The Wrong Remedy

The Wrong Remedy
Faced with a housing crisis, California could further restrict supply
Rent control sounds appealing but is counterproductive

Economist May 10th 2018
“THE rent is too damn high,” read the signs
brandished by tenant advocates at rallies held
in late April in Oakland (median monthly rent:
$2,950), Los Angeles (median monthly rent:
$2,700), and Sacramento (median monthly
rent: $1,895). The activists gathered, along
with local politicians, to announce that they
had collected the signatures necessary to
include a proposal on California’s November
ballot that would pave the way for cities to
expand rent control. This, they feel, is the only
way to mitigate the shortage of affordable
housing in the state.
The measure will seek to repeal the Costa
Hawkins Rental Housing Act, a law passed in
1995 that places restrictions on local rent
controls. It bars the 15 Californian cities that
have them from introducing rent control in
buildings constructed after 1995, and freezes
previous municipal rent-control ordinances in
place. In Los Angeles, this means that local
leaders cannot mandate rent control in any
building completed after October 1978. The
law also regulates how much landlords can
increase rent between tenants, and bans rent
control on single-family homes. California’s
legislators tried and failed to repeal Costa
Hawkins earlier this year.
The renewed push for an expansion of rent
control comes at a time of fierce debate over
the future of California’s biggest cities, where
housing is in short supply and rents have been
rocketing. According to Trulia, a propertyrental
and sales platform, median rents in
Oakland grew by 51% between 2012 and
2017; in San Francisco, they grew by 38%
over the same period. Over half of California’s
renters spend more than 30% of their income
on shelter, according to the California Budget
and Policy Centre, a research group. Instead of
straining to cobble together rent, many
Californians are trading palm trees for cheaper
pastures in Texas, Arizona and Nevada. Others
have been forced onto the streets.
Homelessness in California rose by 14%
between 2016 and 2017, according to the
Department of Housing and Urban
Development, a federal agency, compared
with 1% nationally. Gloria Cortez, a mother of
six, alleges she was recently evicted from her
home in Pomona after complaining that mould
was making her feel ill. She and her family
cannot find another apartment they can afford,
and now divide their sleep between hotels,
cars and parks.
Champions of expanded rent control argue that
it will allow cities to protect and increase their
stock of affordable housing. “We need tools to
prevent price gouging,” says Elena Popp,
executive director of the Eviction Defence
Network, one of three groups leading the
charge to repeal Costa Hawkins. “It’s insane
that a developer can go in and buy a building
where the median rent is $1,100 and bump it
up to $2,700 from one day to another.”
Such stories are troubling, but rent control is
likely to make California’s housing problems
even worse. A team of economists at Stanford
University recently studied a 1994 ballot
initiative in San Francisco that brought in rent
protections for small multi-family housing
built before 1980. The policy inspired
landlords affected by it to convert their units
into condos or redevelop their buildings,
reducing their supply of rental housing by
15% and pushing up rents by 5% across the
city. Paul Habibi, a professor at the Anderson
School of Management at the University of
California, Los Angeles, who invests in a mix
of rent-controlled and non-rent-controlled
property in the city, also points out that rent
control does not necessarily benefit those most
in need. “It seems sort of perverse that you can
end up with a banker making $400,000 in a
rent-controlled unit, while a plumber is forced
to pay market rates.”
It would make more sense to build some
houses. Data released by the California
Department of Housing and Community
Development in January suggest that 98% of
the state’s cities are failing to approve the
construction needed to keep pace with
population growth. In Los Angeles, the main
barrier is an antiquated zoning code that is
heavily skewed towards single-family homes.
In April California’s state legislature blocked a
plan to abolish caps on building height in
some places, which would have allowed
developers to scrape the sky.
The Golden State is thus likely to respond to
its shortfall by restricting housing supply even
more. No polling has yet been done on the
movement to repeal the restrictions on rent
control, but a survey conducted by the Institute
of Governmental Studies at the University of
California, Berkeley, of registered Californian
voters in 2017 found that 60% of those polled
supported rent control. Just 26% opposed it.

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