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Thursday, November 28, 2013

SALLY MORRIS: CONTROL THE URGE TO CONTROL

Recently Grand Forks passed an ordinance outlawing refusal of a landlord to rent to “gay” couples.  Also recently, a lady was heard on talk radio championing the idea of imposing rent controls to combat what she and others saw as gouging by greedy landlords taking advantage of the current housing shortage, especially in the Williston area.  If you really want to open up choices for the “gay” couples in a community . . . or if you just want across-the-boards reduction in rent rates, I would say you have really shot yourself in the foot with both of the above. 

I have been both a tenant and a landlord at different times and there is more common cause than you might think.  Truly, what is good for the landlord IS good for the tenant.  Or at least the honest tenant.  Some years ago, before the famous flood of ’97, we owned and managed residential income property.  We owned single-family properties.  It was a very modest portfolio – two 2-bedroom houses, one 3-bedroom house and two mobile homes, one 2-bedroom, one 3-bedroom.  We were engaged in locating more suitable properties all the time, but starting from absolute ground zero, we were succeeding wonderfully with our goals. 

It was necessary for us to buy very wisely in order to keep rents reasonable and provide excellent housing.  We had looked at enough terrible, depressing, run-down units – we knew we wanted the other kind.  And the kind of tenant who would demand the other kind.   The formula we used was to buy at a low price, repair, reburbish, etc., screen applicants carefully as to credit and ability to pay rent, keep rents just below the top rate for the kind and location of the property and NEVER raise rents during a tenancy.  Oh,  when we could we provided little extras like pumpkins at Halloween, turkeys for Thanksgiving, fruit at Christmas.  We bought a little birdbath for one tenant - she was thrilled.  You might say that our tenants were very lucky and very happy.  Most stayed an average of two years.  We broke some “rules”, like not owning 2-bedroom homes.  Our 2-bedroom homes made us a lot of money and provided first-class housing for tenants.  We always ended with better properties than we started with.   It was not the fast track to quick cash; it was intended as a long-term commitment to our family, our tenants and our community.

As a landlord, or at least a former landlord, I can tell you that had there been “rent controls” we would not have gotten involved in the business.  If the city had stepped in to tell us to whom we were allowed to rent our properties, we would have stayed out of it. 

There is a folklore image of the landlord as a villain in a black cape and a bent stovepipe hat, twirling a sinister handlebar moustache and contemplating tying the golden-haired damsel to the railroad tracks after throwing her widowed mother out in the cold.  The truth is that a landlord, whatever his personality, is an investor in a business.  It’s a business open to anyone.  Perhaps the lady who’s screaming for rent controls should become one of the “greedy” landlords herself.  If we could start and do it with ABSOLUTELY NOTHING, I’d bet she could too.  If she did she would learn that it is her time, her credit, her money, her labor and her mental energy and planning, her bookkeeping, her advertising, her taxpaying, her screening of tenants, her risk.  It is not the city of Williston’s, nor the county’s, nor the state’s.

As a landlord, I would probably have had no barriers with regard to “gay” couples, provided they met other conditions such as credit rating and employment or other means of livelihood.  If they had no red flags I would have rented to them.  It would not be any of my business, however, if someone whose religious convictions, conscience or whatever, caused him to avoid renting to a “gay” couple.  It might improve my position by narrowing the market possibly, but after all, the market is the only “blind” partner in any business.  If there is a need the market will ensure that it is filled

There seems to be a need in the Williston area.  Why?  The market is there.  Or the need part of the market.  What, we must ask ourselves, would encourage the fulfillment of the need?  How do we encourage more people to invest in residential income property in Williston, in Grand Forks, in North Dakota?  I have said previously that it is the investor’s money and other assets at risk in developing or building housing.  It is not Williston’s.  Providing that decent standards are met, there should be no limit or cap on rent rates – if what you want is to expand the options for tenants.  There are always some landlords who take advantage, but that is a short-sighted, short-term advantage at best.  In the long term, the more attractive the investment, the more interest there will be in making that choice.

If people get out of the residential property business because they feel their control of their own business is compromised, the choices for renters diminishes.  What would make you get in or get out of renting to tenants?  When a landlord makes greedy or irrational choices he risks losing his customers, the tenants.  If the climate is excellent for investors, the tenants will enjoy a wide spectrum of options.  It is when the market is shut down that he feels the pain.  The would-be landlord won’t be hurting – he’ll just invest in one of the myriad other possible choices – precious metals,  a manufacturing business, a restaurant, a store, stocks, commodities.  The tenant, on the other hand, is sunk.  He’s left competing for a diminishing stock of homes that are livable.

Those “gay” couples would have more choice in housing if Grand Forks dropped the arm-twisting of landlords and let the market do its work.  If  those  who object to renting to them stay in the business, they’ll rent to others.  Those others won’t be competing for the home the “gay” couple wants.  This will keep rents at a realistic level and keep enough homes available to fill the need.  Whenever the need is left unfilled we must look for the real reason.  And you can take this to the bank:  if you impose rent controls you will NOT encourage availability of more rental homes, but rather, fewer.

Years ago we looked for an apartment in Winnipeg.  They were scarce and most were in depressing disrepair, abused by former tenants and not well-maintained, for the most part.  Houses on the other hand were mostly inexpensive and plentiful at the time.  Why?  Because the city’s rent controls and policies were so discouraging to landlords.  You could hardly ever get rid of a bad/non-paying tenant for that or any other cause.  You could not charge a “going rate” of rent – it was capped.  The laws were so discouraging that those in the business just wanted out.  So properties glutted the market, those still rented were subject to much deferred maintenance and disrepair.  Tenants were hostile and complaining, landlords were desperate to check out.  This, in short, was a very unhealthy public policy.

Here is my formula for long-term housing balance:  1. Quit trying to micromanage through public agency the business of the property owner and let the market set the rent rates. 2. Aside from requiring sanitary and safe conditions, don’t let the public entity tell landlords what to provide or not to provide.  3. Find any way possible to make this a good investment for anyone who has the desire to make it.  That means get out of the way and let him succeed.  4. Don’t tell him to whom he must rent, nor encourage it by public policies designed to favor one group over another.  Let the market provide for this.  5. Insist on another vote on property tax.  Abolishing this would do many good things for our communities.  It would strongly encourage investment in real estate.  One of the best reasons for getting rid of this tax is that it would place real property in the same favorable category as other assets – one could pay it off and actually OWN it!  As things stand right now, what we call “ownership” of property is really only another form of tenancy.  The “owner” will NEVER be secure in his investment because any day he can’t pay the “rent” due the county or city, he has lost it, as surely as if it had been foreclosed for failure to pay the mortgage.  And never forget this:  the renter must pay this tax, not the landlord!  This is a tax on renters.

An owner can have paid for his land and house as much as 30 years or more ago, and lose it for failure to pay this property tax – hardly a business incentive.  The real owner of all real estate in North Dakota is the county or city to whom the ersatz “owner” must pay tax.  Do you own your land?  No.  The county and/or the city in which it is located owns it.  You just rent it.  You can only sublet your housing units.  In addition to the underlying wrong of this, it is obviously an expense and another deterrent to investment.  If we want to market the state of North Dakota as a wonderful place to invest in housing development, make that an attractive investment, and no cheap tricks, like temporary waiving of taxes.  No “rent controls”, no overbearing public policy or ordinances to curb responsible landlords from exercising their right of disposal of their own property.  This is how you “control” rents.  Unfortunately, too many of us have a knee-jerk reaction:  “there ought to be a law” , “we need someone to control the prices”, etc.  Government is not the answer to all of life’s issues.  We can’t expect government to do this as well as we can do it ourselves. 

To the woman who was carping on the radio about “rent controls”, I say, read up.  Take a course if you need to.  Become a landlord yourself.  It will open your eyes to the factors which would bring those rents down and at the same time make you a good living.  Don’t run to your city council and harangue them into imposing artificial caps on rent, unless you have a secret desire to diminish the options for renters and drive responsible businessmen out of the field. Abuse of tenants cannot thrive in a climate of free competition any more than darkness can survive in the light.

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