of housing. So I don't mean

00:15:15.450 --> 00:15:18.470
to sound like I'm coming with a lack of empathy

00:15:18.470 --> 00:15:23.730
for renters. That's not the case. But I am providing

00:15:23.730 --> 00:15:27.970
a service that involves certain expenses. There's

00:15:27.970 --> 00:15:32.669
certain... There's expenses and there's, it's

00:15:32.669 --> 00:15:35.409
a business. And so I want to provide a product

00:15:35.409 --> 00:15:40.600
that meets the needs of my tenants. And I want

00:15:40.600 --> 00:15:43.500
them to be able to comfortably pay a fair rent.

00:15:43.840 --> 00:15:46.679
And I'm not looking to jack up rents that much.

00:15:46.740 --> 00:15:49.320
And I don't know anyone who really is. Now, will

00:15:49.320 --> 00:15:52.919
they raise rents when appropriate? Yes. That's

00:15:52.919 --> 00:15:57.080
just part of it. And so I don't like the direction

00:15:57.080 --> 00:16:00.580
the state is going with these more tenant -friendly

00:16:00.580 --> 00:16:04.679
laws. I just, I don't think it's good. So I could

00:16:04.679 --> 00:16:06.559
be, you know, let me know what your experience

00:16:06.559 --> 00:16:09.440
is. has been, either if you're an investor or

00:16:09.440 --> 00:16:11.639
a renter, let me know in the comments. I'd love

00:16:11.639 --> 00:16:13.580
to hear what your experience has been, what your

00:16:13.580 --> 00:16:15.940
thoughts are. Again, I'll put a link to that

00:16:15.940 --> 00:16:19.559
Freakonomics episode podcast about rent control.

00:16:20.059 --> 00:16:22.139
It's really interesting. They do a good job of

00:16:22.139 --> 00:16:25.360
presenting both sides. And so you can check that

00:16:25.360 --> 00:16:27.440
out. And I hope this has been helpful for you.

00:16:27.940 --> 00:16:29.720
Take care, and I'll see you on the next episode.