Why Rent Control Is Bad for California

Why Rent Control Is Bad for California

Proposition 98, the eminent domain measure that also would have phased out rent control, failed to pass on the June 3 ballot. That means rent control will continue to hurt both landlords and tenants in California because rent control laws restrict what owners can do with their property.

Suppose the state government passed a law requiring apartment owners in Sacramento to leave their units vacant for three months out of the year. During these months, the owners would have to rent their rooms – free of charge – to out-of-town construction workers for a public-works project.

This would be a clear “taking” of private property for public purposes, and citizens would justifiably cry foul. Yet, how is such a scenario so different from rent control?

If the market rent for a unit would be $1,200 per month, yet the government imposes a ceiling of $900, the government effectively strips the owners of one-fourth of their property. This thinking led proponents of Proposition 98 to link rent control with eminent domain takings.

Rent control is perverse because it designates a very small and unpopular minority – landlords – to shoulder the burden of a public goal, which is to provide affordable housing to poorer citizens. This approach would be absurd in other areas.

For example, if the government wants to ensure that poor people have enough to eat, it uses tax dollars paid by everyone in order to provide food stamps and shelters that distribute meals. Few advocates for the poor would recommend a law capping hamburger or milk prices at the grocery store, since it would be unfair to grocers and would cause all sorts of unintended consequences. The same is true for rent control.

If the public wants to help the poor, it should vote to give them housing vouchers paid for with tax dollars. This way everyone will know exactly how much the program costs, and the burden of it will be spread more evenly on all taxpayers, rather than one particular group.

The terrible irony with rent control is that it also hurts the tenants. By definition, the market-clearing rental price is the one that equates the number of apartments supplied by landlords with the number of units demanded by tenants. So if the government arbitrarily sets the legal ceiling below this rate, there will necessarily be a shortage, with more people trying to find apartments than landlords want to supply. This is why it is such a nightmare to find an apartment in major cities with rent control.

The dreaded “slumlord” is also a creation of rent control laws. When owners aren’t allowed to charge the market price, they find other ways to cut corners. Why fix the water heater at 2 a.m., make sure the elevator works or put on a fresh coat of paint every year? A long queue of needy tenants cancels the need to keep customers happy. In extreme cases, landlords actually abandon their buildings rather than operate them at a loss.

That is how rent control harms tenants. Rent control laws are inherently unfair to landlords as well, because they punish the one group that already provides housing. Such laws are like taxing only Red Cross employees in order to fund relief efforts for tsunami victims. The Golden State deserves better and should continue to pursue market-based reforms.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.