California voters earlier this month firmly rejected a proposition that would have repealed the state’s restrictions on rent-control laws. Nearly 62 percent said no, local governments cannot regulate the price of housing.
But don’t mistake the vote with a sudden embrace of free-market housing policies. After all, October polling by USC Dornsife/Los Angeles Times found that 41 percent of likely voters were leaning toward voting yes and only 37 percent were leaning no, while the most common response to the question asking why California housing is so unaffordable was “lack of rent control.”
Fallacious or not, the theory that voters were duped is fueling activist hunger to violate private property rights. One set of agitators has confirmed that despite the failure of Prop 10, it is “absolutely moving forward” with a city charter amendment that would allow regulators to set rent ceilings on housing in Sacramento. The group recently qualified a local initiative — the “Sacramento Community Stabilization and Fair Rent Charter Amendment” — for the 2020 ballot.
The initiative would limit rent increases to 5 percent. It would also make it difficult for owners to evict renters who aren’t paying or are violating other terms of their rental agreements. It further establishes a rental-housing board which would have the authority to set annual rent adjustments and establish a regulatory framework.
Of course, we know this agenda will do exactly the opposite of what its proponents claim it will. They should know this too, since the economic science on this question was truly settled decades ago. Swedish economist Gunnar Myrdal, a Nobel Prize winner who was considered to be “an egalitarian sympathetic to socialism,” told us more than 50 years ago that meddling in the market is a mistake.
“Rent control” he said, “has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.”
It’s a fitting criticism. But it’s a rather tame line compared to the colorful language employed by fellow Swedish economist Assar Lindbeck, also a socialist. He noted in the early 1970s that “in many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”
So even the statists get it — at least the intellectual ones.
Rent control destroys by disincentivizing the very activities needed to increase a region’s housing stock. Developers aren’t inclined to build multi-family housing when the return on their investment is diminished and, in some instances, wholly foreclosed on by artificial ceilings on the rent they can charge. So, the homes the market is begging for go unbuilt, and the inevitable shortage keeps prices high.
At the same time, both multi- and single-family home owners have little reason to make improvements and perform basic maintenance on their rental properties if they are prohibited from making profits on their capital investments. Consequently, homes, even neighborhoods, can get that bombed-out look Lindbeck warned about.
The failure of Prop 10 does not improve California’s housing crisis. It merely stopped it from becoming worse. Deep problems remain. The median home price passed a record $600,000 a few months ago, according to the California Realtors Association. That’s nearly 2.5 times higher than the national median home price. Real estate service Nested ranks San Francisco as the most unaffordable city in the world in which to rent a home, Los Angeles as the 10th most unaffordable. Two years ago, the McKinsey Global Institute found that half of the households across the state were unable to “afford the cost of housing in their local market.”
Don’t assume any of that means we’ve arrived at rock bottom. As a PRI brief on California’s housing crisis showed, government policy has distorted and strangled housing development, and the problems will continue to grow worse despite legislative nibbling around the edges in recent months.
California’s nonpartisan Legislative Analyst’s Office has said the state needs 100,000 new housing units each year in addition to 100,000 to 140,000 that are expected to be built annually “to seriously mitigate” California’s “problems with housing affordability.” Those extra homes will never go up, though, until the many layers of government interference that discourage and often openly block home building are removed. Only then will California have a functioning housing market.