Rent Control: One of the Dumbest Ideas to Come Down the Pike

(Amy Groves) – Nevada state law does not prohibit or enforce rent control. As such, landlords may charge what they wish for rent. The state has the “Dillon Rule” which forbids local jurisdictions from unilaterally instituting rent control policies without state approval.

Rent control and the lack of affordable housing have been hot button issues here in Las Vegas in particular as well as the rest of the state in general, for quite some time. In 2019 Michelle Ratti championed legislation that “(The bill) enables local government to use every tool in the box as needed as part of the solution for affordable housing needs,” Ratti told the Senate Committee on Government Affairs.

Some suggested remedies to the housing shortage included rent control and inclusionary zoning, which allows municipalities to incentivize developers who allocate a certain amount of affordable housing.

Local government would still have the discretion to determine which method, or combination would work for them. “Most things done by local government are highly sensitive to market conditions,” Ratti said. “What works in North Las Vegas is very different for what works in Winnemucca or Reno-Sparks.”

When evaluating what Michelle advocated for, in the cold, harsh, light of day, she was trying to solve a free enterprise opportunity with more government intrusion and of course, more government spending. As of right now, there was no action on her amendment, and fortunately so for us!

Let’s fast forward 2 years. The Governor released his strangle hold on the economy.  The eviction moratorium was “lifted” or at least modified. Everything was right with the world – NOT!

Landlords seeking restitution from CHAPS were by and large left out in the cold. When they applied for assistance they were forced to give up their right to pursue payment civilly. In many instances they were required to go to mediation with the very individuals who had lived rent free at their expense for the last two years (probably not the most productive resolution).

Remember, I have a property management division in my business. The experiences detailed above happened to the landlords I worked with. Out of all my accounts only one had legitimate COVID related hardship, yet seven of my tenants stop paying their rent. Why?  Because they could without fear of consequence. I have not one  landlord who has been made whole and 2/3 of them have received nothing whatsoever.

I don’t know about you, but I didn’t have the luxury of a non-family member footing my housing expense for the last two years. On the other side of the coin, I didn’t have to pay mortgages, taxes, HOA dues, insurance, and maintenance costs on investments that were, from a cash flow perspective, worth less than nothing.  Do you see why I am opposed to government over reach, increased government spending, and unlegislated government mandates?

Free enterprise! Free enterprise! Free enterprise! Yes, rents have increased but it is not because the landlords are greedy or are going to make up their lost revenues on the backs of their tenants. In fact, many of those that lost their britches over the last two years have sold their properties and looking for other areas of investment that are not subject to crippling government mandates. It’s because the number of people moving and living here has out paced the supply of homes, rental or ownership, available. Supply and demand.

So, let’s fast forward to March 23, 2022 – 9:00 pm. Rachel Aston/Las Vegas Review-Journal, published an article that supports my opinion that less regulation/ intervention and the free enterprise systems are the key components to getting the housing shortage on the pathway to improvement.

Evidently at a North Las Vegas mayoral forum our good friends at the ACLU asked each candidate how they would address the shortage of affordable housing. Each and every mayoral candidate pledged to enact a rent control law if the Legislature gave them the power to do so. By not understanding the big picture or being knowledgeable about free enterprise, supply and demand, or even considering there could be opportunities within the business communities to assist, they caved to the most destructive solution in front of them. In other words, they committed to making it more difficult to find shelter in their hometown.

The local housing market is going gang -busters with approximately 2400 homes available for purchase. That is significantly less than one month’s inventory. Preferably, we would have between 3 and 4 months of available inventory.  Only a fool would deny that soaring monthly rent prices  inevitably lead to the all too familiar, politically  progressive, short -sighted solution rearing its ugly head – again.  Rent Control ! Not to dismiss the raising rents out of hand, The average rental rate in Las Vegas for an 893-sf apartment is $1471 (remember that number – we’ll come back to it later).

As one would expect, there is a large fluctuation in rents, depending where you are located in the state and surrounding area.

We can’t wave a magic wand or use the Oprah model, “here’s a house for you and a house for you, and a house for you!” Just wishing there was a magic one size fits all remedy and burying our heads in the sand will  not minimize  a proven, verifiable track record, over  decades, of evidence  that when price controls are enacted to benefit a small segment of our population the overall impact to the market is devasting.

The Review Journal sited a case study that substantiates the above-mentioned premise.  Those North Las Vegas mayoral hopefuls who committed   heavy-handed market interventions and fear based pandering need to look at and understand  the results from just such an initiative in  St. Paul, Minnesota.

In November, voters in the Midwestern city approved a ballot measure by a 53-47 margin that imposes a 3 percent limit on rent hikes with few exemptions and with no allowances for inflation, now running close to 8 percent. The proposal goes into effect May 1, and landlords found in violation face criminal prosecution.

“Because people making financing decisions view rent inflexibility as increasing risk, they have been simply leaving St. Paul construction projects by the wayside,” urban geographer Bill Lindeke noted in a March 10 commentary for the online newspaper MinnPost. “As one St. Paul developer described during a recent round table discussion, ‘It’s a concern.’ ”

As suspected the Census Bureau stats cited by a Minnesota state senator “show requests for housing permits have fallen 80 percent in St. Paul since the passage of the referendum,” according to MinnPost. “In Minneapolis … permits are up 68 percent.”

Roadblocks and suffocation to  new construction, whether single or multi-family is no way to solve a housing problem. Rent caps are also counterproductive. Why would a new investor enter the rental marketing knowing ,in advance, their profits were marginal? They would not. Why should existing rental home owners, who have been financially beaten up the last two years, try to upgrade or even maintain their offerings? What’s easier, letting your properties condition deteriorate or spending money you’re not earning? We all know the answer and on some level have made similar choices in our own situations.  What happens when inflation is 9% but you are only allowed to raise the rent 3%? How long can any of us sustaining ongoing losses?

With the implementation of the ordinance looming, some politicians now suffer from buyer’s remorse. St. Paul Mayor Melvin Carter, the Minneapolis Star Tribune reports, has proposed exempting newer housing from the law and delaying its enactment until next year. He acknowledged that the threat of rent control is exacerbating shortages. “Anything we do to slow the production of new units,” the mayor said, “will only make this problem worse.”

Some of the  North  Las Vegas mayoral candidates have rumbled that there should be a special session called (Special session and rent control could be the undoing of Steve Sisolak). Democrats in Carson City have toyed with rent control bills, but nothing has made it to the governor. Let’s hope the trend continues.

Now, how do I believe we can get some relief from affordable housing shortages through free enterprise and partnerships? I thought you’d never ask.

MAPA architects  make a pre-fab home starting at $27,000. This does not include delivery, electricity, solar panels, or septic.

A prefab house from the Ark Shelter is at around $50,000 which also includes the cost of setting it up and transportation. It comes with a wind turbine but does not include septic or solar.

The Gray Organschi Architecture company specializes in prefab houses and in commercial buildings as well. They produce a 293 Sf pre-fab home for $50,000.

Modern Tiny Living is a company based in the USA and they mainly specialize in building prefab tiny houses. They start at $30,000. Utility hook-ups and septic are not included.

Hmmm,  I wonder if there is anything close to Nevada that could be a possible partnership with a local builder? I’m sure the North Las Vegas mayoral candidates knew there is a new business (thank you Mayor Lee) in North Las Vegas that builds and delivers “houses in a box.” They are transportable, completely plumbed and wired, ready for hook up to your lot utilities (just like a new home is connected), and  free local delivery. Let me think, what else? Oh yeah, they are turn key, one bedroom, bath and kitchen, washer and dryer, HVAC, over nine-foot ceilings,  and 375 sf. They use an assembly line and can produce a new home in 90 minutes.  The company is called Boxabl and the price out the door is $50,000.

Why couldn’t one or all of these manufactures’ partner with local builders to provide a different, rapidly produced house? No reason I can see. How does everyone make money?

At Boxabl, for example, the casita house in production now costs them about $27,000. Okay, so those capitalists made money.

The Builder almost always gets a lot premium, so let’s say the Builder takes a $20,000 lot premium. They can easily put at least 2 pre-fab houses in the same space as one traditional new build, so those capitalists’ made money.

How do we get people who need affordable housing into these developments? Investors could buy in and rent, however, there is a road to homeownership.

At a 4.5 interest rate, $2,500 down a $70,000 mortgage costs this much per month:

10 years                 $694.69
15 years                 $511.21
20 years                 $421.59

I asked you to remember the average rental for 893 sf, one bedroom one bath was $1471 in Las Vegas. Yes, the spaces are smaller but honestly a one bedroom, one bath that is new, with nice finishes, that I can own for less than one half the price seems like a great option. And remember ,at least one of these companies can currently have a new home off the assembly line every 90 minutes.

Let me overcome some of my liberal friends’ objections. There is already a pre-existing program with allocated money for a program called Home Is Possible in Nevada. They assist Buyers with down payments and closing costs.

Ginnie Mae is an existing government mortgage program geared toward helping low-income people achieve homeownership. I’m sure the rates they can provide are even more financially friendly than the ones I researched.

For those of you who are skeptical about small housing developments, the workers that built Hoover Dam were housed in like kind dwellings because there was not enough housing available – and that is how Boulder City came into existence.

This might not be the ultimate solution, but it could be a part of it. And guess what? Free enterprise wins again.

If the North Las Vegas mayoral candidates believe they can make housing affordable by discouraging builders from building, lawmakers need to save them from themselves – and more importantly us from politicians who will accept the status quo.

Leave a Comment

Your email address will not be published.

Scroll to Top