and JON HAVEMAN
The Los Angeles City Council's passage of an ordinance designed to close what it considered a loophole in the state's rent-control Ellis Act is well-intentioned. It seeks to prevent landlords from tearing down and rebuilding apartments just to raise rents, and provides some incentives to landowners to create affordable housing units.
Along the way, unfortunately, the rhetoric from the legislation's supporters firmly places the blame for our housing shortage in this city on the wrong shoulders: the very people who actually invest their money and build new housing.
The ordinance papers over our real housing problems in Los Angeles. Landlords and developers are not the cause of our housing problems, but in fact, are our only hope. They are the ones actually helping to build us out of this situation. In the long run, the ordinance will exacerbate this shortage by increasing the financial and regulatory burden on landowners, further discouraging new construction and densification.
This is particularly true in the urban infill market, which at this stage of the city's development should be its central focus. While some low-income households will benefit by having affordably priced units built for them, this will only serve to increase rents elsewhere in the system due to the implicit subsidization in the new ordinance.
By reducing the incentive to rebuild the existing housing stock, housing in the city will slowly decay, hurting the very neighborhoods most in need of new development.
Rent control, in any form, has never helped housing shortages. Instead, it has only led to sizable inequalities among those in the rental market, diminished the overall incentive for construction, and as a result, caused inner-city neighborhoods to decline in the long run as development is pushed to areas outside the control of the city.
We may be running out of time. The 1980s was the decade of the apartment. The stock of rental units in the city and county of Los Angeles grew at a rapid pace and provided the area with plenty of room for growth. The 1990s, in contrast, was a decade marked by stiff resistance by local zoning boards to any sort of densification, particularly when it came to workforce housing,NIMBYism in its cruelest form.
Lack of construction
This local resistance led to a lack of construction and left L.A. County with the worst crowded-housing situation in the nation 13 percent of housing units and 20 percent of rental units have more than one person living in each room. This is not just a personal crisis for these families, but a social crisis. Crowded living situations are positively correlated with crime rates and negatively correlated with educational performance even after controlling for issues such as income and race.
The building boom within the owner-occupied segment of the housing market in the early years of this decade has prevented this situation from reaching crisis status. However, home and condo construction has now slowed and rents are on their way back up.
The housing shortage has gone to the point of driving families away from the area. Last year saw a net out-migration from the county of about 0.4 percent. The last time population growth was so slow was in 1994 but then it was a lack of jobs, rather than a lack of homes that drove people away.
The solution to this problem is relatively straightforward. The power of local zoning boards to restrict construction should be reduced and densification promoted. City and county regulations must be streamlined and fees reduced. There should be an implicit recognition that the construction of rental units at any level of the apartment market will help relieve pressures on rents for all levels of the market. Accordingly, all housing should be promoted.
In addition, we need to realize that rising rents are a powerful stimulant to new construction. Efforts to stabilize rents will only exacerbate the problem.
We are worried about the Los Angeles economy. The lack of workforce housing has severely restricted our ability to grow and in the process, it is driving out the young families who represent the future of this fine city. We are hurting businesses by reducing the supply of labor and in doing so, are reducing our ability to compete in an increasingly competitive world. This can be fixed, but the right tools must be used. Rent control is not that tool.
Christopher Thornberg and Jon Haveman are the principals of Beacon Economics LLC in Los Angeles.
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