HERE’S WHY STATEWIDE RENT CONTROL IN CALIFORNIA IS BAD NEWS FOR THE POOR.

The California state legislature just passed statewide rent control. It goes into effect January 1, 2020. If you want to know what’s the problem with rent control, just take Econ. 101 at Cal. Whenever there is a shortage of a commodity, the price of that commodity will go up. (That’s in ‘Microeconomic Theory’,  the Econ. 101 textbook.) When the government fixes the price of a commodity, including rental housing, at a price that is below the market rate, it creates a shortage and make an existing shortage worse. (That’s also in ‘Microeconomic Theory.’) The truth is that it is hard to find a noted economist anywhere who supports rent control, even here in Berkeley.

Why is the rent in California so damn high? We have a huge rental housing shortage in California, and it is getting worse every year. In 1970, the population of California was 20 million. Today, it is 40 million. In 1945, the population of California was only 8 million. That means that for every 1 person who lived in California in 1945, there are now 5 people living here. Up until the 1960s, new apartment construction kept up with population growth, but then a gap started developing, and the resulting shortage has grown with time. This happened for a long list of reasons: the NIMBY movement ‘Not In My Back Yard’ started here. I know people who are perfectly willing to concede that we need to build a lot more housing, but they just don’t want that housing built near them. We also have high permit fees, restrictive zoning regulations, historic landmarking, environmental laws – including greenhouse gas emission restrictions, and lawsuits – lots and lots of lawsuits. And now we have to add to that list statewide rent control.

We need to build 200,000 new housing units in California every year just to keep up with population growth, but we are building less than 100,000 units a year, and this has been going on for over 20 years. Here in the Bay Area, the shortage is even worse. In San Mateo County, the heart of Silicon Valley, for every 4 jobs created over the past 10 years, 1 housing unit was built. It is this gap between supply and demand for housing in California that explains why house prices and rents are so high. We need to build a lot more rental housing in California, but who is going to build that housing and where will the money come from to build it? Rent control is not an incentive to build rental housing. It is a disincentive.

I have been expecting statewide rent control for a long time. It’s the reason why I never bought an apartment house. I prefer to rent houses and condos, which are exempt from rent control. I once owned a 3 unit property in Oakland, but I converted it to condos. Now that we have statewide rent control, I expect that a lot of apartment house owners across the state will convert buildings to condos and then sell them to owner-occupants, but that will just make the rental housing shortage even worse.


What happens to the poor? Statewide rent control in California is especially bad news for the poor. Whenever there is a shortage of a commodity that everybody wants, like housing, who gets it? Do the poor really get an equal shot at it with the rich? Suppose a landlord has an apartment for rent, and he receives 10 or 20 applications for it. Who is he going to rent to? How will he choose among the many people who want it? Will he rent this apartment to a wealthy applicant who can easily afford to pay the rent, or will he rent the apartment to a much poorer applicant, someone who can pay the rent, but only with difficulty? You know the answers to these questions. Whenever there is a shortage of something that everybody wants, it is the rich who get it first, and the poor who get it last, if they get any at all. Throughout the history of the world, this has never changed. You may not like that, but it’s the way things are.


Trump’s Trade War With China Is Making Things Worse. The California Building Industry Association estimates that President Trump’s tariffs on Chinese imports have increased the cost of building a new home in California by $30,000, a figure that they expect will rise. The National Association of Home Builders agrees, pointing out that over 500 types of products commonly used in housing construction are imported from China, including appliances, lighting, countertops, cabinets, tiles, nails, and laminates. The price of some lines of Chinese kitchen and bathroom cabinets has doubled since the trade war began. Needless to say, these costs are ultimately passed along to the people who live in newly constructed houses and apartments.

AM I A LANDLORD?

The Berkeley city council voted unanimously last week to ban gender-specific words. That means that words like ‘landlord’ and ‘landlady’ are out. So – what am I supposed to call myself? Should I call myself a ‘landperson’? To me, ‘landperson’ sounds like a person who lives on the land, as opposed to a person who lives in the sea, like Aquaman. I suppose we can’t say Aquaman either in Berkeley. ‘Aquaman’ is gender-specific. I guess he’s now ‘Aquaperson.’ I asked an aide to a councilmember what city employees intend to call landlords now. He said ‘property owners.’ I told him that ‘property owner’ and ‘landlord’ do not mean the same thing. Most property owners in Berkeley are homeowners, not landlords. He said he knew that; however, a lot of the new words the council approved do not mean the same thing as the words they replaced. For example, according to the new law, a ‘sportsman’ is now to be called a ‘hunter’ in Berkeley, but those 2 words don’t mean the same thing. You don’t have to kill something in order to be a sportsman. A yachtsman is a sportsman. So is a professional soccer player. In most European languages, the word for ‘landlord’ doesn’t carry the emotional baggage of the word ‘landlord’, which sounds sinister and arrogant. You know, we aren’t actually ‘lords of the land.’ In most Latin-based languages, the word for ‘landlord’ means ‘proprietor.’ In French, the word for landlord is ‘propriétaire.’ That sounds far nicer than ‘landlord.’ In German, the word is Vermieter, which means ‘he who rents’. That also sounds nicer than ‘landlord.’ So back to my original question –  what am I supposed to call myself now?

$225 PARKING TICKETS IN BERKELEY.

A ticket for illegal parking within 10 blocks of Cal stadium on football game days will now cost $225. These tickets used to cost $98, but I think this big increase is understandable. Cal students who live near the stadium have been charging people $100 to park in their driveways and on their lawns on game days. A lot of people coming to Cal games have been intentionally parking illegally on the street in 1-hour zones and at meters that they know will expire long before they return to their cars. They figure that a $98 parking ticket costs about the same as parking in somebody’s driveway, so why not? That’s why I say this big increase is understandable. Parking tickets should discourage illegal parking.

The Fraternities.
My guess is that this big increase in the cost of game day parking tickets will have the full support of Berkeley’s fraternities. All of Berkeley’s frat houses are within a few blocks of the stadium. On the night before football games, the guys in the frat houses park their cars on streets outside the restricted zone. Then on game day they charge $100 to park at their frat houses, and some of the frat houses have a lot of parking spaces. Now that illegal street parking is going to cost $225, the fraternities will be able to charge more than $100 to park on game days, perhaps a lot more.

LANDLORDS DO NOT HAVE X-RAY VISION LIKE SUPERMAN.

Once a year, I conduct a safety inspection of my Berkeley rentals and fill out a form, Schedule A, as required by the city of Berkeley. Below is an article that I recently wrote for the Berkeley landlord association newsletter regarding this form:

When I fill out the Berkeley Rental Housing Safety Inspection Program Schedule A, I would like to answer several questions with: “I don’t know. In order to answer this question, I would need the ability to see through walls, and I can’t do that.” There are a number of questions on Schedule A like that. For example, one question asks landlords if the wiring inside the walls of an apartment is greater (thicker) than 14 gauge. Well, undersized wiring is dangerous, but without the ability to see through walls, I have no way of knowing if there are undersized wires inside the walls of my rentals. I have good vision, but I can’t through walls. There are several other questions on this form like that. There is a question in the plumbing section that asks landlords if there are any vent pipes that terminate inside the walls of an apartment. Well, vent pipes that terminate inside walls is quite common in older buildings, and it can be dangerous, but without the ability to see through walls, I have no way of knowing for sure where the vent pipes go. I could guess, but the city isn’t asking me for my best guess. This form gives landlords only 2 ways of answering questions. A landlord can answer the questions with either ‘verified’ or ‘not applicable.’ There is no place on this form for landlords to answer questions with ‘don’t know’ or ‘unable to determine.’ Now before you laugh at this, remember – we landlords have to answer these questions and sign this form under penalty of perjury! I attended the meetings at which this form was originally put together, and I raised this issue then, but I was ignored. I keep hoping that someday the city of Berkeley will revise this form and eliminate questions that require landlords to have x-ray vision in order to answer them, but that never happens. It never seems to occur to the people who run this program that landlords cannot see through walls like Superman.


HALF PRICE SALE ON MISSPELLED U.C. BERKELEY MERCHANDISE.

This morning, I went into a big store on Shattuck Avenue downtown that just sells licensed U.C. Berkeley merchandise. Next to the cash register was a table advertising half-off on all misspelled U.C. Berkeley merchandise. That caught my eye. At first, I thought this was a joke, but it wasn’t. I looked at the stuff in the display rack, and sure enough, everything was misspelled! See the photo below. The most surprising thing about this stuff is that it was all licensed by the university! This store doesn’t sell unlicensed knockoffs. However, even at half price, is this stuff really a bargain? Would you really want to walk around campus wearing a t-shirt that says ‘U.C. BERKLEY’ on it?
 
Johns Hopkins. At the Ashby BART flea market, there is a vendor that sells unlicensed baseball caps with ‘John Hopkins’ embroidered on them. I’m from Baltimore, and in Baltimore, spelling Johns Hopkins ‘John Hopkins’ is a very big No-No.
 
Miami University. I also saw a t-shirt for sale at the Ashby flea market with the Miami University logo on it, with a palm tree on one side of the logo and an alligator on the other side. Miami University is located in Ohio just north of Cincinnati. Although I’ve never been there, I am pretty sure that there are no palm trees in Cincinnati. Miami University is often confused with the University of Miami, which is in Florida, where they have lots of palm trees and alligators. They have alligators in Cincinnati too, but they are all in the city zoo, unlike southern Florida; where people often find alligators in their swimming pools. I don’t believe people find alligators in their swimming pools in Cincinnati. (I’ll have to confirm that with my relatives in Cincinnati.)

NEW GRADUATE STUDENT HOUSING COMES TO MY NEIGHBORHOOD.

The apartment house at 2711 Shattuck Avenue is nearing completion and will be ready for occupancy soon. The entire building has been rented to the university, which will sublease individual units to individual graduate students. The apartments are all 310 square feet, which is very small. These apartments were built in China and arrived at the Port of Oakland in standard 8′ x 40′ shipping containers. The apartments came fully furnished and ready to move in. Each studio apartment will rent for $2180 a month and are all single occupancy (one student per apartment). This apartment house has no amenities aside from a coin-operated laundry room on each floor. There is no lobby, no yard, and no elevator. That means that if you live on the 4th floor of this building and have 4 or 5 bags of groceries, you have to shlep them up 4 flights of stairs as best you can. There is only one parking space (that’s not one parking space per unit. It’s one parking space for the whole building.) Pre-fab apartments from China are popping up in San Francisco and more are planned for Berkeley. Try to imagine what it would be like to live in an apartment that is only 8 feet wide.

BEDROOM INFLATION.

The single most important factor in determining the market rent of an apartment is the number of bedrooms. People will pay additional rent for additional bedrooms, but little else. An apartment with a separate dining room will rent for the same amount as an apartment without a dining room. Therefore, landlords always try to maximize the number of bedrooms in an apartment that they are getting ready to rent. Sometimes, that isn’t hard to do. With just a little remodeling, like moving a wall or adding a door, a dining room can become a perfectly acceptable bedroom. (I’ve done that myself.) On the other hand, landlords sometimes call rooms ‘bedrooms’ that is just plain fraud.  ‘Bedroom inflation’ is a term I created to describe the practice of inflating the number of bedrooms in a Craigslist apartment listing. Some landlords think that if you can put a bed in a room, then you can call it a bedroom, but that isn’t true. There are laws that define the minimum standards for a bedroom. Take a look at this listing photo. The owner of this apartment counted this room as one of the bedrooms in his listing. It is, in fact, just a walk-in closet. Yes, it is a room, and the landlord has put a bed in it, but that doesn’t make it a bedroom. I tell landlords not to engage in this sort of deception. This isn’t going to fool anyone. Nobody is really going to think that this walk-in closet is actually a bedroom just because there’s a bed in it. This is just going to make prospective tenants angry. Everybody hates the feeling that someone is trying to play him for a sucker. The most common form of bedroom inflation is counting a living room as a bedroom. Because of the high rent and housing shortage here in Berkeley, a growing number of college students are sleeping on living room couches. However, just because somebody is sleeping on a futon in a living room doesn’t make that room a bedroom. A living room with somebody sleeping in it is still a living room. I always advise landlords to tell the truth. Its OK for a landlord to brag about the features in his apartment that will make it look more desirable to prospective tenants. I do that. All rational landlords do that. But that’s different than lying or trying to play prospective tenants for suckers. (As you can tell, bedroom inflation is one of my pet peeves.)

32 MARIJUANA STORES IN BERKELEY?

I have long believed that in order to get elected to public office Berkeley, you have to have delusions of grandeur. The Berkeley city council is now considering how many marijuana stores to license. Most council mayors, including the mayor, support capping the number at 32, but that is opposed by the Berkeley Cannabis Commission, which wants a much higher number on the grounds that limiting the number of marijuana stores in Berkeley to 32 would ‘stifle innovation.” To put this into perspective, Berkeley has 1 Trader Joe’s, 2 Target stores, 3 Safeways, 6 Starbucks, 6 Walgreens, and 11 ice cream and frozen yogurt stores. All these stores added together still doesn’t get you up to 32. The idea of 32 marijuana stores in a city the size of Berkeley is insane.

Executing Drug Dealers? On the other side of drug madness, President Trump is proposing executing drug dealers, citing southeast Asian countries, where such executions are common. Trump isn’t the only politician advocating executing drug dealers, but this idea overlooks the fact that most Americans who are addicted to opiates don’t get their drugs on the black market.  In movies and TV shows, addicts usually get their drugs from sleazy criminals working for the Mafia or a Mexican drug cartel, but the reality is that most opioid addicts in the United States get their drugs at Walgreens or CVS with prescriptions. Unfortunately, there are a lot of doctors and dentists in this country who dole out prescriptions for opiates like they were Tic Tacs. I am sure that those doctors and dentists are not the people who President Trump is talking about executing. About 5% of the world’s population live in the United States, but we consume 80% of the world’s opiates. We are not going to get control over our nation’s opioid epidemic until the government makes it much, much harder for doctors to prescribe these drugs.

“WHY CAN’T I PAY MY RENT WITH A CREDIT CARD?”

Every now and then, a tenant will ask me if he can pay his rent with a credit card. My answer is No. All of my leases state that the rent must be paid by check or money order. I don’t accept credit cards. Why? It’s the bank fees. Most of the new apartment houses in Berkeley and San Francisco allow tenants to pay their rent with credit cards, but that’s because credit card fees are an insignificant expense for them. A 2 bedroom apartment in a new building in downtown Berkeley rents for $4,000 to $5,000 a month, but I’ve seen some that are over $6,000 a month. If I was getting that kind of rent, I would accept credit cards too!

BITCOIN.

A growing number of landlords are allowing their tenants to pay their rent with Bitcoin. I really, really don’t understand that. Cryptocurrencies like Bitcoin are not currencies, they are not money, and they are not legal tender. I don’t know what they are, but I do know that I can’t pay my property taxes, garbage bills, fire insurance, etc. with Bitcoin. I can’t buy cocoa beans with Bitcoin either. I think some businessmen accept Bitcoin because they think it’s tax-free income; however, income that you don’t report on your tax return is not tax-free income. That’s called income tax evasion, not tax-free income. You don’t need to be a CPA to know there’s a difference. Supposedly, Bitcoin transactions and transfers are completely secret and untraceable, but I wonder if that’s really true. I suspect that the IRS has figured out how to crack Bitcoin’s computer codes.

Military Grade Encryption. People tell me that there is no way the U.S. government can get into Bitcoin computer records because they use military grade encryption. But what does that mean? Does ‘military grade encryption’ mean ‘unbreakable’? As you know, I teach history, and history tells me to be very suspicious of unbreakable military codes. For over 5,000 years, governments have been trying to create unbreakable military codes, but without much success. During World War 2, the Germans thought they had an unbreakable military code, but Winston Churchill and Franklin Roosevelt got decoded copies of Hitler’s most secret coded messages to his generals before the generals to whom they were addressed got their decoded copies! That went on all through the war too. During World War 2, the U.S. also broke the Soviet diplomatic code and several Japanese codes.

The Battle of Midway. The biggest naval battle of World War 2 was the Battle of Midway. There will never be another naval battle like that again. The Japanese were hoping to win a decisive victory that would knock the U.S. out of the war. The Japanese thought they were going to catch the U.S. fleet by surprise; however, the U.S. Navy had broken the Japanese naval code, so they knew where and when the Japanese were coming. Instead of ambushing the U.S. Navy, it was the Japanese that got ambushed instead. The U.S. Navy sank all the Japanese aircraft carriers at Midway. As a result, Japan also lost hundreds of their best pilots. After all the Japanese aircraft carriers were sunk, Japanese pilots had no place to land. When they ran out of fuel, Japanese pilots crashed their planes into the sea and drowned. Midway was a disastrous defeat for Japan from which they never recovered. Prior to Midway, Japan was always on the attack. After Midway, they were always on the defense. OK you say, that was then, but what about now? Now we have military grade computer encryption. Well Yes, we do have that, but you know, Vladimir Putin didn’t seem to have much difficulty getting past U.S. computer encryption during the 2016 presidential election. I think that people who do business in Bitcoin in the belief that they are fooling the IRS may actually just be fooling themselves instead.

THE WAR ON COLLEGE EDUCATION.

In 2007, Congress changed the federal bankruptcy law to exclude student loans from the debts that are discharged in bankruptcy. As a result, if you run up $200,000 in debt to become a doctor (and that is not hard to do) and declare bankruptcy, you will leave the bankruptcy court still owing the full $200,000. However, if you run up $200,000 in credit card debt traveling around the world and declare bankruptcy, that debt will be wiped out completely.

Last month, the House of Representatives passed a tax bill that made college tuition waivers taxable income. Senate leaders removed this provision from the final draft of the tax law just after strong national public uproar against this provision. Had this provision remained in the final law, tens of thousands of graduate students would have been forced to drop out of college because they would not be able to pay this new tax. The tax on tuition waivers would have taxed the discount graduate students receive for working in labs and teaching classes. The problem is that you can’t pay income tax if you have no income, and a discount is not income. The House bill would have eliminated the deduction for interest on student loans as well, but this too was eliminated in the final law due to public outcry.

All over the country, state legislatures are passing laws designed to make college education less affordable. Did you know that in a lot of states, if you don’t pay your student loans on time, you can lose your job? For example, if you are a physical therapist and you get behind in your student loans payments, your license to work can be revoked in 20 states. If you default on a student loan, you can be fired as a schoolteacher in 11 states. And in South Dakota, Iowa, and Oklahoma; if you don’t make your student loan payments on time, the state can take away your driver’s license. In other words, if you went to college and are not making your student loan payments on time, the state can take away your ability to work in your profession. Then how do you repay your student loans?

SOUTH DAKOTA. South Dakota has perhaps the most punitive student loan default laws. If you default on a student loan in South Dakota, they can take away your driver’s license. However, if you default on your mortgage on a multi-million dollar mansion overlooking Mount Rushmore – well – that’s OK. The state’s DMV can’t take away your driver’s license for just that. Taking away a person’s driver’s license, and in a largely rural state like South Dakota, for failing to repay a student loan on time seems just plain mean-spirited to me. Also, in South Dakota, if you get behind in repaying your student loans, you can also lose your license to work as a registered nurse, a physical therapist, or a speech pathologist; and if you are employed as a public schoolteacher in South Dakota, you can be immediately fired. Plus, at last count, about 1,500 people living in South Dakota were denied hunting and fishing licenses for failing to repay student loans on time. So, if you are behind in your student loan payments in South Dakota and you work in a licensed occupation, not only are you barred from working in your profession, but in addition, you can’t legally hunt or fish for your dinner. You can legally eat vegetables that you grow in your backyard. Sounds ridiculous, doesn’t it?

HATS OFF TO MONTANA. Things are getting better in one state. Montana used to have the harshest student loan laws in the country. Not only could you lose your job and your driver’s license for failure to repay student loans on time, you could also go to prison for it! However, in 2015, the Montana legislature passed a law with rare bipartisan support that decriminalized failure to repay student loans. The new law also allows Montana residents to keep their driver’s licenses and their jobs when they are behind in their student loan payments. The argument for the new law was that it doesn’t make any sense to punish a person for failing to repay a loan on time by taking away his ability to earn a living. That just makes it more unlikely that the person will ever repay the loan. Unfortunately, Montana seems to be the only state moving in a more enlightened direction on this issue.

BERKELEY. Here in Berkeley, the main driver of college student debt is the cost of housing. A 2 bedroom apartment in a new building near campus costs $4,000 to $5,000 a month, but I’ve seen some that cost over $6,000 a month. Everyone in Berkeley city government is aware of this, but no one seems to be concerned about it. Quite the opposite. The mayor and Berkeley city council are constantly passing new laws and regulations designed to raise, not lower, the cost of building new apartments near campus. For example, a permit to build a new apartment house in Berkeley near campus now costs between $100,000 and $200,000 per apartment – and the council is planning to raise the price of permits next year. Now – who do you suppose ultimately pays for these astronomically expensive building permits? It’s just who you think it is! It’s the tenants who live in these buildings.

College students all over the U.S. are graduating with more and more student debt, and the cost of repaying that debt keeps rising. Every American should be very concerned about this. If a college education becomes just a privilege of the rich, as it was in Colonial times, we are in serious trouble as a nation. An industrialized society that does not value higher education is doomed to poverty and becoming a third rate and third world nation.