Be scared. Be very scared.
Bad ideas that originate on the fringes of our progressive polity have a disconcerting tendency to go mainstream with disastrous consequences these days.
Witness Oregon’s 2020 passage of measure 110, decriminalizing possession of small amounts of hard drugs. Fast forward 2+ years and Oregon now has the highest level of homelessness and drug addiction per capita in the nation. The road to hell is paved with good intentions.
Democrats in Congress are now pressing President Biden to impose nationwide rent control. Operative word here is impose, as in executive fiat. This is the left’s preferred MO, having, the executive branch of government unilaterally shut down or impose its will on major sectors of the economy.
As a result, the White House is now “considering a series of executive actions that are ostensibly intended to protect tenants.” (WSJ 1/23/2023).
On average, rents increased 17.6% in 2021 and another 3.8% last year (WSJ 1/23/23). This prompted a clarion call to action on the part of tenant advocacy groups. Can’t let greedy landlords continue to gouge the oppressed masses.
This fails to recognize these rent bumps were in large part landlords attempting to recoup losses incurred during the Centers for Disease Control and Prevention’s pandemic eviction moratorium (WSJ 1/23/23).
People do what they are economically incentivized to do. When the government incentivizes tenants not to pay rent, they freeload (WSJ 1/23/23). Despite the fact that rents have fallen for the last four months, progressives still appear to want to use these rent increases as a screen behind which to nationalize rent control.
Fifty Democrats in Congress last week sent a letter urging Mr. Biden “to pursue all possible strategies to end corporate price gouging in the real estate sector and ensure that renters and people experiencing homelessness across the country are housed this winter.” (WSJ 1-23/2023).
Their preferred vehicle for this is the Federal Housing Finance Agency (FHFS) which supervises Fannie Mae and Freddie Mac. Their euphemisms for rent control and eviction bans are “anti-price gouging protections” and “just cause eviction standards.”
We have been warning income property investors for some time now about the possibility of nationwide rent control. It was the conclusion we were forced to in the wake of governments eviction moratorium and the Biden Administrations unlawful attempt to extend it.
With government’s lockdown of the economy and virtual seizure of housing assets, (albeit temporarily) a line was crossed. It arrogated to itself a degree of economic power without precedent.
As with Julius Caesar, once the Rubicon is crossed there is no going back.
Considering this, we believe it wise for income property investors to consider diversifying away from rental housing. Find something that isn’t yet on the political radar screen.
We believe nothing fits this better than self-storage. This is because storage has no tenants, only their junk. Junk doesn’t vote. Therefore, there is little incentive for the political class to stick its long, regulatory nose into this business.
What government attention there is currently paid to it at the municipal level is positive from a supply and demand standpoint.
In terms of tax revenue, storage is the least remunerative development possible. As empty boxes on concrete slabs, there is little improvement to bare land. Therefore, there is little additional tax revenue generated for government coffers.
Many municipalities are now passing measures to limit or outright ban the development of additional storage.
This just happens to coincide with the migration of millennials to the suburbs in pursuit of homes and families. All the additional impedimenta that may come in its wake might not be bad for self-storage. Considering this, as income property investors you may still be able to make good money from others’ bad ideas.
