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To investors,

Rent for a one-bedroom apartment in New York City recently hit a new all-time high of $4,500 per month. This is a 50% increase from the $3,000/month that a one-bedroom commanded pre-pandemic.

Aziz Sunderji recently explained that New York City’s rent prices are increasing at the same time that New York City home prices are softening.

As real estate agent Rohin Dhar pointed out, this price increase is not exclusively the product of inflation. New York City has banned Airbnb, implemented vacancy controls, and has relied on rent controls for decades.

This intervention in the free market historically creates more problems, rather than solutions.

One way to see this is that the national median rent for a one-bedroom is only growing at 1.6% annually, which is lower than the current inflation number.

This suggests that Airbnb and a lack of hardcore rent controls in the vast majority of the country has actually been a release valve for median rents over the last 12 months.

Free market solutions are better than government solutions.

This is true internationally as well — Bloomberg’s Cagan Koc and Sarah Jacob recently covered the Dutch rental market, where they noticed that government controls have had a negative impact as well.

It is estimated that 96% of all rental properties in the country are now under rent control. Cagan and Sarah write:

“The Netherlands has the highest proportion of rent-controlled homes in Europe, according to the Organization for Economic Cooperation and Development. About a quarter of them are owned by private landlords, with the rest belonging to housing associations that are similar to co-ops. Before the new law came into effect, four-fifths of the country’s 3 million rental properties were subject to controls, and the law raised that to 96%, according to the housing ministry. The measure caps rents on about 2.5 million homes at €880 ($980) a month for households earning less than €52,671. The rest of the properties covered by the law have a maximum rent of €1,158 a month; though they have no specific income requirements, they’re aimed at families with modest salaries.”

There is a massive housing shortage in the Netherlands and citizens are having a difficult time finding affordable rentals. What else would you expect if the government got to set the price of 96% of all rentals?

But the United States should not shake our heads and say “well, that isn’t happening the US.” It is true that rent control is not nearly as prevelant, but the housing shortage is very real.

First, on rent control:

“As of 2022, seven states (California, New York, New Jersey, Maryland, Maine, Oregon, and Minnesota) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes). Thirty-seven states either prohibit or preempt rent control, while seven states allow their cities to enact rent control but have no cities that have implemented it. For localities with rent control, it often covers a large percentage of that city's stock of rental units. For example, in New York City as of 2017, 45% of rental units were "rent stabilized" and 1% were "rent controlled" (these are different legal classifications in NYC). In the District of Columbia as of 2019, about 36% of rental units were rent controlled. In San Francisco as of 2014, about 75% of all rental units were rent controlled, and in Los Angeles in 2014, 80% of multifamily units were rent controlled.^”

Sounds better than the Netherlands, right? Well, the US continues to under-build housing which spells pain on the horizon.

We built about 50% less housing from 2010-2019 compared to 2000-2009. Not exactly what you want to see if you are worried about home prices and/or rent prices.

I am not an expert on US housing or rents. For that, I highly suggest you subscribe to Lance Lambert’s ResiClub newsletter. I learn a ton from him daily.

But I do know that you can’t let government intervention disrupt the free market or you will create significantly more problems — this is what has happened in New York City and it will likely spread throughout the country as more intervention is encouraged from a political standpoint.

We usually like all-time high prices in finance, but all-time high rents are not something to celebrate.

Hope you all have a great start to your week. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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Polina Pompliano, Author of ‘Hidden Genius’ and Founder of The Profile, and Anthony Pompliano, CEO of Professional Capital Management, discuss the US economy, interest rates decision, taxing of unrealized gains, arrest of Telegram CEO, the impact of the two astronauts stranded in space, and more. 

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How To Invest During A Recession

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