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Rent Control And The Consumer Price Index

Action Alameda News received a copy of this opinion piece from Ed Hirshberg, a property owner and landlord in Alameda…

What’s CPI got to do with it?

When a new stock or bond fund is rolled out it is frequently back tested. They take a look at what would have happened if the basket of stocks or bonds had been purchased ten or twenty years earlier in an effort to predict the success of the fund.

The proposal to cap residential rents at 65% of the CPI (Consumer Price Index) can also be back tested. In 1970 our company was renting 1 bedroom apartments for $100 per month. The CPI published by the U.S. Bureau of Labor Statistics for 1970 was 38.5 using the index of 1982 to 1984 as 100.

The index now stands at 263.9, a roughly 6.9 fold increase. 65% of 6.9 is a 4.5 fold increase. Consequently rents that were $100 per month in 1970 would be about $450 per month now. This would not be enough to meet the property expenses in almost every case because actual expenses have risen much faster.

I have been asked if tenants actually stay this long, and reply that in many instances they have stayed with us 35-40 years, and that was at market rates. The greater the discount to market that the rent is, the greater the incentive for the tenant to stay.

Recent court rulings extended the right of tenancy at discounted rates to offspring who were born before the lease was signed. Making a fifty or sixty year tenancy a possibility. If you own a piece of rental property in Alameda, compare your expenses for 2005 with 2015.

You will probably see about a 50% increase in operating expenses. If you just own a house, compare your property taxes, and you will probably find that they are close to double. All of this information is quickly available in your tax returns. ARC’s proposal would impose rent control that is ruinous for investors, destructive of the housing stock, destabilize neighborhoods when landlords quit, and greatly reducing housing opportunity for renters.

Please vote NO.

— Ed Hirshberg, Alameda

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