Rent control

California's Rent Control Advocates Are About To Get What They Want, Good and Hard

Everywhere rent control is tried, the same things happen. Landlords exit the market. Developers stop building apartments. Supply drops significantly.

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Tenants' rights groups are ecstatic that two major rent-control bills have sailed through the Assembly's Housing and Community Development Committee. Democratic supermajorities and Gov. Gavin Newsom's blessing may assure the bills will become law, thus offering the latest affirmation of H.L. Mencken's infamous quotation: "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

"We know that millions of tenants are one rent increase away from not being able to afford food, healthcare or even becoming homeless," said Assemblyman David Chiu (D–San Francisco), author of one of the bills. He's certainly right, but his "easy" solution will only make good housing harder to find and far costlier over the long term. He's just pandering to voters angry about high rents.

But the housing crunch largely is the fault of the Legislature's slow-growth land-use policies enacted over two decades, and local governments that have given in to the selfish demands of homeowners who are tired of congestion (and don't want lower-income people living nearby in apartments). Instead of fixing the mess government created, lawmakers want to make private owners subsidize rents of their customers. It's morally wrong and doesn't work.

Rent control has long been tried in California (Santa Monica, San Francisco), New York City and Europe. In Stockholm, the waiting list for a rent-controlled apartment is nine-to-20 years. But go ahead and get your name on the list. The same thing happens everywhere. Landlords exit the market. Developers stop building apartments. People stay in apartments for decades, thus eliminating housing mobility. Supply drops significantly, driving up rents region-wide. Young people and new immigrants have to double-up in overcrowded dumps.

In San Francisco, where typical rents are above $3,000 a month, there are 30,000 vacant apartments. Who would forego such enticing profits to leave units to languish? Owners who know just-cause evictions and rent control mean they can never get rid of tenants, even bad ones. Likewise, landlords don't upgrade buildings or remodel because rent control kills margins. They'll get to that stove repair when they get to it. Wherever rent control is enacted, the housing stock falls into disrepair.

It's not tough to research the perverse incentives of price controls, but California lawmakers are more about posturing than deep thinking. Fortunately, the worst measure, Assembly Bill 36, is dead. That would have amended the Costa Hawkins Act to allow localities to impose extreme forms of rent control. Voters rejected something similar in November.

But the two active measures are troubling. Following the lead of Oregon's recently passed statewide rental regulationsA.B. 1481 prohibits landlords from removing tenants unless the state deems it to be a "just cause" (failure to pay rent, limited types of bad behavior, the owner's decision to sell or move into the property if the lease allows it). Meanwhile, A.B. 1482 caps annual rent increases at 5 percent a year plus increases in the past 12 months' Consumer Price Index.

The philosophical arguments against such controls have not resonated with lawmakers. But perhaps they can think about what such laws to do the incentives of most small landlords. I've owned rental properties, so I can understand how property owners will react to these onerous rules.

Margins can be small after paying for repairs, mortgage, taxes, insurance, property management, any utilities and government fees. One roof replacement at $10,000 can obliterate a year's profit in a flash. Many landlords will sell their properties to single-family buyers and put the money in a mutual fund. It doesn't take many of these decisions to reduce a city's housing supply.

That mutual fund never calls at 2 a.m. about a stopped toilet, nor does it trash the living room. That gets to another point. Unlike big apartment complexes (where tenants might have to live after landlords with a few well-kept rental houses exit the business), small landlords don't have staff to attend rental-board hearings. They want few hassles. If tenants gain more legal rights to contest evictions, then landlords will have to expend more time and expense dealing with newly emboldened tenants. They will take fewer chances (e.g., allowing pets or renting to low-FICO-score tenants).

I rarely raise rents on residents, preferring to bring prices to market rate after they voluntarily headed to greener pastures. But if the state is going to dictate rent levels and encourage people to become permanent renters, then no landlord could afford to be lackadaisical about rent hikes. They will respond by imposing the full, legally allowable boost every year. They will become hard-nosed about payments and collect every cent in late fees.

That's reality, but California's hard-pressed tenants are demanding that the government provide rent relief. This is a democracy, so they're likely to get what they want, for good or ill. But they can't claim they weren't warned when the results fall short of the promises.

This column was first published in the Orange County Register.

Steven Greenhut is Western region director for the R Street Institute. Write to him atsgreenhut@rstreet.org.

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55 responses to “California's Rent Control Advocates Are About To Get What They Want, Good and Hard

  1. In San Francisco, where typical rents are above $3,000 a month, there are 30,000 vacant apartments.

    30,000 vacant apartments? People need places to live, here are places to live. I’ve got an idea for a new law in California…..

    1. You’d think the city would be kind enough to stuff the homeless in there so they could shit in the toilet instead of on the street.

      1. I think those people actually prefer to shit on the street.

      2. Toilet? A homeless guy gets an apartment, suddenly taking a dump on the floor is beneath him?

    2. This is also a city where the homeless are coddled and celebrated. 30,000 vacant apartments.

    3. There’s a whole lot of problems with the way San Francisco deals with real estate, but we have no evidence that there are currently 30,000 vacant apartments in the city.

      Look at the date for the article that is the source of this information: March 25, 2011. Over 8 years ago, on the tail end of the mortgage crisis. This is just a dishonest use of evidence. If you have some evidence that CURRENT vacancy rates are this high, then fine, but don’t use evidence that’s almost a decade old to make a point about what’s going on right now.

    4. Your new idea is an old idea. In many places in Europe, landlords either face high taxes for unoccupied housing, or the state just takes over unoccupied housing. Some US cities have thought about it as well.

      Congratulations for thinking like a progressive!

    5. California could free up lots of apartments by cooperating with the Feds and deporting all of its illegal aliens.

  2. Paraphrasing Heinlein: If the voters vote for the impossible, the disastrous possible will happen instead.

    1. I love me some good schadenfreude about Californians having to live with the results of what they’ve demanded as much as the next guy, but the problem is, once they’ve made living there utterly untenable, they tend to move to other places and fuck them up, too.

      I wonder what the legal situation would be with various states passing laws prohibiting people who move there from CA from voting for, oh, 20 years or so.

      “Yes, now that you’ve destroyed your old home, you can move here. But we’re not giving you a say in how it’s run.”

  3. Ah – California – the home of the progTard, who likes it ‘good and hard.’ up their arse without lube.

    Is anyone still California dreaming?

    1. It’s clearly the derpiest state.

      1. The coastal areas are the proglydyte havens. The eastern and far northern areas still manage to retain some level of sanity.

    2. Great place to visit. I try to make it to San Diego every other spring.

    3. I’m dreaming of getting out. But here is where the tech jobs are. I don’t know what I’ll do for retirement. I may actually get the fuck out. But no one wants an ex-Californian.

      But if this shit passes, my condo will be worth so much I could sell it and buy a mansion in any other state (except New York).

      1. You could buy a mansion in the right parts of NYS. Not NYC.

      2. There aren’t openings in the Austin, Denver, or Raleigh-Durham areas?

        1. No! There is nothing there! Californians need to stay in California.

      3. But no one wants an ex-Californian.
        If you want to come to Texas and become a Texan, we’ll shake hands and help you get started.
        If you come and start whining that there’s no gun control or strong unions or otherwise want to “turn Texas blue,” we aren’t going to be so friendly.

  4. He’s certainly right…

    But, I mean, is he really? If landlords in one city suddenly lost millions of tenants, it seems that they would lose a lot of money. I’m sure there must a system out there that would allow all that to work out. If I could just figure out what it is or maybe the libertarian writer for a libertarian magazine could come up with something.

    1. It means fewer new apartment complexes. Existing ones won’t be torn down, obviously. But it will make the incentives to maintain them a lot less. We’ve seen this story before. Crappy ass apartments that need court orders for the landlord to fix a faucet.

      But you’re also going to lose non-apartment rentals. Do we rent out the old home after mom and pop have passed away? Hell no! Rent out the spare bedroom? Hell no!

      I have a friend who has a huge house in Berkeley. One of those old boarding house style homes. Walking distance from Berkeley campus. He would rent out rooms to college students. Several years back he finally threw up his arms and stopped renting. Just him and his wife. All children moved out. Five or so spare bedrooms. No renters. He just won’t put up with it any more. The extra income isn’t worth the extra hassle.

  5. The only way California is ever going to be fixed is going to be waiting for the state to go bankrupt, revoking its statehood, then readmitting it to the Union in pieces.

    1. You seem to have misordered the words of “readmitting pieces of it to the Union”. Other parts of CA are just going to have to be administered as territories.

  6. I don’t know why I didn’t realize it before, but leftists are basically accelerationists at this point. I think they know damn well exactly what rent control does and that’s the point. Conditions deteriorate and then they can shift the blame onto the landlords. I think you can see where this is going. These people are like chaotic evil Communists who use the proles to keep themselves in and to expand their power, but control the proles to the point that there’s never an actual revolution.

    1. “chaotic evil Communists”

      There’s another kind?

  7. “We know that millions of tenants are one rent increase away from not being able to afford food, healthcare or even becoming homeless,” said Assemblyman David Chiu (D–San Francisco)”

    We know Chiu is full of shit.

    1. Interesting that he thinks a rent increase will do all this harm. What will a tax increase do to them?

  8. The trick of it that rent control policies usually stop kicking in above a certain price point. How do you think they cleaned up NYC? Developers only build expensive buildings, so over 30 years rents eventually skyrocket. Poor people have to move out, so crime plummets, but the elites dont care what happens to the lower/middle class.

    1. Just like Seattle. Progressives – aka white liberals – have priced everyone else out of the city. Diversity posers with an underbelly of racism. The progressive way.

      “We love black and brown people. It’s not our fault they can’t afford to live next door.“

      Uh huh.

  9. Everywhere rent control is tried, the same things happen. Landlords exit the market. Developers stop building apartments. Supply drops significantly.

    Well then we’ll force them to build and maintain new housing units! What good is the barrel of a gun if the state can’t use it to enslave people?

    1. Using the same logic that they want to apply to health care, if everyone just took the money they are currently spending on rent, mortgage payments, homeowner’s insurance, home upkeep, property taxes, etc. and gave it to the government, we could afford to build free public housing for everyone.

  10. There’s some important information in this article, but you really need to be more careful in your citations, to wit:

    “In San Francisco, where typical rents are above $3,000 a month, there are 30,000 vacant apartments.”

    Look at the date for your source article: March 25, 2011. Over 8 years ago. This is just a dishonest use of evidence. If you have some evidence that CURRENT vacancy rates are this high, then fine, but don’t use evidence that’s almost a decade old to make a point about what’s going on right now.

      1. Sure.

        I never argued that the number was necessarily incorrect. In fact, my precise point was that, if you’re talking about the present, then the evidence you rely on should be up to date, especially in an area of the economy where things can sometimes change rather quickly.

      2. That article about unoccupied homes in San Francisco doesn’t relate to the rental market. It also states that the percentage of unoccupied homes is considered quite small relative to the average rate in the US.

    1. BTW, vacancy rates are not the full story; what’s missing are all the units removed from the market for conversion back to single-family use, condo’d, or sold as TICs.
      In the block where I live, 16 units were removed from the rental market through those avenues.

    2. in all events it’s entirely a red herring.

      all those vacancies are just caused by temporal/spatial mismatch of potential tenants and available apartments + aggressive tenant rights policies. they are empty for this moment, but won’t be for long, you can’t instantaneously get someone in. people change jobs, move in, move out, get raises, get fired, sorting taxes time.

      the other cause is of course landlords not accepting those with questionable credit or work histories because it is impossible in the short term to remove a bad tenant, so they are waiting for a better tenant, who will arrive shortly.

      those rates aren’t high, I’m sure they are permanent.

  11. Of course this is the latest news out of California. The next step after this, eventually, is DeBlasio’s idea of seizing non-maintained rental properties. This is why I’m against the state control of zoning on SB-50. If the state gets control of housing, they eventually throw in a percentage (if you build a 4plex, 1 unit must be affordable, rent controlled, integration based on race, sexual orientation, whatever), the developer and other 3 buyers and taxpayers pay for the state placed tenants. If a tenant destroys one of the units, the state seizes it. When you get in bed with SJWs this is what eventually happens.

  12. A 5% + CPI is over 7%. That would double rents every 10 years. Maybe that is below the rate of increase during good times but recessions would see those rents get raised too. If that is the worst thing they do then all it will do is make new apartments really expensive to set the base level – maybe they do discounts that don’t count on the base rent. Most commercial leases escalate 3% a year.

    1. “A 5% + CPI is over 7%. That would double rents every 10 years. Maybe that is below the rate of increase during good times but recessions would see those rents get raised too.”

      No, the market (that invisible hand) won’t let rents increase in a recession.

  13. I assume Airbnb listings are doing quite well as renters use that method to find accommodation.

    There must be a definition in CA law for landlord. Do Airbnb listers fall under that definition? What’s the difference between a one-off week-long stay in someone’s house and a perpetually renewed week-long stay?

    1. In SF, a two-month stay is sufficient to establish residence and have the unit fall under ‘rent control’.
      For reasons which remain a mystery, SF has not yet outlawed Airbnb and the like; you can legally keep a unit off the market and offer it as temp rentals, and believe me, there are many of those also.
      I’m pretty sure that Airbnb’c contracts limit the stay, but if not, you can be assured SF landlords keep an eye on that.
      Which means if you are living in Airbnb spaces, you’re going to be moving on a regular basis.

      1. someone on the city council or their friends must have some airbnb units then.

  14. No surprise…its Commiefornia…that liberal cesspool where people are fed up and leaving in droves. The morons (read politicians) just gave people yet another reason to leave!

  15. Anyone who has seen the PBS show “The Bronx Is Burning” has seen the end game of restrictive rent control. Most of those building that were built in the 1920’s and 1930’s were rent controlled during WW II. Everything was fine until the 1960s. Suddenly inflation broke out causing the cost of operating these mostly little maintained buildings to soar. The whole enterprise became unprofitable for the building owners who did not even answer the phone anymore. When taxes went into arrears, they simple let the city take them over. Ultimately, squatters moved in and after that came the fires.

  16. […] I’m sure this time rent control will work when it’s consistently failed every other time. Like socialism. […]

  17. In the 21st Century, any time ‘the Market’ seems to be doing something stupid, the odds are good it is reacting to a Government regulation that nobody thought enough about.

  18. California doesn’t make good decisions….ever.

  19. Swedish economist (and socialist) Assar Lindbeck asserted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

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