Many local municipalities (ie Takoma Park, College Park, Maryland, New York City, San Francisco, Fort Collins, CO, etc.) put laws, policies or restrictions on property owners (investors are homeowners/property owners too) that require (under penalty of law) owners to restrict the use of their property-usually in the name of “community building” or “for the betterment of the community” or some such nonsense (Did we mention the Taking Clause of the U.S. Constitution?)  Some other “policies” include Affordable Housing and Rent Control.

Many of the restrictions ultimately hurt the community in the long run.  For example, rent control restrictions in NYC artificially keep the rents low for a certain group (or area), while causing overpriced rents for others.  Buildings never get the upgrades that market forces would demand thereby NOT employing more people (carpenters, plumbers, electricians) and ultimately putting more money in everyone’s hands (owners, contractors and YES-GOVERNMENT!)  Tenants end up living in “barely-standard” housing because the owner has no incentive to update or improve the property.

Another example is occupancy limits (Fort Collins, CO) where “no more than three (3) unrelated persons may occupy a single residence”.  If property owners CAN NOT rent a 4 (four) bedroom house to more than 3 (three) unrelated people, the maximum rent to be expected is the same amount a 3 bedroom house would fetch (about $400 per room in Fort Collins, CO).

What this means is that if you (a homeowner wanting to sell & move-up/out) have a four-bedroom house For-Sale and an investor wants to buy it, the most the investor would want to pay is somewhere about $200,000!  At today’s low interest rates and expected rents of $1,200/month (add $150/month for taxes/insurance) to avoid negative cash flow, the numbers come out to be about $200,000 (30 year note at 5% + $150/mo = $200,000…assuming 100% financing…HA!)  If the property is likely to appreciate above the cost of money (in this case 5%), the investor may be willing to pay above this price.  This is one of the reason many properties are not selling in today’s market where investors are willing to purchase, but sellers are unrealistic about price.

If property owners or investors have properties that are out of compliance with health and safety, they should be brought into compliance.  But passing laws that distort supply and demand or try to “level-the-playing-field”, ultimately cause more harm than good.

As you can see, many do-good-politicians don’t understand basic economics.  By putting bad laws into place, they really hurt everyone including those they intended to protect.

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