One of the factors driving California’s housing crisis is the upward pressure rent-controls laws place on home prices. Everyone except those enjoying the dividends of rent-controlled housing would be better off without the laws. Yet a measure that will allow them to spread will be on the ballot this fall.
Rent control is a vital cog in the regulatory and statutory machinery that produces steep housing prices in California. Because, as economist Thomas Sowell has written, “it becomes very difficult to profit from residential housing in a city with rent control,” the additional housing needed to keep prices at true market rates goes unbuilt as the incentive to build is quenched. This keeps a city’s housing stock artificially low, which forces home prices to artificially high levels.
That’s the worst of it — but not all of it. Rent control also contributes to the decline of neighborhoods.
“The housing that currently exists is either reduced in quality or eliminated entirely,” says Sowell. “Because landlords no longer profit from their property, they are no longer able or willing to make necessary repairs.”
Lest anyone think that Sowell is an outlier with his observation, legendary economic journalist Henry Hazlitt reached the same conclusion:
“Unless the appropriate rent increases are allowed, landlords will not trouble to remodel apartments or make other improvements in them. In fact, where rent control is particularly unrealistic or oppressive, landlords will not even keep rented houses or apartments in tolerable repair.”
More than a dozen California cities have laws that allow the government to place limits on how much owners can charge for rent of their property (which not only depresses housing stock but is a gross violation of property rights). Not coincidentally, several of them — Los Angeles, San Francisco, San Jose, and Santa Monica — have some of the most unaffordable housing in the world.
In fact, international real estate service Nested has said that San Francisco is the most unaffordable city on the planet for renting a home, Los Angeles 10th.
It might seem difficult to believe, given the last two decades of legislative nonsense that’s been pumped out of Sacramento, but at one time California policymakers enacted quality law. In 1995, they passed the Costa-Hawkins Rental Housing Act. It prohibits rent-control laws from being applied to housing units that were first occupied after Feb. 1, 1995, and on properties that were already exempt from local residential rent-control ordinances on or before that date.
Costa-Hawkins “also allow(s) landlords to reset rents to market rates when properties transferred from one tenant to another,” according to the nonpartisan Legislative Analyst’s Office, and protected single-family homes from rent control.
It was truly a bipartisan bill, introduced by Democratic Sen. and now Congressman Jim Costa and Republican Assemblyman Phil Hawkins, passed by a Democrat-majority Legislature, and signed by GOP Gov. Pete Wilson.
While alone it could not hold off the state’s housing crisis, since rent control is one of multiple ingredients in California’s toxic housing hash, Costa-Hawkins is still important. Yet tenant activists concerned with only their narrow perspective, as well as several influential members of the majority party that passed the law in 1995, want to repeal it. Apparently they haven’t read that the Legislative Analyst’s Office has said that expanding rent-control laws would not only fail to increase the supply of housing, it would, “in fact, likely would discourage new construction.”
Or maybe the activists behind the repeal and their political allies just decided to ignore the warnings. That happens a lot in California.
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.