OpEd: Rent Control Has Poor Implications


The California state initiative which will appear on this November’s ballot that would prohibit state limitations on local rent control measures is poised like a dagger at the heart of the state’s housing and rental markets. As a result of its population, Los Angeles would be particularly affected. By enabling the enactment of draconian local rent control measures at the city and county levels, the state initiative would throttle the construction and development of low-income rental housing: there would be less, not more, low-income rental housing in the state as a result of the initiative. Many low-income Californians and “mom and pop” landlords would lose their homes and properties. Corporate ownership of housing would increase.
Wherever it has been tried, rent control’s results have been the same:

1) less construction and development of new rental housing

2) degradation of existing rental housing

3) fewer rental housing units

4) increased discrimination against ethnic minorities and older renters

5) increased homelessness

The state initiative to prohibit limitations on local rent control measures would be the worst possible approach to California’s housing needs.

November ballot initiative

The initiative that will appear on this November’s ballot would eliminate state restrictions on city and county rent control measures. Current state protections with respect to local rent control measures would be lost. In particular, current state law requires that any local rent control measure allow rent increases of 5% a year plus the rate of inflation, allow decontrol of rent for new renters, exempt single-family residences and exempt new rental housing construction. By eliminating these state protections, locales could adopt policies that could – and would – devastate the housing and rental markets in the state.

The state initiative would repeal the Costa-Hawkins Rental Housing Act of 1995. Cities and counties could impose virtually any rent control proposal they wished. Annual rent increases could be reduced to as little as 1 to 2% a year, and, crucially, rents would not be decontrolled for new renters. That is, when a rental housing unit becomes open through the departure of the previous tenant, rent could be controlled from the initiation of the rental agreement and not just once a tenant moves in. Accordingly, for example, if a landlord had kept a rental rate low for a long-term tenant or even family members, the landlord would be required to retain the low rate for a new renter, irrespective of current market conditions. Many low-income rental property owners would be wiped out. This would result in maximum rent increases allowed by law every year for all renters in the state.

Similarly, the proposal to include single-family residences in rent control measures would do great harm to rentals in homes and to homeowners. Landlords who rent rooms in their home would find themselves unable to change rental rates and conditions as their own circumstances, personal and financial, change. This would discourage rental of extra rooms in homes, lose existing rental units in homes, and result in the loss of homes by low-income homeowners. The imposition of rent control in single-family residences is a bright red line that rent control measures should not cross. Single-family residences are too personal and individual to subject them to rent control measures.

Discourage new homes from being built

Further, the imposition of rent control on new rental housing construction would only discourage the construction of rental housing when more rental housing is desperately needed. This outcome could not be more clear.

The California state initiative to “Prohibit State Limitations on Local Rent Control” would trash the State of California: there is no doubt about it. Less rental housing would be constructed and brought into use. Fewer rental housing units, especially for poor people, would be developed each year and predominantly lower socioeconomic homeowners would be less likely to rent rooms in their homes, primarily to lower socioeconomic renters. Fewer rentals would be available for veterans, families, and those with special needs. Investment in and improvement of rental housing would decline significantly – to the detriment of the economy and to employment. Homelessness would go up, and there would be more non-price discrimination against minorities and older renters. Corporate ownership of housing would increase as homeownership diminished and “mom and pop,” small rental housing owners were forced out.

The answer to California’s rental housing challenges is not to regulate existing and new rental housing more, but to encourage more construction and development of additional rental housing. By throttling construction and development of new rental housing, the state rent control initiative that will appear on this November’s ballot would make rental housing conditions far worse, not better.

Lanny Ebenstein, Ph.D., is president of the California Affordable Rental Housing Coalition. He also teaches economics at UCSB and is author of the first biography of the Nobel Prize-winning economist Milton Friedman.

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Hannah Welk
Hannah (Madans) Welk is the interim editor at the Los Angeles Business Journal and the San Fernando Valley Business Journal. She previously covered real estate for the Los Angeles Business Journal. She has done work with publications including The Orange County Register, The Real Deal and doityourself.com.

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