Housing Policy

California Governor Gavin Newsom Throws His Support Behind Rent Control Bill

The Golden State toys with bad fixes to its worsening housing affordability problems.

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Efforts to expand rent control in California got a big shot in the arm this week when Democratic Gov. Gavin Newsom announced his support for capping annual rent increases.

"I'm hopeful…that I will get on my desk in the very near term a rent cap bill because it is long overdue in the state of California," Newsom said, according to the Los Angeles Times.

The governor's endorsement should not come as a surprise. In 2018, Newsom threw his support behind a legislative rent control effort in the event that a rent control initiative on the ballot that year failed. (It did.)

Newsom's recent comments are a boost for AB 1482, sponsored by Assemblyman David Chiu (D–San Francisco). Chiu's bill would cap annual rent increases at 7 percent plus inflation, or 10 percent, whichever is lower. These rent caps would not apply to buildings less than 10 years old; single-family homes owned by small, non-corporate landlords; college dormitories; or to existing rent-controlled units with stricter rent caps.

The bill also prevents landlords, with some exceptions, from evicting tenants without "just cause"—meaning they'll have to show a government-approved reason for giving the tenant the boot. Landlords will also have to pay tenants relocation assistance equal to one month's rent if they initiate a no-fault, just cause eviction, a category that includes taking a unit off the rental market or substantially renovating it.

The legislation would expire in 2023.

These provisions constitute a significant watering down of the original proposal introduced by Chiu earlier this year, which would have capped rent increases at 5 percent plus inflation for 10 years.

So far Chiu's bill has passed the more left-leaning State Assembly, as well as several Senate committees. Newsom's rhetorical support might help it get over the finish line.

Rent control is typically derided by economists as a counterproductive way of ensuring affordability. Price controls, they argue, cap the returns to housing development, deterring investment in new construction or encouraging landlords to take existing properties off the market.

There's also evidence the policy encourages landlords to defer maintenance of their properties, leading to deteriorating housing stock, or 'shabbification'.

A recent policy analysis from the University of California Berkeley's Terner Center suggests that the relatively high rent caps included in the bill, and its exemption of new construction, would go a long way toward lessening its impact on new housing supply.

Outside of very hot markets, the Terner Center analysis notes, most California renters are not seeing rent increases higher than what Chiu's bill would allow.

But while some of the amendments to AB 1482 might mitigate some of the risks associated with rent control, it doesn't eliminate them.

A Standford University study of a 1994 rent control expansion in San Francisco found that landlords responded by taking their properties off the market, leading to a 15 percent reduction in rental housing and an increase in rents citywide.

When Oregon passed a similar 7 percent plus inflation rent cap bill,  Mike Wilkerson, of economics consulting firm ECONorthwest, told Reason that the relatively generous price ceiling could still dissuade a majority of developers who build housing projects with the eye of selling them off to investors.

The three-year sunset provision of Chiu's bill might alleviate some of these concerns. That expiration date, however, also generates a lot of uncertainty about what kind of regulatory environment developers and investors are putting their money into.

The Terner Center analysis notes that even with a rent cap, plenty of units across the state are still unaffordable for most renters.

"Even capped, the current market rent of $3,727 for a two-bedroom in Oakland is unaffordable for all but the wealthiest households," reads their analysis. "A broader set of policies that target production and preservation—from streamlining the permitting and approval process for new construction to curbing construction costs to improving and expanding financing mechanisms—are also critical to ensure that the crisis doesn't continue to worsen."

The driving force behind California's high housing costs is its low rates of housing production. That, in turn, is largely a product of land use regulations that limit where housing can be built, charge high fees to developers of new housing, and require developers to navigate a cumbersome approval process that can delay the delivery of projects by years.

Rent control does nothing to fix any of this. Even the watered-down bill endorsed by Newsom could make the problem worse.

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  1. Look, onerous regulation caused this problem so only onerous regulation can fix it.

    1. Big problems require big ideas.

    2. No, Fist. The regulations weren’t onerous ENOUGH. We need MORE onerous regulations.

      1. This time it will be different.

        1. …as long as no kulaks come around. Can’t trust that lot.

    3. “I think we have to go all out. I think that this situation absolutely requires a really futile and stupid gesture be done on somebody’s part.”

    4. Limit supply, limit rent increases so maintenance will be limited. A lesser supply of poorer quality rental units will result. You heard it hear first after seeing it happen everywhere such policies have been implemented.

    5. Newsome won’t be happy until he turns the entire state of California into a sh!thole like he did to San Francisco

  2. A sucker is born every 15 seconds.

    1. Abortion is hell. It used to be every 5 seconds.

  3. We have a shortage of housing. Hey, let’s make it so it is harder to make a profit renting or building housing. That should fix it.

    These people are retarded all of them.

    1. The goal is to get the money out of housing. Just like we did for politics.

      1. “Just like we did for politics.”

        Yeah, because that worked so well….NOT

  4. College dormitories are exempt.
    That gives the game away. It is not about curbing excessive rent increases.
    The government can raise rents as high and as fast as they want.
    How would the governor respond if Trump said he was going to cap dorm costs at all state owned colleges? Or just stop all federal aid to schools where dorm costs went up faster than inflation?

  5. The driving force behind California’s high housing costs is its low rates of housing production.

    And once again no mention of the price of LAND and the main things that affect that. Cuz of course that couldn’t possibly have anything to do with the cost of housing cuz land doesn’t even exist anymore.

    1. What is it that you feel is so important about the price of land?

      1. It’s a major component of the cost of housing. Land prices are higher in much of CA than everywhere outside NYC.

        And land prices behave differently than capital to the same external distortions. eg land use regulations actually LOWER the price of land (by eliminating paths to profitable use) – but they have no effect whatsoever on capital. Building/construction regs OTOH RAISE the cost of construction but have no effect whatsoever on land.

        And distorted land prices (that aren’t understood cuz they aren’t separated from capital/construction) also then distort development decisions – cuz land cannot be depreciated whereas construction costs can.

        1. It’s a major component of the cost of housing.

          No it isn’t.

          I see 2.5 acres in Lancaster (w/in commuting distance of LA) for about $9k. You could put sixteen houses on that. You’re going to spend at least a quarter million per unit building them. Land acquisition is not typically a significant cost of development, even in CA.

          land use regulations actually LOWER the price of land (by eliminating paths to profitable use)

          They lower the price of land that gets regulated into uselessness. They raise the price of the rest of the land.

          To your point, in Danville, CA, which has some of the highest property values in the country, and where surrounding land use is tightly regulated, your price-per-acre goes upwards of $3M, at which point, yes – that’s a factor in your cost of development.

          But none of that has anything to do with rent or housing costs except tangentially.

          Cost of construction determines whether something can be profitable given the rents/sale prices that can be expected. It doesn’t have anything to do with what those rents/prices are.

          This article was about the destructiveness of rent control, not the destructiveness of zoning and land-use regulations, which Reason has also written about.

    2. “And once again no mention of the price of LAND and the main things that affect that.”

      Explains why they have no tall apartment buildings, eh?

      “You know, land is expensive and at a premium. We should…LIMIT how high a building can be built. That will certainly increase housing supply and bring prices into some rational area. Right?”

      1. Explains why they have no tall apartment buildings, eh?

        It kind of does in LA. LA not only has high land prices. It BELIEVES that it has relatively low/normal land prices cuz the prop tax system eliminates a ton of land/housing from ever going to market and hugely distorts people perceptions of what land actually costs. Which means it’s impossible to even assemble the land footprint necessary for a taller building. And because everything else around it is single-family (which is the ‘standard’ sort of max-density housing that one would expect in low land value areas), a developer would have to go thru three/four zoning/NIMBY hurdles – one for duplex-type, bigger for low-rise, enormous for high-rise. Everywhere else (outside China’s fake cities), that sort of ‘density’ change takes decades and is done a bit at a time. You don’t get low-rise until there are duplexes around. And you don’t get high-rise until there are low-rises around. CA decided to freeze itself in a 1976 time warp with Prop13 – and for LA in particular it means they all think they live in distant low-land value suburbs.

        You can understand the dynamic when you separate land and capital into separate components.

        1. LA not only has high land prices.

          No, it doesn’t – see my link above for current LA land prices.

          Sprawl makes perfect sense when you take into account how LA developed and when it developed. The car, the nuclear family, the flight of farmers from the industrialized Midwest.

          I can’t make sense of the rest of what you say. You seem to be both faulting LA for not having lots of tall buildings (despite it, in fact, having lots of tall buildings) and saying that LA isn’t ready for tall buildings because they haven’t built their medium-sized buildings yet, like the Chinese would have.

          I feel like you’re reading things about LA and have never actually been there.

          CA decided to freeze itself in a 1976 time warp with Prop13

          Ay, you’re back on this again. This has been explained to you already. No offense, but you don’t seem to understand how property tax works in CA. And CA was already sprawled out before Prop 13. This is just your pet hobby horse that you feel you need to shoehorn into this for some reason, but it’s unrelated here.

          1. my link above for current LA land prices.

            Extracting fucking Lancaster and calling that ‘LA’? I learned to pilot a glider there. Yes I understand that 5+ hour/day spent commuting (assuming arrive at work by 6am) is considered ‘commuting distance’ now but that sort of stupidity is one (peripheral – like Lancaster) reason why you all have a housing affordability problem. You could just as easily live in Bakersfield and take Greyhound to LA every day – as fast, as cheap, and one could sleep until just before arrival (still at 6 am though). Which would mean the solution to housing unaffordability in LA is to build housing in Bakersfield. Yeesh. Talk about stuck on stupid.

            1. “Extracting fucking Lancaster and calling that ‘LA’? I learned to pilot a glider there. Yes I understand that 5+ hour/day spent commuting (assuming arrive at work by 6am) is considered ‘commuting distance’ now but that sort of stupidity is one (peripheral – like Lancaster) reason why you all have a housing affordability problem.”

              From the same link, you pathetic piece of shit:
              “.39 Acres Los Angeles, Los Angeles County, CA
              $199,000
              Spectacular views and privacy tucked away in Sherman Oaks Hills. Build your dream home with panoramic views of mountains, valley and neighboring hills!… ”
              Yes, stupid begins to cover your level of ‘intelligence’.
              Fuck off.

              1. Math ain’t your deal is it.

                .39 acres for $199k = $510k /acre

          2. I can’t make sense of the rest of what you say.
            Here’s a pop density map of LA The solution to housing affordability is to build more housing IN the LA Basin. To increase the density to 10,000+/sq mile in larger swathes. That number is not SF (18k) or NYC/European dense (27+k) and it doesn’t need to even be over that entire basin. Santa Ana is the only one of the 20 biggest ‘sub-cities’ in LA basin over 10k. That means LA simply needs more duplexes. The problem is duplexes (for rental) don’t deliver a good enough ROI when land prices are 500+k/acre. Which they are despite your delusions. LA’s window for duplexes as a housing solution was about 15-20 years ago. THAT is the housing problem yall face now. You’re (maybe) ready for duplexes – and that horse is now glue.

            And yes – Prop13 and its corollaries is the reason why. Higher property taxes (assuming not a ton of loopholes/exemptions – which is the NYC problem) are magnitudes more ‘effective’ at lowering land costs than ‘land-use regs’. TX (and much of Midwest and some other states like NH here and there) have low land prices cuz they have higher prop taxes. And cuz of that they also have plenty of affordable housing. The West in particular has affordability problems cuz it has low prop taxes. When long-time owners ain’t gonna sell for any reason whatsoever cuz they can pass a frozen-to-1976 proptax to their descendants, as in CA, that just compounds the affordability problem. And THOSE are the folks who also ensure that even duplexes can’t be built.

            1. “Here’s a pop density map of LA The solution to housing affordability is to build more housing IN the LA Basin. To increase the density to 10,000+/sq mile in larger swathes. That number is not SF (18k) or NYC/European dense (27+k) and it doesn’t need to even be over that entire basin. Santa Ana is the only one of the 20 biggest ‘sub-cities’ in LA basin over 10k. That means LA simply needs more duplexes. The problem is duplexes (for rental) don’t deliver a good enough ROI when land prices are 500+k/acre. Which they are despite your delusions. LA’s window for duplexes as a housing solution was about 15-20 years ago. THAT is the housing problem yall face now. You’re (maybe) ready for duplexes – and that horse is now glue.”
              No, we don’t face a problem; there is nothing other than your fantasies which tell us that the LA basin should house 10K/sq. mile. The fact that you can’t afford to live in the basin is your problem, not mine or those who live there. And per above, land price isn’t anything like your fantasies.

              “And yes – Prop13 and its corollaries is the reason why. Higher property taxes (assuming not a ton of loopholes/exemptions – which is the NYC problem) are magnitudes more ‘effective’ at lowering land costs than ‘land-use regs’.”
              See above: Fuck you and your social engineering via taxes. Prop 13 was a good start; it needs to be extended to every land owner.

              “TX (and much of Midwest and some other states like NH here and there) have low land prices cuz they have higher prop taxes. And cuz of that they also have plenty of affordable housing.”
              Bullshit.

              “The West in particular has affordability problems cuz it has low prop taxes. When long-time owners ain’t gonna sell for any reason whatsoever cuz they can pass a frozen-to-1976 proptax to their descendants, as in CA, that just compounds the affordability problem. And THOSE are the folks who also ensure that even duplexes can’t be built.”
              Yes, the 5 people who still hold property under Prop 13 are the cause of a supposed ‘housing crisis’; has nothing to do with rent control, for example.
              Were you born this way, or did it take long years of effort to achieve this level of stupidity?

              1. Prop 13 was a good start; it needs to be extended to every land owner.

                Hawaii’s kind of done that. Without the feudal discrimination – just a very very low prop tax for everyone. So low that people from elsewhere are perfectly happy to buy a home and leave it empty all year to avoid dealing with the hassles of renting it out. Or say that they’re leaving it empty in order to avoid the ‘hotel room’ tax that dumber states think will offset a low prop tax.

                Guess what state has the worst housing affordability? And the worst homelessness? And is now trying the same moronically pointless futilities as CA? Go ahead guess. Oh hell you’ll never guess.

                Ok ok ok. Here’s a hint. Like CA, they don’t actually care about solving the problem either. Unlike CA, they’ve come up with a way to market that failure. They call it ‘the cost of living in an island paradise’.

              2. there is nothing other than your fantasies which tell us that the LA basin should house 10K/sq. mile

                Fine. Then see if building housing in Bakersfield will solve the unaffordable housing in LA problem.

                hint – it won’t. My ‘solution’ ain’t social engineering. It is understanding what actual supply and demand is. If you got an unaffordable housing problem, then the additional housing supply needs to be built where the housing is currently unaffordable. Ain’t rocket science

        2. “It BELIEVES that it has relatively low/normal land prices cuz the prop tax system eliminates a ton of land/housing from ever going to market and hugely distorts people perceptions of what land actually costs.”

          Now, THERE is a wondrous statement!
          Which might make sense in the third or forth parallel universe.
          Sorry, writing that check tends to demolish false beliefs regardless of your fantasies.

        3. Oh, and Prop 13 was only a good start.

  6. Why is it every time I see Gavin Newsom, I expect him to launch into a Gordon Gekko speech.

  7. Excellent. Prove to everyone even a state as privileged as California can be run into the ground if only the leftists try hard enough.

  8. I’m so glad I left California years ago.
    The place is occupied by the mentally ill who live with fools who are comfortable with voting for the criminally insane who do their best to ensure California remains a progressive shit hole.
    Some things in life never change.

  9. “…A Standford University study of a 1994 rent control expansion…”

    I assume this is a typo and it’s supposed to be ‘Stanford.’

    1. No. Standford Community College. Home of the Groin Pulls. Great school in the piss-poor school tier.

  10. LOL… Housing crisis in a blue state??? How can that be!!! Detroit was a blue ran city and they have housing ALL over the place – cheap. I do believe Detroit is California’s role model.

  11. Nice, my contract is ending next year and I’ll finally be free of the Cali shit hole. Nice of them to prop up my property value just as I’m getting ready to exit.

  12. He’s still gotta pay for that BS train remember..

  13. “”I’m hopeful…that I will get on my desk in the very near term a rent cap bill because it is long overdue in the state of California,” Newsom said, according to the Los Angeles Times.”

    Yep, there is far too much rental housing in CA, and he plans to fix that.

  14. No worries….. once enough more people flee that SHole landlords will be begging for anyone to come and rent their houses. The Raving Nuisance thinks he is “fixing” the state. He is only hastening its collapse by this sort of stinking thinking.

    Carry on, Mr. Nuisance…….

  15. I don’t think rent control is really as bad an idea as basic economics makes it out to be. The reason is it’s rarely done in isolation to an otherwise free and competitive market – which is the textbook example everybody remembers. Normally you have some state or city that’s already effectively capped the supply of housing. So you’re dealing with a near-vertical supply curve. Supply isn’t responding to price as it would in a functional market. In that situation you can cap the price without impacting supply. And in that warped situation rent control actually makes for good policy. I mean why should landlords be allowed to benefit from the state limiting the supply of housing?

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  17. More rent control is NOT the answer! Yes, more SF landlords are opting to take their units off the rental market because they were burned by bad tenants. Want more units available and at below market rates? There should be a system created to protect landlords from these bad tenants. If the government could certify tenants and take the responsibility to remove them if there is just cause to evict, more units will become available. I would be willing to accept 2/3 of the market rate for rent for these “certified” renters!

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