398. MY LANDLORD MENTOR, GARY GILMAN, HAS SURVIVED THE LOS ANGELES REAL ESTATE RENT CONTROL HURRICANES FOR THREE DECADES

Table of Contents

Yoho Preface

The Economics of Rent Control: How Los Angeles Housing Policy Destroys What It Promises to Protect

Selected References

Appendix #1: Why Rental Property Remains an Exceptional Investment Despite These Challenges

Appendix #2: A brief history of metastatic rent control

Jim Arnold’s final word

Yoho Preface:

As I went through all of Gary’s information about how outside forces have distorted the real estate business, I began to wonder whether rent control originated with the Globalists. The people promoting these destructive policies are the same criminals who spout climate change lies and other damaging nonsense. My knowledge of 20th-century globalism is incomplete, but I am convinced that much of our last hundred years, including the world wars, was orchestrated by people in this group, led by psychopathic bankers. Consider that as you read the following.

The Economics of Rent Control: How Los Angeles Housing Policy Destroys What It Promises to Protect by Gary Gilman

A First-Hand Account from a 25-Year Veteran of LA’s Rental Market

I met Robert in the mid-1990s when I was a young CPA driving around Los Angeles looking for doctor clients. Robert hired me on the recommendation of a Caribbean doctor. That same “colleague” later got Robert kicked off his hospital staff, but the introduction gave Robert something valuable—an accountant who understood real estate from the ground up.

I had worked at a real estate accounting firm and had years of experience auditing real estate entities, from developers to escrow companies. That foundation proved essential because I didn’t just understand tax returns—I understood the underlying economics of property ownership, leverage, depreciation, and how to structure investments for maximum advantage. Robert watched me build a real estate portfolio from almost nothing over the next 25 years. My experience allows me to distill complex financial and regulatory information into clear, actionable insights.

I started with a collaboration with a small developer that I met through my daughter’s kindergarten class. I specialized in the properties that other investors avoided—rent-controlled buildings with studios, no parking, and high turnover in areas nobody else wanted to touch. I ran the numbers and realized that rent control, properly understood, can create extraordinary returns if you know how to work within the system, since rent increases result from turnover. As rent suppression was highest among rent-controlled properties and turnover was highest among studio apartments without parking, a long-term strategy was hatched.

Robert and I have worked together on several building acquisitions. He’s closely observed my methods and benefited from my guidance. When Robert and his wife bought a building in Koreatown, I helped them structure the purchase and manage the renovation strategy that transformed every apartment over time, recognizing both the built-in rent suppression and the subsequent rent increases driven by demand and inflation. That building exemplifies what I’ve learned about rent-control economics—patient capital deployment, strategic upgrades, and the understanding that turnover is your friend when you’re trying to bring depressed rents up to market rates.

What I’m going to share with Robert and his readers is a ground-level view of how rent control actually works in Los Angeles, how recent changes have tightened the noose around landlords’ necks, and what this means for the future of housing in California’s largest city.

The Recent Tightening: How LA County and City Have Clamped Down Further

The last two years have seen dramatic changes that make an already challenging environment nearly unworkable for small landlords. Los Angeles County’s Rent Stabilization and Tenant Protections Ordinance began in 2024 with a temporary 4% cap on rent increases, which the Board of Supervisors extended through December 31, 2024. Starting January 1, 2025, the formula changed. Now, rent increases for most units covered by the ordinance cannot exceed 3% per year. Landlords who qualify as “small property landlords” can add 1%, bringing their maximum to 4%—but only if they self-certify annually with the Department of Business and Consumer Affairs.

The city of Los Angeles follows a different schedule. From July 1, 2024, through June 30, 2025, the Rent Stabilization Ordinance permits increases up to 4%, plus 1% for gas and 1% for electricity, if the landlord pays for them. But starting July 1, 2025, through June 30, 2026, that cap drops to 3% plus the utility adjustments. With such small allowable increases, it is imperative to start with buildings whose rents are frozen at a steep discount to market rents so that turnover can be your ally.

When I started buying buildings in the late 1990s and early 2000s, I would buy after events lowered the asking prices. The Northridge Earthquake and the dot.com stock bust were two great opportunities to buy. Rent control allowed annual increases tied to the Consumer Price Index, typically 3-4%. But that was when rents were still somewhat close to market rates. Today, with inflation running higher and market rents in non-controlled buildings increasing faster, the gap between controlled and market rents has widened to a chasm on units that have not turned over. A landlord who bought a building with rents at $600 per month in 2000 might now be collecting $1,200 per month after 25 years of increases—but market rent for that same unit could be $2,800 or more. The 3% cap means that the gap will never close unless the tenant moves out.

The City’s ordinance also strengthened tenant protections, making it harder to operate buildings efficiently. The Rent Escrow Account Program gives the city power to redirect rent payments away from landlords who fail inspections, even when the inspection standards are applied selectively and punitively. The Tenant Right to Counsel program provides free attorneys to tenants facing eviction, which sounds compassionate until you realize that it transforms every simple non-payment case into a potential jury trial costing the landlord $20,000 or more.

California’s Statewide Rent Control: AB 1482 and Its Reach

The state didn’t want to be left out of the rent control business. On October 8, 2019, Governor Gavin Newsom signed Assembly Bill 1482, known as the Tenant Protection Act of 2019. This law took effect January 1, 2020, and made California only the second state in the nation—after Oregon—to impose statewide rent control. The law is scheduled to sunset on January 1, 2030, though given the political dynamics in Sacramento, I expect it will be extended indefinitely. COVID provided cover for the psychopaths at the state capital in Sacramento to try to control real estate, one of the state’s largest industries.

AB 1482 caps annual rent increases at 5% plus the local Consumer Price Index or 10%, whichever is lower. This applies to multifamily buildings more than 15 years old, with the 15-year threshold rolling forward each year. So a building constructed in 2010 became subject to AB 1482 in 2025. Single-family homes and condominiums are exempt if they meet certain conditions: they cannot be owned by a real estate investment trust, corporation, or LLC with a corporate member, and the owner must provide written notice to tenants that the property is exempt from the law.

The brilliance—if you can call it that—of AB 1482 is that it captured properties in cities that had successfully resisted local rent control. For decades, California municipalities that wanted rent control could impose it under their own authority, but cities that valued property rights could refuse. Then, the state law said that no new local rent control laws could be passed. So what did Sacramento do? They said if cities can’t pass local rent control, we’ll pass state control that applies everywhere. This is the logical endpoint of leftist policy: if local governments won’t do what Sacramento wants, Sacramento will do it for them.

AB 1482 also requires landlords to have “just cause” before terminating a tenancy. This kicks in after 12 months if all tenants have occupied the unit continuously for that period, or 24 months if there has been turnover but at least one original tenant remains. The “at-fault” causes include non-payment of rent, lease violations, nuisance behavior, and criminal activity. The “no-fault” causes include owner move-in, substantial renovation, withdrawal from the rental market, and compliance with government orders. For no-fault evictions, landlords must pay relocation assistance equal to one month’s rent within 15 days of serving notice.

The law requires landlords to inform tenants of their rights under AB 1482, and the required notice must use specific statutory language. The paperwork requirements alone have become a part-time job for property managers and have significantly increased operating costs, far beyond the small 3% annual increases that are allowed.

The Effects Harm Every Player in the Market

Rent control doesn’t just affect landlords. It damages the entire housing ecosystem, hurting the very people it claims to protect. Here is how this happens, player by player.

The landlord takes the most obvious hit. When I started buying buildings in Koreatown in the early 2000s, I could purchase units with rents of $600 per month, but the market rent was $1,000. The rules are that landlords can raise rents to market rates when tenant turnover occurs, but only a few percent a year while the tenant stays.

So rent control artificially suppresses rents, creating a gap between what the landlord receives and what the property would command in a free market. This gap represents a forced wealth transfer from the landlord to the tenant—not from the government, which would be a rent subsidy, but directly from the property owner. The government mandates that landlords subsidize their tenants’ cost of living. That $400 difference per month 25 years ago could allow a tenant to lease a Mercedes, while a landlord might only afford a Jeep.

This might sound like a philosophical complaint, but it has real economic consequences. A building with rents at 60% of the market generates less than 60% of the net operating income it should produce, as expenses were not controlled. That means the building is worth perhaps 50% of what it would be worth without rent control, as commercial real estate values are directly tied to income. Rent control has confiscated 50% of buildings’ value without compensation. If the government took half the land from your property without paying for it, you’d call that theft. Rent control does the same thing, just more gradually and less directly through tax transfers.

But here’s where it gets interesting: the tenant doesn’t actually benefit as much as you’d think. Yes, the tenant who stays in place gets below-market rent, which is great for that individual. But that tenant becomes trapped. Once you’re paying $1,200 for an apartment that would rent for $2,400 on the open market, you can’t afford to move even if your job changes, your family grows, or you’d prefer to live in a different neighborhood. Rent control creates immobility. The Stanford economists Rebecca Diamond, Tim McQuade, and Franklin Qian found that rent control reduced tenant mobility by nearly 20% in San Francisco. Young families stay crammed into studios because they can’t afford to move to a larger unit. Empty nesters live in family-sized apartments because moving would mean giving up their rent control. This misallocation creates human misery disguised as protection. With less movement, the supply of available apartments is sharply reduced, eventually leading to higher rents and, in turn, even less movement.

The prospective tenant—the person trying to find an apartment—gets destroyed by rent control. When I keep a tenant paying $1,200 because rent control won’t let me raise the rent appropriately, I have to make up that revenue somewhere. So when the next apartment becomes vacant, I can’t rent it for $2,400 (the average market rate). I need to rehab the unit and rent it for $3,200 to offset the revenue I’m losing from the controlled unit. I explained this exact dynamic to a Los Angeles city councilman years ago. I said, imagine I have two apartments, each paying $900 rent, with $800 in expenses per unit. I made a total profit of $200. Now, suppose rent control holds one apartment at $400 rent while my expenses stay at $800.

I’m losing $400 on that unit. So when the second apartment becomes vacant, I fix it up beautifully—granite counters, the works—and can rent it for $1,400 because the tenant moved out voluntarily. Now I have one unit at $400 and one at $1,400, which averages back to $900 per unit, and I still make my $200 profit. But the city councilman said, “Where does somebody who can afford $900 rent go?” I told him, “Turn right on Alvarado and look under the freeway. They’re living in tents.” The councilman understood completely, but he said if he voted against rent control, he’d lose 19 renter votes for every landlord vote he’d gain. So he’d be out of office in two years and unable to fight any battles. Once again, common sense loses to protect the government.

Rent control also destroys the housing supply. When I bought my first buildings in Koreatown, there were approximately 1.2 million rent-controlled units in Los Angeles. Today, that number is close to 600,000. The other 600,000 units didn’t disappear into thin air—landlords sold to developers who demolished the buildings and constructed new, non-controlled luxury apartments, which could be rented at market prices. So, rent control has cut the affordable housing stock in half, while at the same time, the city invited hundreds of thousands of new residents through sanctuary city policies. Where do these people live? Many end up homeless. The Stanford research on San Francisco found that landlords subject to rent control reduced the rental housing supply by 15%, leading to a 5.1% citywide rent increase. So rent control, designed to make housing more affordable, actually drove up rents across the entire market by shrinking supply. Politicians, however, do not care, as it helps them remain in power.

The broader economy suffers too. Research from Cambridge, Massachusetts, where rent control was eliminated by referendum in 1994, showed that removing rent control increased property values by 45% for formerly controlled properties and boosted neighborhood property values by an additional $1.7 billion through spillover effects. Rent control imposed a $2 billion deadweight loss on Cambridge’s housing market, with more than half of that cost borne by owners of never-controlled properties. Rent-controlled properties drag down entire neighborhoods by reducing landlords’ incentive to maintain and improve buildings. The comprehensive literature review by Konstantin Kholodilin, published in the Journal of Housing Economics in 2024, concludes that while rent controls effectively slow rent growth for controlled units, they produce a wide range of adverse effects affecting landlords, tenants, and broader society.

How Rent Control Laws Feed Inefficient and Corrupt Government

The ostensible purpose of rent control is to protect tenants from being priced out of their homes. The actual purpose is to feed a massive government apparatus that justifies its existence through increasingly complex regulations, enforcement mechanisms, and bureaucratic intermediaries.

Consider the Los Angeles Housing Department’s inspection regime. Every four years, the city sends inspectors to every rent-controlled building to compile lists of violations. This was initially supposed to facilitate communication between landlords and tenants about maintenance issues. In practice, it became a system where the city positions itself as the tenant’s advocate against the supposedly rapacious landlord. The city doesn’t send inspectors to check whether tenants are damaging properties or failing to pay rent—those harms don’t interest the government. The city only cares about finding violations to punish landlords and win renters’ votes.

The Rent Escrow Account Program exemplifies government overreach. If the city determines that you haven’t corrected violations within their arbitrary timeframe, they can order your tenants to pay rent to the city instead of to you. The city holds those funds hostage until you’ve completed the repairs to their satisfaction. But here’s the problem: how can you afford the repairs if the city has confiscated your rental income? You can’t. So you’re forced either to sell the property at a steep discount or to take out expensive loans to make repairs while your cash flow has been cut off. This isn’t a system designed to maintain housing quality. It’s a system designed to force landlords out of the rental business. If you ever do manage to get the building out of the program, the City only returns half the rent, citing overhead costs on their part, which ate up the balance.

The “free attorney” program transforms simple contract disputes into expensive legal warfare. If a tenant doesn’t pay rent, that’s a straightforward matter: did they pay within the three-day notice period or not? Yes or no. But now the city provides free attorneys who file for jury trials, submit lists of alleged habitability violations to the county health department (which the health department files without even sending an inspector to verify), and turn a $2,000 eviction that takes two months into a $20,000 ordeal that takes six months or longer. During that time, the tenant lives rent-free while the landlord loses income, pays attorney fees, and watches other tenants decide they, too, can stop paying rent without consequences. If you are lucky, that is all that happens. Recently, these FREE attorneys have also filed habitability lawsuits, even if they cannot produce any evidence, which requires your insurance company to defend you. Once the claim is made, your rates skyrocket, and the insurance companies most likely will settle to avoid a jury trial.

The city now requires landlords to provide free refrigerators and stoves. This might sound trivial until you calculate that for a landlord running 250 units, the mandate requires spending $250,000 to give appliances to tenants who are already paying below-market rent—tenants who, in many cases, have more wealth than small mom-and-pop landlords who saved their entire lives to buy three or four units for retirement income. The requirement to provide free appliances has nothing to do with habitability. It’s pure wealth redistribution, using landlords as the intermediary rather than raising taxes to fund social programs directly.

Every one of these programs requires staffing, enforcement, and bureaucratic overhead. The city employs inspectors, attorneys, administrators, and clerks. These government workers have salaries, pensions, and health benefits. The larger the rent control apparatus grows, the more government employees depend on its continuation for their livelihoods. So the system perpetuates itself, adding new mandates and restrictions each year to justify expanding budgets and headcount.

The pandemic exposed how easily the government can use emergency powers to convert rent from a contractual obligation into an optional payment. For more than three years, the city declared that tenants who self-certified as “affected by COVID” didn’t have to pay rent. Being affected by COVID could mean anything—it required no proof, no documentation, no verification. Tenants checked a box saying they were affected, and rent became optional. We were owed nearly half a million dollars in back rent at one point. The city eventually made federal funds available, not to help landlords recover some of those losses, but to realize that tenants would never be able to get out of the debt they had created. Even with funds available, I had to hire someone with a laptop to go door-to-door, assisting tenants in filling out paperwork, because many wouldn’t acknowledge they owed rent in the first place. The City said they did not have to pay.

During the pandemic moratorium, all the eviction attorneys let their staff go because there were no eviction cases. So when the emergency finally ended, we filed 30-35 evictions simultaneously, before the city or the defense firms could hire enough free attorneys to clog the system. We won 34 of 35 cases because there were no attorneys to defend the tenants. This is not a justice system. This is warfare where the government has chosen sides and provided weapons to one combatant while hamstringing the other.

The city councilman who understood my explanation of the $400 apartment and the $1,400 apartment couldn’t vote for reform because he’d lose his seat. That’s the core problem: rent control creates a voting constituency that elected officials depend on. In Los Angeles, there are 19 renters for every landlord. No politician who represents a district with that ratio can afford to side with landlords on any issue, no matter how economically sound it may be. So the system ratchets in only one direction—more controls, more restrictions, more requirements, more government intervention. And each intervention creates more problems that require more intervention to “solve.”

What Happens If Hyperinflation Strikes

Los Angeles rent control creates a particularly dangerous vulnerability in a hyperinflationary environment. To understand why, you need to grasp the time lag between when expenses rise and when landlords can raise rents to cover them.

Rent control allows increases once per year, typically tied to the Consumer Price Index. But the CPI is backward-looking—it measures what inflation was, not what it is or will be. In the current LA County formula, the percentage increase is based on 60% of the average CPI over the previous 12-month period, with a maximum cap of 3-4%. That means that if inflation is running at 20% annually, landlords can raise rents by no more than 6%. The result is a massive gap between rising costs and stagnant revenue. The system is further rigged by how they define CPI. They have removed anything that fluctuates to avoid making this number too large, as it is tied to Social Security increases and many others. It is in the Fed’s best interest to keep this number as low as possible, not to state the actual inflation rate.

Consider a landlord’s expense structure. Property taxes in California are capped at 2% annual increases under Proposition 13, so those remain relatively stable. But insurance, utilities, maintenance, repairs, and labor costs all rise with inflation. In a 20% annual inflation environment, your insurance bill jumps 20%, your water and electricity bills jump 20%, your landscaping costs jump 20%, your plumbing repairs cost 20% more, and your property management fees rise 20%. Your rental income increases 3-4%. The math doesn’t work.

What happens to landlords in this scenario? They have three options. First, they can subsidize operations from their personal savings, essentially using their capital to keep properties afloat while hoping inflation moderates. This works only if they have substantial reserves and only for a limited time. Second, they can defer maintenance, allowing properties to deteriorate. Leaking roofs don’t get fixed. Broken appliances don’t get replaced. Painting waits. Landscaping gets cut back. The buildings decay gradually, and the neighborhoods decline with them. Third, they can sell to developers who will demolish the buildings and construct new, non-controlled luxury apartments. This is what happened to half of LA’s rent-controlled housing stock over the past 25 years.

Tenants in rent-controlled buildings might initially think hyperinflation benefits them—after all, their rent stays relatively flat while their wages (in nominal terms) rise. But this is an illusion. First, their landlord’s declining financial position means worse maintenance and service. Second, as landlords sell to developers and the controlled housing stock shrinks, tenants who need to move find far fewer affordable options. The tenant who benefited from rent control loses that benefit the moment they try to relocate. Third, the overall housing shortage worsens, driving market rents even higher and creating more homelessness.

The financial system would see massive distortions. Landlords with fixed-rate mortgages benefit from inflation eroding the real value of their debt, but only if they can cover their operating expenses. If rent increases lag far behind expense increases, the mortgage advantage becomes meaningless—you might owe less in absolute terms, but you can’t make the payments because your cash flow has collapsed. Properties would face foreclosure not because landlords are irresponsible, but because government-mandated rent restrictions prevent landlords from charging enough to cover costs.

The city would face a housing catastrophe. Rent control already reduced LA’s controlled housing stock from 1.2 million units to roughly 600,000 units over the past few decades. Hyperinflation would accelerate that trend dramatically. Landlords would rush to sell while their properties still have value, developers would snap up buildings to demolish them, and the affordable housing stock would contract even faster than it already has. Homelessness, already severe in Los Angeles, would explode. The tent cities under freeways would grow into entire tent neighborhoods.

The political response would likely be precisely wrong. Progressive politicians would blame landlords for abandoning the rental housing market and demand even stricter rent controls, stronger tenant protections, and harsher penalties for landlords seeking to exit the market. This would accelerate the collapse. The correct response would be to eliminate rent control, allow rents to rise to market levels, and use government funds to subsidize rents for truly needy tenants. But that would require admitting that rent control was a mistake, and no Los Angeles politician will make that admission.

I’ve structured my investments to better withstand hyperinflation than most landlords. I’ve upgraded my buildings to attract higher-income tenants with good credit who care about protecting their financial reputations. These tenants pay rent even in difficult times because they understand the long-term consequences of defaulting. I’ve kept my buildings small enough to avoid political targeting. When I bought a 72-unit building in a lower-income neighborhood earlier in my career, the city health inspector arrived with a television crew and a city councilman to make an example of me. I lost the building because they took away my rental income, and I could not pay the mortgage. This taught me that flying under the radar matters. I’ve also focused on buildings in areas where gentrification increases the pool of creditworthy tenants, and those tenants are your inflation protection. But even with those strategies, hyperinflation would be devastating. The only real solution is to eliminate rent control, and that won’t happen until the system has already collapsed.

A Philosophical Perspective on the LA Rental Situation

Los Angeles rent control is a category error in political philosophy. Progressive advocates see housing as a right that the government must guarantee, alongside police protection and public education. But housing is not a public good—it’s a private good that requires ongoing investment, maintenance, and management by the private sector. When the government mandates that we provide a private good at a price below its market cost, the inevitable result is shortage, deterioration, and misallocation.

The language around rent control reveals the philosophical confusion. I can no longer call myself a “landlord” because the city decided that term is racist—supposedly because it evokes plantation owners in the antebellum South, even though “landlord” derives from feudal England and has nothing to do with American slavery. This kind of linguistic manipulation serves a purpose: it transforms landlords from businesspeople providing a service into oppressors extracting wealth from vulnerable tenants. Once that frame is established, any level of government intervention seems justified.

But the landlord-tenant relationship is voluntary. I own a building. A tenant wants to live in an apartment in that building. We agree on a rent. The tenant pays the rent, and I provide the housing and maintain the property. If either party is unsatisfied, the tenant can move, or I can choose not to renew the lease (subject to just-cause requirements). This is the normal operation of a market. Rent control breaks this symmetry by giving tenants property rights in apartments they don’t own. Once a tenant has rent control, they possess something valuable—the right to live in a unit at below-market rent—and that right becomes a form of property that the tenant can keep indefinitely.

The economics literature is nearly unanimous in its condemnation of rent control. Yet the practice persists because politics overwhelms economics. Renters outnumber landlords 19 to one. Rent control creates an immediate, concentrated benefit for current tenants at the expense of future tenants, prospective tenants, landlords, and the broader housing market. Current tenants are organized and visible. The people harmed—future tenants who can’t find housing, prospective tenants priced out of the market, homeless people living in tents—are diffuse, disorganized, and often not yet looking for housing when the policies are enacted.

This is the public choice theory of rent control: a concentrated interest group (current tenants) captures political benefits at the expense of diffuse groups (landlords, future tenants, the homeless) who lack political power. Once the system is in place, it becomes entrenched. Government workers staff the enforcement apparatus. Tenant “advocates” make careers fighting for expanded protections. Politicians build entire constituencies around rent control. Any attempt to reform the system faces ferocious opposition from these groups, even when the reform would benefit the city as a whole.

Los Angeles illustrates the problem of the government treating society as a zero-sum game. When I told the city councilman about the $400 and $1,400 apartments, he immediately understood that rent control forces me to charge above-market rent on vacant units to offset the below-market rent on controlled units. But the city sees landlords making money and assumes that money must be coming at someone’s expense. If I’m making $200 profit from two apartments, the city thinks that $200 represents exploitation of tenants. The possibility that I’m providing a valuable service—housing—in exchange for fair compensation never enters the equation. Everything is framed as landlords taking from tenants.

This mindset leads to cascading interventions. Rent control doesn’t achieve its stated goals, so the city adds just-cause eviction protections. Those protections don’t work, so the city adds free attorneys. Free attorneys aren’t enough, so the city adds mandatory appliances. Mandatory appliances don’t solve the housing shortage, so stricter rent caps are needed. Each intervention creates new problems that supposedly require new interventions. The system grows more complex, more dysfunctional, and more divorced from market reality with each iteration.

Rent control is a moral hazard for cities. It allows politicians to claim they’re helping affordability without spending any government money. The cost is borne by landlords through reduced property values and tenant subsidies, and by future tenants through reduced housing supply and higher market rents. Those costs are invisible to voters in the short run. Current tenants see their rent increase by only 3% and think the city is protecting them, unaware that the city is simultaneously making it impossible for them to find a new apartment if they ever need to move.

If I could redesign the system, I would eliminate rent control entirely and replace it with rent subsidies for genuinely needy tenants, funded by general taxation. A rent subsidy is transparent—everyone can see how much it costs and who benefits. It’s targeted—only tenants who genuinely need help receive assistance. And it preserves market signals—landlords still charge market rent, which gives them an incentive to maintain properties and build new housing. Tenants still have mobility because they’re not trapped by below-market rent in a specific unit. The subsidy allows them to apply their assistance to any apartment they choose.

But this will never happen in Los Angeles because it would require admitting that rent control is a failed policy. The political coalition supporting rent control—tenant advocates, progressive politicians, and government workers who administer the program—is too powerful to overcome. So the system will continue until it collapses under its own contradictions. The housing stock will keep shrinking. Homelessness will keep growing. Market rents will keep rising. And politicians will keep blaming landlords for problems that government policy created.

Rent control allows politicians to claim they’re solving housing affordability while actually making it worse, to reward current tenants while punishing future ones, and to confiscate private property value without compensation while calling it “tenant protection.” The Swedish economist Assar Lindbeck famously said that rent control is the most efficient technique currently known for destroying cities, apart from bombing. Bombing requires international conflict. Rent control only requires politicians responding to the incentives created when tenants outnumber landlords 19 to 1.

Selected References

Autor, David H., Christopher J. Palmer, and Parag A. Pathak. 2014. “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts.” Journal of Political Economy 122(3): 661-717.

Diamond, Rebecca, Tim McQuade, and Franklin Qian. 2019. “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” American Economic Review 109(9): 3365-3394.

Glaeser, Edward L., and Erzo F.P. Luttmer. 2003. “The Misallocation of Housing Under Rent Control.” American Economic Review 93(4): 1027-1046.

Gyourko, Joseph, and Peter Linneman. 1989. “Equity and Efficiency Aspects of Rent Control: An Empirical Study of New York City.” Journal of Urban Economics 26(1): 54-74.

Kholodilin, Konstantin A. 2024. “Rent Control Effects through the Lens of Empirical Research: An Almost Complete Review of the Literature.” Journal of Housing Economics 63: Article 101983.

Sims, David P. 2007. “Out of Control: What Can We Learn from the End of Massachusetts Rent Control?” Journal of Urban Economics 61(1): 129-151.

Turner, Margery A. 1990. “Housing Market Impacts of Rent Control: The Washington, D.C. Experience.” Washington, DC: Urban Institute.

California Legislative Information. 2019. “Assembly Bill 1482: Tenant Protection Act of 2019.” Available at: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1482

Los Angeles County Department of Consumer and Business Affairs. 2024. “Rent Stabilization and Tenant Protections Ordinance.” Available at: https://dcba.lacounty.gov/rentstabilizationprogram/

Los Angeles Housing Department. 2025. “Rent Stabilization Ordinance (RSO) Information.” Available at: https://housing.lacity.gov/renter-protections-2

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Appendix #1: Why Rental Property Remains an Exceptional Investment Despite These Challenges

The section below is a gift for anyone who owns even a single-family house. Some of the content was contributed by my friend Denis Portero. Denis never believes I am listening to him, but I always save notes. Back to Gary:

After everything I’ve told Robert about the nightmare of Los Angeles rent control, he might wonder why anyone would invest in rental property at all. The answer is that real estate, properly structured, offers advantages that no other investment class can match. Even in Los Angeles, even with rent control, rental property remains one of the best ways to build wealth over time. Let me explain why.

I will put the most significant benefit first, so you do not miss it. It applies to nearly all of us.

The step-up in basis at death is the largest gift in the entire tax code. When I die, my properties will receive a step-up in basis to their current market value. This means all the appreciation during my lifetime—which could be millions of dollars—will never be taxed. My wife or other heirs can sell the properties immediately after my death and pay zero capital gains tax. Or they can hold them and continue collecting rental income and a massively increased depreciation value. Either way, decades of appreciation are exempt from taxation entirely. This isn’t a loophole; it’s a deliberate feature of the tax code designed to encourage capital formation and wealth transfer across generations.

The second most powerful advantage is leverage. When you buy stocks, you pay cash for the full value of the shares. If you invest $100,000 in stocks and they appreciate 10%, you make $10,000. But when you buy real estate, you typically borrow 60-80% of the purchase price. If you buy a $500,000 building with $100,000 down and a $400,000 loan, and the building appreciates 10%, you’ve made $50,000 on your $100,000 investment—a 50% return on your cash. Leverage magnifies returns on the upside. Yes, it also magnifies losses on the downside, but real estate has historically appreciated over time, especially in supply-constrained markets like Los Angeles.

The United States is one of only two countries in the world where residential real estate loans are commonly structured as long-term, fixed-rate, non-recourse debt. In most countries, mortgages are variable-rate and fully recourse—if you default, the lender can pursue your other assets. In America, you can lock in a 30-year fixed rate, and if the property declines in value, you can walk away, and the lender’s remedy is limited to foreclosing on the property.

This is an extraordinary benefit. When I bought buildings in the early 2000s, I locked in interest rates around 5-6% on 30-year loans. Today, those loans are still at 5-6% even though the properties have tripled in value, and my rental income has more than doubled. Inflation has eroded the real value of my debt while my income has grown. That’s wealth creation through financial engineering. As a note, any building with more than four units is not considered residential but commercial. Commercial loans typically cannot be fixed for longer than 5 years. However, even this break gives you a 5-year window to refinance and hold for another 5 years.

Depreciation is another significant tax advantage. The IRS allows me to depreciate residential property buildings over 27.5 years (39 years for commercial property). This means I can deduct roughly 2% of the building’s value each year as a “loss” even though the building is actually appreciating. Depreciation can only be taken on the building value and not the land. On a $1.5 million building that is 67% building, that is $36,000 per year in paper losses that shelter my rental income from taxation. Real estate is the only investment where you’re allowed to deduct the theoretical decline in value of an appreciating asset. This is a massive tax benefit that compounds over decades.

Rental income is not subject to self-employment tax. If I earn $100,000 from my accounting practice, I pay income tax plus 15.3% self-employment tax for Social Security and Medicare. If I earn $100,000 from rental properties, I pay only income tax on the income reduced by depreciation—no self-employment tax. This saves me roughly $15,000 annually per $100,000 of rental income. For a large portfolio, this amounts to tens of thousands of dollars in annual tax savings.

The 1031 exchange allows me to defer capital gains indefinitely by trading up into larger properties. If I sell a building for a $500,000 profit, I would owe capital gains tax on that profit unless I reinvest the proceeds into a like-kind property within strict timeframes. By trading up, I can continuously grow my portfolio without ever paying capital gains tax during my lifetime. This is unique to real estate—you can’t do a 1031 exchange with stocks or bonds.

The qualified business income deduction under current tax law allows me to exclude 20% of my rental income from taxation. This is a relatively new benefit from the 2017 tax reform, and it effectively reduces my tax rate on rental income by about 20%. Combined with depreciation, the QBI deduction means I could pay little or no tax on rental income even when I’m cash flow positive.

Rental property functions as a small business that I control completely. I choose which properties to buy, how to improve them, which tenants to accept, how to manage operations, and when to sell. This control allows me to optimize for my specific financial situation and goals. I can deduct business expenses—property management fees, repairs, maintenance, insurance, property taxes, utilities I pay, travel to inspect properties, home office expenses, and more. These deductions reduce my taxable income while allowing me to reinvest in the properties.

Rental property provides inflation protection that few other investments offer. When inflation rises, rents rise, often faster than inflation itself in supply-constrained markets. Yes, rent control limits how quickly I can raise rents on occupied units, but turnover allows me to reset rents to market levels. Over a 10-20 year period, rental income tends to track or exceed inflation.

Meanwhile, my fixed-rate mortgage debt becomes easier to service as inflation erodes its real value. A $400,000 mortgage at 5% interest costs the same in nominal dollars 20 years later, but those dollars are worth perhaps half as much in real terms. So inflation works in my favor on both sides of the ledger—increasing income while decreasing debt burden.

Real estate is a tangible asset that I can improve. If I buy a stock, I can’t make it worth more through my own efforts. But if I buy an apartment building, I can upgrade units, improve landscaping, add amenities, implement better management practices, and increase the property’s value through my own actions. This is why I focus on rent-controlled properties—I buy buildings where rents are artificially depressed and work to bring them up to market through turnover and upgrades. I’m not just passively waiting for appreciation; I’m actively creating value.

The diversification benefits are substantial. Real estate has low correlation with stocks and bonds. When the stock market crashes, my rental income continues. Tenants still need housing. During the 2008 financial crisis, stock prices plummeted by 50%, but my rental income declined modestly and recovered quickly. During the dot-com bust in 2000-2001, my rental properties continued to appreciate while tech stocks collapsed. Real estate provides stability in a diversified portfolio.

The forced savings aspect of mortgages is underappreciated. Every month, a portion of my mortgage payment goes toward principal reduction. This is forced savings—I’m building equity automatically just by making my regular monthly payment. Over a 30-year mortgage, this adds up to hundreds of thousands of dollars in equity buildup, separate from any appreciation in the property’s value.

I can use creative strategies like house hacking (living in one unit of a multifamily property while renting out the others) and BRRRR (buy, rehab, rent, refinance, repeat) that aren’t available with other investments. I can also use seller financing, which isn’t available with other investments. These strategies allow me to maximize returns and minimize cash requirements.

The estate planning benefits are exceptional. I can place assets into trusts, limited liability companies, or other entities to provide asset protection and smooth wealth transfer. I can gift fractional interests to children gradually over time to take advantage of annual gift tax exclusions. I can create multi-generational wealth through proper structuring.

Even in Los Angeles with its oppressive rent control, these advantages make rental property worthwhile—if you know what you’re doing. I’ve avoided the worst aspects of rent control by specializing in properties with high turnover that allow rents to rise to the market value. I focus on tenant quality rather than quantity, stay small enough to avoid political targeting, and locate in areas experiencing gentrification. My returns over 25 years have been exceptional despite rent control, not because of it.

For Robert and his readers, the lesson is this: real estate is hard work. It requires knowledge, skill, and careful attention. It involves dealing with regulations, tenants, maintenance, and occasional problems. But the combination of leverage, tax benefits, inflation protection, cash flow, appreciation, and control makes it one of the most powerful wealth-building tools available. The key is to understand the rules of the game, structure your investments properly, and be willing to adapt as circumstances change. Don’t let the challenges of rent control scare you away from real estate entirely—just be smart about where and how you invest.

Yoho: Yes, I know this all is intimidating, but you can do it even if you are young. The key point is that you must acquire the knowledge to do the deals before you move, or your chances of losing will be high. The best single reference is BiggerPockets.com. Start listening to the podcasts daily and graduate to the other material. Network aggressively and acquire mentors.

Bear in mind that Gary, Denis, and I were once where you are now. None of us came from family money. Even if you have little to begin with, some programs allow you buy with as little as 3-5 percent down. As the years pass and the properties are paid off, you will become increasingly comfortable, for real estate is a long-term play. As Tony Robbins said, “Most people overestimate what they can accomplish in a year – and underestimate what they can achieve in a decade!”

Appendix #2: A brief history of metastatic rent control

Governments worldwide discovered that wartime emergency powers could be extended indefinitely to benefit the numerically superior tenant class at the expense of property owners. The policy emerged during World War I, when material resources were diverted from housing construction to war production, creating acute housing shortages in New York, London, Paris, and other major cities. Governments froze rents as a temporary emergency measure to prevent social unrest among the urban populations whose support was needed for the war effort. The pattern repeated identically across Western nations—emergency powers, temporary freezes, promises of removal once normalcy returned.

But normalcy never returned to the rental market. When WWI ended, the emergency measures remained in place. New York’s rent control lasted from 1920 until 1929, when a building boom finally convinced legislators that the emergency was over. The concept lay dormant for little more than a decade before World War II revived it on an even larger scale. In 1942, the federal government imposed rent control on roughly 80% of America’s rental housing stock through the Office of Price Administration. This wasn’t isolated to America—virtually every combatant nation implemented similar controls. Tenants soon outnumbered landlords by a dramatic margin in every city. Once rent control was in place, removing it meant raising rents for millions of voters. The beneficiaries of removal—landlords and future tenants—were either a small minority or not yet politically organized.

Concentrated benefits (below-market rent for current tenants) trump diffuse costs (higher market rents for everyone else, reduced housing supply, urban decay). Politicians discovered they could claim credit for “protecting” tenants without spending government money by forcing landlords to provide the subsidy.

The policy’s intellectual foundation was always suspect. Even during WWII, economists Milton Friedman and George Stigler warned that rent control would lead landlords to sell properties rather than rent them at controlled prices, reducing rental housing supply and increasing homeownership. Their prediction proved correct—the US homeownership rate jumped 10 percent between 1940 and 1945, more than the entire postwar increase from 1945 to 1960, despite severe restrictions on residential construction during the war years.

After WWII, during the 1950s housing boom, most American cities abandoned rent control. But it was revived in the 1970s during inflation and the economic malaise of the Carter years. Los Angeles, San Francisco, Berkeley, and New York reimposed controls, this time as “second generation” policies that allowed modest annual increases rather than absolute freezes. These spread through domestic political dynamics, not international influence. California passed the Costa-Hawkins Act in 1995 to prevent more cities from adopting rent control, only to have the state legislature circumvent that restriction 24 years later by imposing statewide control through AB 1482. Today, at least 14 of 36 OECD countries (Organisation for Economic Co-operation and Development) maintain some form of rent control, with recent expansions in Spain, Germany, Ireland, and Scotland. The pattern is consistent: housing crises create political pressure, politicians take the path of least resistance by imposing controls, the controls worsen the underlying crisis, and the cycle repeats.

Jim Arnold’s final word:

Rent control attacks the middle class, the strongest opponent of the cabal.

Landlording should be a respected business in the overall scope of commerce. They’ve made it into a high-stress gamble.

It’s a pincer movement dynamic, similar to a hammer and an anvil. The government, secretly controlled by the cabal, attacks from above with laws. The bankers with their quasi-governmental privileges tighten the screws, while the low-competence masses annoy from below with late payments and neglectful wear and tear.

The politicians champion the “downtrodden” to secure their vote and the votes of other convenient idiots.

Bankers pummel from above, the malcontented rabble harass from below.

Editing credit: Jim Arnold of Liar’s World Substack and Elizabeth Cronin

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