Federal Reserve Bank President Powell said yesterday in his remarks announcing the fed decision not to raise interest rates THIS MONTH:

"“As a factual matter, we do need to see rents bottomed out here—or at least stay quite low in terms of their increases because we want inflation to come down and rental [costs] is a very large part of the CPI, about a third,” Powell said. “It's about half of that for the PCE, so it's important. It's something that we're watching very carefully.”

Rents will stay steady or continue to rise, especially in highly desirable markets. We simply don't have the supply to meet the demand. When everyone decides they're going to the big city... prices get bid up.

Govt can raise interest rates all they want: that will simply discourage additional construction, which will keep supply low and demand will outpace it, resulting in bidding wars and increased rents.

Now if they were smart, they'd create something like the 30-year fixed rate mortgage for rental housing developers and investors. That's what led to the post WW2 boom in suburban SFH construction and homeownership. It would take a ton of risk out of the game for rental owners, thereby spurring investment. Couple that with relaxed zoning regs and removal of minimum requirements like lot setbacks, etc and it would open up the door to development in ways the mind can scarcely grasp. Maybe even reduce the depreciation schedule on residential rental real estate to 15 years as a cost-free tax incentive.

So Plenty, you think that the government is powerless to reduce rent inflation.

And Sid, you think that the only tool that the government has to reduce rent inflation is to raise interest rates.

Well, maybe you're right,one or both of you.

I don't know what Powell has in mind and I don't have time these days to research what the Fed has done in the past. But I do know that the problem is not entirely shortage of housing. Even here in Los Angeles, vacancy rate is a little over 3%, which means that there are vacancies after everyone is housed. The real problem is rent inflation. Powell says that he is not doing anything about that problem now (as he is not doing anything further about overall inflation after THIS meeting), but he is deliberately calling out RENT INFLATION as a target. For one thing, that gives support to the accelerating movement for national rent control.

Moshe, for me my rents have had to be raised not so much because of taxes or insurance which have remained the same for a few years now. However, I am sure they will go up in the next year or two. The largest issue has been the cost for workers and for material which have risen sharply over the last few years.

Due to being incapacitated due to COVID, I had to hire a person to replace a sump pump in one of my rentals. I am sure I could have done it myself, if capable, for under $200 for the sump pump itself and it would have taken me less than an hour to do the work. However, my bill for the work was $580.00.

If you control rents but not all the factors associated with rentals, I think you will see more vacancies as small LLs will give up renting. You will see a drop in housing prices (SF is already down 16% and I'm seeing SMALL price "improvements" here.)

Gene,

I don't quite understand what you are trying to say.

Are you saying that, because your cost for workers and for material went up, then rents MUST go up?

Yes, sometimes that can be true. But suppose you were PREVENTED (or merely discouraged) from raising rents (by more than a certain amount), then what would happen?

Would you sell and go out of business? (Isn't there a threshold you would want to exceed before doing that?)

Would you take less profit in order to remain in business?

Would an excess profit tax (for example) cause you to reduce your immediate profit in order to stay in business,and get your profit from appreciation when you sell?

You might find it useful to start considering how you might deal with such issues, before they ever become realities. For myself, I tend to consider a lot of possibilities long in advance, in order to understand how things work.

The bottom line is, is it necessary to reduce the PCE in order to ensure the country's overall prosperity for everyone? Or, at least to reduce the component of shelter expense as part of the PCE. What do you think will happen (if anything) if we don't?

Moshe, the idea with business is to make a profit, especially, for me since it is part of my retirement plan. If I can't make a profit or enough of a profit to make it worthwhile, then it is time for me to consider selling or looking at some other aspect of the business such as possibly doing what Sid has done by going into the commercial realm of real estate.

So, Pmh. you may be concerned only with your own interests, but those who are charged with the interests of the whole country have wider concerns. And wider powers.

And you are unable to understand how much of YOUR prosperity is due to the overall prosperity of the US (and the world) which is due to the increase in consumer prosperity since the second world war. Before the war, simple tradesmen had a certain affordable lifestyle which has been replaced by a life-style they would never have dreamed about, due to the overall prosperity of the US, even in the face of ever-increasing prosperity in the rest of the world.

What happens if interest rates go too high? Then corporations will lay off even more, and be making less profit, which will affect not only stockholders, but more unemployed workers, who will buy less cars, TVs, computers, bananas, clothing, pay rents, go to movies, and everyone will have less prosperity, because we live in a SYSTEM, not an individual bubble, and our entire system of prosperity depends on consumers buying, and if they don't have money to buy, then the whole system fails.

I know that you don't understand this, any more than you understand how the second world war changed human society, any more than you understand about wars, how they are fought and won (or lost).

We DEPEND of our government to maintain conditions that are good for US, and they do that by creating, enhancing, regulating and promoting (as the Constitution requires them to do) "the General Welfare". They are charged with maintaining good business conditions, full employment, prices, welfare, development, growth, prosperity in order to provide the pursuit of happiness for all Americans AS A SYSTEM. Its a pity that you have no understanding of these matters. If you had any international experience at all, you would be much more able to comprehend these kinds of issues, and how hard it is to avoid disaster (e.g., Argentina) within the responsibility of representing a vast variety of interests.

Moshe---How did our nation achieve anything before we had so many fed. gov't agencies??? Dept. Housing and Urban Dev., Energy, Education, Transportation, etc. I guess before them we had no housing or urban centers, we lived in caves, no energy, no education, no transport except our feet.

How did we manage back when gov't did not take half of what we earned, foolishly spending our own money on what we wanted?

The Reserve Bank does not have authority to create national rent control, in fact they aren't even part of the Government.

They will drive down rent by driving down demand. How do you drive down demand for rental properties? The same way they have been doing it the last few months. Raise interest rates which cools the economy, which puts people out of jobs, which causes people to move back in with their parents or friends, which reduces the demand for rentals, which lowers the price of rent. The reason he mentioned it specifically is that rent is a lagging indicator of the overall economy (the same reason that the price of 2x4's increased substantially 6 months to a year before rent started going up). While you have already seen reductions in the general economy (groceries, consumer goods, etc), it takes an additional 6 months to a year to see what effect their tinkering will have on rent rates (it takes us a while to feel the pinch of vacancies and start lowering our prices). He feels confident that things are moving in the right direction he just wants to make sure those last few calves (rent rates)being herded into the pen make it before he claims success on bringing inflation back in-line.

They are actually pretty smart cookies, they are fully aware how supply and demand works and what to tweak to get it headed in the right direction. I'm sure they also know that rent control would have the opposite economic effect that the politicians who enact it thinks it will. It is documented many times over in economic research studies that it actually reduces supply which causes a shortage, from their seat that would be devastating to what they are trying to achieve. An artificially induced shortage would reduce the tools they could use to impact positive change on the economy as they are doing now.

MikeA,

What Zero said! ( about what Mike in Texas said.)

The Federal Reserve Bank is an “agency” of the US government, answering to the US Congress with specific charge of setting interest rates, managing the money supply, and regulating financial markets. It is interesting to point out that the Congress is itself an “agency” of the US government, as are all the various departments of the executive branch, such as State, Defense, Housing and Urban Dev., Energy, Education, Transportation, etc.

In fulfillment of its responsibilities, the FED has certain powers. As part of a governmental SYSTEM, those powers include powers to discuss, persuade and testify to other officials and agencies regarding important economic matters. Because of the unique educational backgrounds of the Board of Governors, the independence of the Fed and the importance of the economy for which the Fed has responsibility, the Fed often has the ear of the President and many members of Congress.

In the extant example, while the FED has no power to pass legislation regarding rent control, it has voice to recommend and persuade those who do. The Fed has, over the last year, carried on activities of modelling, data-gathering, supporting studies and participating in both federal and state joint government meetings regarding rent inflation and rent controls, which. like other components of inflation, is clearly a matter for which the FED has interest.

WMH:

You ask a question with very limited scope, not wide enough to answer what I really think. So I'm going to have to answer a different question, not what you ask.

There are problems in the world that need to get solved, sometimes the solution inconveniences some people.

Among the problems facing the US today are inflation especially rent inflation, eviction, homelessness, shortage of housing, effects of interest rates. The country needs to deal with these problems, although they are not always easy to solve. Attitudes like Pmh and his selfishness don't help.

The inflation of 2020 and onward is an ongoing problem and a serious one for the US. It hasn't affected me, myself at all, but it has been devastating for many other people and it is imperative that solutions must be found.

Your explicit question was "Do I believe ...". That reminds me of the guy who asked "Do you believe in Baptism" and got the answer, "Believe in it? Why, I've SEEN it." So, I don't really think that you mean "Do I believe", so I feel free to answer the question as I please.

If rents are too high, then the country has a right and, in fact, a duty to moderate them. I grew up in a country where everyone worked together for the benefit of the society. Sacrifices were commonplace, blood drives oversubscribed, charitable contribution mushroomed when needed, from people who REALLY could not afford them (REALLY could not afford), the country paid for NO UNEMPLOYMENT!, jobs for everyone, free health care and HUGE!!! taxes, in order to build an equitable society, all based on a model of piety, charity and a sense of all being together.

That didn’t last.

After the 1973 war and a new right-wing government came to power, the whole society changed. Greed does that. The economics were successful because the times were ripe for free enterprise and individual initiative and many people profited, But the sense of all being together vanished. As it was vanishing, I found my place in America, partly because the old country was no longer what it used to be, partly because I had fallen in love with America.

So what does that have to do with your question?

I believe that the problems HAVE TO get solved. Excess profits are not good for society. Reasonable profits ARE, unless the excess profits bring about some genuinely beneficial change to our way of life, such as computers, medicine, talent and other new discoveries. The specificity of rentals MUST take into account HOW MUCH PROFIT landlords have made in the last few years to be balanced against the damage to society that they sometimes cause.

I believe in looking ahead, I have done so in my own life. I have made a fortune, where I had much, much lower expectations for my life. I have not surrendered my honesty and integrity and I still have everything that I want. I am satisfied with a fair profit and don’t need to be greedy.

And who gets to decide what a reasonable profit is? Ask 100 people and you will get 100 different answers. Not once has the Fed proposed (or even mentioned)rent control in any of their published information. Nor have they recommended anything other than a free market economy solution. They don't even define excess profit as a contributing factor. It is only the left that is defying what research reveals and is proposing rent control.

Rather than fear-monger around rent control perhaps it would be more prudent to look at what the Fed is saying on the subject, after all that is their job and they are pretty good at it.

Here's a very good article from the Fed on what they see from their research, where the linkage is with rent prices, and how they see it coming back in control. Let me boil the article down for you, too tight a labor market, higher landlord costs because of pandemic shortages, and lag time with closing the increased demand for units by builders. So, give builders time to meet the need and slow the economy with high interest rates which will loosen the labor market. The increased costs are already unraveling from what they see so that just needs some time. That's how they see the problem being solved so we don't need to be afraid.

www.kansascityfed.org/research/economic-bulletin/a-tight-labor-market-could-keep-rent-inflation-elevated/

Moshe, If I may, I would like to know how you pronounce your screen name?

What country did you come from?

What made you like America better if you liked the way your country was ran?

How did you make your fortune (glad you did) even though you had a much lower expectation for your life?

In which country was your fortune made?

Why move to America if you just want to change it?

Did you make your fortune during times of Capitalism or Socialism?

I have never been outside of the US and not a lot of places in it. I had much lower expectations for my life as well. I have not made a fortune in my life as you, so I am on hear learning. I think I can learn something from everyone.

6x6:

I'm wondering what you want from me. You ask questions from wanting to know how to pronounce my name to wanting to know why I wanted to move to America if I just want to change it (assuming thats what I want)? What are you after?

1. "how you pronounce your screen name?"

Mo-shay. Its the Aramaic name of Moses in the Hebrew

Bible (Old Testament).

2. "What country did you 'come from'?"

I was born in Britain while it was still Great.

I grew up In Israel

I came to US to study.

I had to return to Israel to carry out my commitment of

my educational grant.

3. "What made you like America better if you liked the way

your country was ran?"

America is a spectacularly outstanding country no

matter what the comparison. Returning to Israel

was like being an immigrant all over again, it was

such a shock. First, immigrating to Israel was a

huge change after living in Chicago, and second,

the 1973 war exposed many, many serious problems in

Israel society, even aside from the changes in the

basic fabric of way-of-life. I'm not sorry that we

left.

4. "How did you make your fortune (glad you did) even

though you had a much lower expectation for your

life?"

I worked hard and lived penuriously, not quite as I

had in the old country, but enough, until I

accumulated some capital. Then I invested what I

had, and I did well.

5. "In which country was your fortune made?"

My fortune was made all over the world (and beyond).

At the time, I was living in the US.

6. "Why move to America if you just want to change it?"

Is that what I want? You're coming close to offending

me.

Worlds change constantly, sometimes for the better,

sometimes not. Israel changed after I came back

from US, and afterwards. Some good things remain,

some bad things remain. Same with US. The future

is ours to determine, but if we fail, then its our

fault.

7. "Did you make your fortune during times of Capitalism

or Socialism?"

Your question shows that you don't understand your own

question. Capitalism and Socialism don't have

'times'. Profits can be made anywhere, at any time,

in any country. Sometimes political circumstances

help, other times, they don't. A good businessman

doesn't depend on that.

Who is Peter Schiff?

Moshe, thank you for taking the time to answer my questions.

As I mentioned, I have never been outside of the US and so have no personal or experienced knowledge of other counties, other than what I might hear from others or news, and we all know that can be wrong or misconstrued.

What I want or am after is to gain knowledge in a state of open-mindedness. You seem to have more opposing views than most on this forum, however, I think that if I learn with an open mind then I can learn from all. I may be wrong, but I also get the sense that you may be a little more open minded then some yourself.

I have been pronouncing your name wrong with a long E at the end. Thank you for clarifying and for telling me what that name means.

Is Israel part of Britain?

Why did you come to the US to study instead of studying in Israel?

Was the 1973 war fought in Israel and without US involvement?

To be honest, I had to look up the word penuriously. After looking up the definition, it appears that we may have a bit of similarity there. Problem for me is that I am just getting started in learning investments and thus far I am not so successful. I hope to be though.

If I remember correctly, you had done some investing in China before the pandemic. How has that gone?

What other investments and what other parts of the world have you done them in?

It appeared that you wanted to change the US. I guess my assumption was wrong. No offense was meant.

"7. "Did you make your fortune during times of Capitalism

or Socialism?"

Your question shows that you don't understand your own

question."

I suppose you are right. As I said, I am still learning. I was thinking times of Capitalism or Socialism because you had mentioned about your country going from more of a Socialist form to more of a Capitalist form, unless I misunderstood you.

I guess a good businessman would not depend on that. I will agree.

Thank you again for your time.

"Peter David Schiff is an American stock broker, financial commentator, and radio personality."

"Excess profits are not good for society. Reasonable profits ARE..."

"Who is Peter Schiff"

So, he is " American stock broker, financial commentator, and radio personality" and (as a definition?) "someone you should listen to".

But WHO IS HE? Is he anyone? What does he have to say (and why)? Is he an expert or a salesman? (or, A salesman who passes himself off as an expert?)

I looked him up on Wikipedia (better than nothing, I guess, but hardly a source really worth paying authoritative attention to). They talked about his father dying in jail for promoting tax evasion, and his resentment of the US government for not freeing his father "for humanitarian reasons". He doesn't seem to have any academic credentials (in a corner. I found a claim that he had a B.S. from Berkeley, but no advanced academic credentials).

I read that, in 2007 he claimed that " real estate prices " are going to "come crashing back down to Earth.". As I look back at that from 2023, Do you think that he was right? Or, was it right from a strictly short-term point of view? In the end, what was the meaning of his prediction and how should it affect his reputation?

In 2007, he also said (Wikipedia, again) that “without a change in US government economic policy, there will be hyperinflation” [valid prediction worth investing on, or not?], “imbalance between the number of goods the US consumed and what it produced would eventually lead to problems for the US economy [did you invest in US consumable goods based on his advice?], and “US's low personal savings rate as one of the causes of its transformation from the world's largest creditor nation in the 1970s to the largest debtor nation in 2000”. As to the latter, do we have any vulnerability because of being a debtor nation” (or is it due to the fact that American has a truly consumer economy, and we expect that to continue, so why do Americans need to save instead of buying).

Wikipedia also reports something about one of his banks being investigated, and consequently being shut down and that “ ’I've already answered the question that we're not involved in any illegal activity,’ and adding the bank ‘turns down far more accounts than we approve because our compliance is so rigorous’. The Age reported that ‘Schiff threatened to sue the publication, ripped off his microphone and stormed out of his own living room.’. Sound like anyone we know? (dyed blond hair and a red cap?)

At this point, I got bored and didn’t bother to read further. But if anyone can tell me why I should listen to him, what’s his logic, and what’s his advice and why his advice should be taken seriously, I would be glad to listen.

6x6:

You ask more questions:

PART !: “Is Israel part of Britain?”

Short answer is, NO.

More inclusive answer is, Well, it was and it wasn’t, but it isn’t.

More illustrative answer is:

During world war I, Britain conquered a place called “The Levant” which consists of Egypt, Palestine, Jordan and Syria from the Ottomans and the Germans. That’s in the days when Britain was Great (empire). Actually, it was Britain and France, acting together, for a change. They split up the territory, France getting Syria and Britain the rest. [Remember Lawrence of Arabia? Remember how the natives of the region fought for Britain with the promise of Independence? Remember the battle for Aqaba? Remember how Britain reneged on the promise of Independence? Its not in the film, but Britain NEVER gave independence to the Arabs of the region, but actually abandoned part of the region 30 years later in favor of an brand new country with a imported European population (Israel), who had never done anything for the British.

As for the remainder of the area, Britain installed a King imported from Saudi Arabia over Palestine and Jordan, and France installed his cousin (from S.A.) over Syria. The King in Syria was assassinated 2 weeks later, but the British (still unofficially running their part of the spoils of war

), managed to protect their protégé.

So that area (Egypt, Palestine, Jordan) wasn’t exactly “owned” by Britain, but operated under a mandate from the League of Nations, until after World War II, when Britain permitted and encouraged the Zionists to immigrate and settle in Palestine and then simply abandoned the mandate because of the impossibility of maintaining peace between the Zionists and the indigenous population, and the new United Nations recognized the Zionists as a member-state (Israel).

Is all this important to your question about “is Israel part of Britain?”. It shows how Britain effectively ruled the area as if they owned it, and left behind a legacy of wars, tensions, grievances and resentment that has involved the US and the whole free world in more than one potentially nuclear confrontation.

But NO, Israel is not part of Britain, but it helped to make Britain “Great”.

When I buy a rental property, I buy a basket of various goods. These goods are all required to complete the rental. Cooper wire, pex, 2x4, shingles and sewer drain lines are all part of the larger picture.

But when say OSB goes from $7.50 to $55 a sheet, of course the cost of that completed item will go up. The Fed singling out rent without considering the cost of the components is merely looking in a a problem in a bubble.

PART 2: “Why did you come to the US to study instead of studying in Israel?”

Israel in 1969 was still a lesser-developed country. They had universities with fairly good students, but there were few (or no) senior professors able to train students to the degree of the best universities in America. I was working for the army with a B.S., and my supervisor (also my professor in the University) felt that he could make use of me if I had advanced skills. So he encouraged me to apply, wrote a recommendation for me and helped me to obtain funding to study at The University of Chicago, a very distinguished university with a record of discoveries, outstanding teaching and a recognized record of accomplishment by a long list of Nobel prize winners. Who wouldn’t accept such an offer?

I won a fellowship grant from The Rome (N.Y.) Air Defense Center (now called USAF Research Laboratory) (sometimes called AF ‘superlab’), and I had to sign that I would return to Israel to work for the army for as many years as I received support, plus I had to sign that I would not use this opportunity to try to immigrate to the US. So, I had to go back to Israel after I got my degree, and later managed to get a visa to immigrate to the US.

PART 3: “Was the 1973 war fought in Israel and without US involvement?”

Yes, that war was fought initially within Israel itself, but after about 3 weeks with an almost COMPLETE weapons re-supply from the US, the Israelis tried a behind-the lines- tactic in the South into Egyptian territory (Africa) and a brutal frontal assault (many, many casualties) in the North, and the front lines went back-and-forth several times before Henry Kissinger was able to effect a cease-fire agreement on both fronts.

If you want more about this, I just detailed it for another poster who couldn’t accept that Israel lost the war: See “SanFransisco down 16.7%” .

Was (the war) without US involvement?

ARE YOU KIDDING??? The US was up to its eyeballs in that war, but without sending troops to get killed.

The important issues for the US were diplomatic, military, domestic, economic, global and treaty-related issues.

Israel had been warned after the 1967 war, NOT TO BE THE INITIATOR of another war, Kissinger himself have told them that, if they are the initiators, then they will not be able to count on the US for help “so much as a nail”. But Israel was TOTALLY SURPRISED, despite being warned 2 weeks ahead by King of Jordan, 24 hours before by US military, 6 am interception of radio transmission of Egyptian preparations for a 2 pm attack, (because General in charge of Southern Command thought Egyptians would not dare to attack without cover of darkness, so he expected 6 pm assault) and a million other screw-ups.

The Israeli’s lost almost their ENTIRE Air Force, turns out that 80% of defense budget was used for planes and tanks, and the US had to re-supply both by air. Issues of US concerned importance that US munitions were superior to Russian munitions, oil supplies (remember gas shortage in early war), prevention of Russian nuclear involvement, balancing of domestic Jewish-American concerns, perceptions that US would not stand behind an ally, even though war was their fault. I read Henry Kissinger’s book after it came out, it seems that HE KNEW more than was thought about plans for war before it happened. He points that out very elliptically in his book but without admitting to such fact, but then, he is awfully good at that.

Thank you, Moshe.

That was a great offer you were given.

The rent is not too high if someone is willing to pay it. The cost of building new housing has skyrocketed....the cost o buy an existing home has skyrocketed.... Rent has to cover PITI & maintenance, vacancy, and management fee...

"Ask yourself-- If I bought this rental home today--what would it take to cover the above nut??? THAT is the price rent should be."

To a landlord thinking only about his investment, thats true.

If you are the government, should the thinking be any different? Are there any different objectives, considerations, problems to be solved? How should they get solved? Are any of these problems important ones? Or, should they simply be ignored?

Okay everyone listen up-

The organization that caused the payment for acquiring a piece of real estate to double wants you to limit passing that cost on as doing so causes - ahhhhhhh inflation.

If we don't, they have said they may very well raise interest raises couple times further to help contain inflation.

I am not one to tell you if it was the chicken or the egg that came first. I will say that the folks that are best equipped for inflation are the folks that hold hedges against inflation. Real estate is one such hedge

"The rent is not too high if someone is willing to pay it. "

If I may make one tiny addition...

The rent is not too high if someone is willing and ABLE to pay it.

Right now, people are able.

All people?

Nope. But enough people.

It all comes back to this one question: do you think investors are stupid?

"Well, do ya?" - Clint Eastwood

Investors are here to... make money. Truth #1

If rents are "too high", that means renters CAN'T pay them even if the WANT to pay them. Thus, rentals will sit empty and investors won't make money. Truth #2

Ergo, only stupid investors would price their rentals unaffordable. Wise investors price our rentals at what the market can and will bear.

Do we make larger than average profits sometimes? Yeah... and that's the point. If I couldn't make larger than average profits in real estate, I'd take my money and go make larger than average profits somewhere else.

Do we take larger than average risks? Yeah... and sometimes we lose our shirts.

Bottom line: show me someone talking about "excess profits" and I'll show you a crook looking to cash in on your success.

Where do I sign up for those excess profits?