Rent Control: Good Vibes but Very Bad Policy
Does the City’s Rejection of Prop 33 Indicate a Local Swing Against Renter Protections?
Editor’s Note: Opinions expressed by contributors to the Westside Observer are the author’s point of view. They do not reflect the position of WSO. As always, we welcome opposing commentary submissions.
• • • • • • • • • • November 2024 • • • • • • • • • •
In this last election, California voters had a chance to revisit rent control. They were once again asked to decide if the Costa-Hawkins Act should be repealed, allowing municipalities to decide their own rent control policies.
Proposition 33 asked this question of voters in November, and they roundly rejected the proposal not only statewide, but even city-wide as well (albeit by a narrower margin). If Proposition 33 had passed, then cities would have been free to have unlimited rent control on all housing units, regardless of type and age. It would have exacerbated housing costs in California even more. Rent Control sounds like a great idea in theory, but it leads to more unaffordability in practice. Economists, regardless of political persuasion, tend to agree that rent control increases housing unaffordability in the long term. So why do politicians keep doubling down on this policy, and take us further down the unaffordability rabbit-hole?
I am not suggesting an elimination of rent control over night. Unfortunately, the system has created a situation in which it is too late for many tenants to move and afford another unit. However...”
We’ve all heard it before. “The rent is too damn high!” To control housing costs, tenant advocacy groups are always clamoring for stronger tenant protections and expanded rent control. But even as they do so, they do not realize that they are advocating for even higher rental costs and restricted housing supply in the long term. Rent control is popular politics but terrible policy, often sold to people who want a quick easy fix to the affordable housing crisis.
The Costa-Hawkins Act of 1995 limits the ability of municipalities to apply rent control. No city or county can enact rent control on any single-family home and any “new” residential development. “New” takes on a rather subjective meaning, especially in cities with pre-existing rent control. In San Francisco, this is interpreted as any building built after July 1979. Statewide, the legislation forbids rent control to be applied to any building built after February 1995. The idea behind this legislation was that too much rent control would exacerbate housing costs and limit housing construction. Economists in a near-consensus agree that price controls on housing tend to increase housing costs. Furthermore, it changes behaviors and disincentivizes renters from leaving the rental market and purchasing their own homes. They lose control over their own housing situation and put themselves at risk for eviction.
Instead of recognizing the problem of housing affordability and thinking through the issue, many politicians would rather double down on this bad policy to the point at which it creates perverse situations in which renters are subsidized by landlords who earn far less and in some cases, are even worth less, and which renters often own and live in homes out of town yet keep a rent-controlled unit in San Francisco. That is an abuse of the spirit of rent-control, which is to help residents stay in their units.
However, as we have seen in Argentina, the elimination of price controls in the housing market has led up to a 40% decline in rental prices, and it is not hard to understand why. Landlords, reticent to enter the rental market or more prone to keeping their units only available for short-term vacation rentals, have now flooded the rental markets with newly available units. Going forward, developers will now be more likely to build more housing as they are more likely to get a good return on investment. In San Francisco, our onerous rental policies that treat landlords like the enemy are a reason why many of them choose to keep units off the market as it becomes too risky for them to rent units.
I am not suggesting an elimination of rent control over night. Unfortunately, the system has created a situation in which it is too late for many tenants to move and afford another unit. However, suppose we grandfather all existing tenants with rent control while abolishing it for all new tenants. In that case, we can make a significant dent in our affordability crisis without tearing up neighborhoods and, more accurately, ascertain the true need for housing. It will certainly be less and will give San Francisco a better argument against our absurd 82000 housing unit requirement by the year 2030.
Stephen Martin-Pinto is a property owner who lives on the Westside.
Novmber 2024
