Monday, December 19, 2011

Rent Control

When I moved to the Los Angeles area of California in 1978, there was a lot of debate regarding current laws enacted in the Los Angeles area regarding rent control. The stated problem was that the rising rents in areas such as Santa Monica was forcing out the elderly, who were on a fixed incomes, from their apartments where they had been long-time tenets. The Government solution was to impose restrictions on how much landlords could raise the rent on apartments in these areas.

My thoughts were:

1. The law was not fair. The politicians, on behalf of the citizens of Los Angeles, decided that the elderly should not be pushed out of their apartments; however, the landlords were going to bear the cost (i.e., lost rents they could have received without the restrictions).

2. The law was overly broad. As stated, the law was intended to assist the elderly on fixed-income that could not afford the rising rental rates and had been renters for a long-time. However, the law applied to ALL renters whether elderly or not; whether they could afford the rents or not; and whether or not they had been long-time tenets.

3. Other solutions would achieve the objectives of the law without the problems stated above. For example, the city could have subsidized the qualified elderly or the city could have provided a tax break to landlords that froze the rents for the qualified elderly.

The law had many unintended consequences. For example,

· A landlord that just bought the building could reset the rental rates. Landlords sold their properties. The law was changed to plug this loophole.

· Landlords converted their properties to condominiums. The law was changed so that a majority of the renters had to vote in favor of the conversion.

· Landlords cut back on maintenance to save costs. The law was modified to force the landlord to keep up the maintenance. Later the law was modified so that this cost could be passed on to the renter in the form of higher rents.

· Current renters sublet to other renters off the books for the current market value of the rents. The landlord did not receive any of this additional rent. The law did not address this situation.

In all the above, the city had essentially appropriated part of the landlords property without compensation for the lost revenue or value. What is most disturbing is that rent control had been tried before in other areas (e.g., New York City) with disastrous results (e.g., landlords abandoned the properties or went into bankruptcy).

For many years, I thought that the politicians were just ignorant fools. With other better solutions available and with a history of failure, why would they implement such a law? After many years, I concluded that they politicians were not ignorant. They had implemented a law that achieved exactly what they wanted. Because of this law, renters would vote for them. The politicians had bought the vote of the renters using the law.

Sunday, December 18, 2011

Paying A Fair Share

When I think of about the phrase “Paying Your Fair Share,” I think about going to a restaurant with a bunch of friends. Paying my fair share would mean that I pay for what food and drink I consumed, the taxes on that food and drink and a proportional share of the tip. However, this is often too complicated and doesn’t make much overall difference. Instead, we just split the bill by the number of people. The person who had the more costly meal benefits at the expense of someone that had a less expense meal. Over time these differences tend to even out.

When someone says the “rich” should “Pay Their Fair Share of Federal Taxes,” I get confused. If I equate my thoughts on paying a fair share of the restaurant bill, the rich should pay for the Federal services they consume, but they don’t consume large portions of the Federal spending, for example welfare.

I could consider that fair means an equal share. In this case each American citizen should pay roughly $11,000 per year. Obviously in both of these cases, the “rich” as a whole pay much more. There must be another way to look at what is fair.

Perhaps everyone should pay the same percentage of their income. This approach departs widely from my simple minded restaurant approach. The rich under this plan would pay way more than an equal share. How can this be rationalized as “fair?” Even this approach does not appear to be what many propose. They want to determine what is “fair” as suits them.

Imagine if my friends took this approach to paying the restaurant bill. The majority of us would determine who we considered rich and how much they should pay. I wonder how long it would take for these “rich” friends to either find a way to get themselves reclassified or find some new friends. I wonder how much longer it will take “rich” Americans a more friendly country.