Rent control

California's Political Leaders Strike Deal on Rent Control

Rent increases could be capped at 5 percent plus inflation under a new agreement struck by Gov. Gavin Newsom and state legislative leaders.

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California's governor and legislative leaders have come to an agreement on changes to a rent control bill that will likely see the Golden State become the second state in the union to adopt statewide regulation of rental prices.

AB 1482, first introduced in February by Assemblyman David Chiu (D–San Francisco), will be amended to cap rent increases at 5 percent plus inflation per year until 2030, Gov. Gavin Newsom's office told the Los Angeles Times on Friday.

"The high cost of housing and rising rents are preventing California families from getting ahead," said Newsom in a joint statement with Chiu, Senate Leader Toni Atkins (D–San Diego), and Assembly Speaker Anthony Rendon (D–Lakewood). "We are pleased to announce we have come to an agreement on a series of amendments to AB 1482 that would create strong renter protections."

These new amendments to the bill would essentially renege on concessions that were made in late May to get AB 1482 through the Assembly. Those included a 7 percent rent cap and having the bill expire in 2023.

The announced changes have shifted the state's Realtors Association from neutral to opposed, reports the Times. However, strengthening the bill has failed to appease critics on the left who want stricter limits on rent hikes, and who say they will continue with their efforts to put a rent control initiative on the 2020 state ballot.

The amended version of AB 1482 still needs to be approved by both chambers within the next two weeks—a tight but doable deadline.

Its passage would mark a major win for the country's ascendant rent control movement.

In February, Oregon passed the country's first statewide rent control measure, limiting price hikes to 7 percent per year plus inflation on buildings older than 15 years. In June, New York's legislature passed a bill strengthening existing rent control regulations in New York City and lifting a prohibition on other cities imposing their own rent control policies.

California has a similar prohibition on local rent control ordinances known as the Costa-Hawkins Act. Passed in 1994, the bill bans localities from imposing rent control on units built after 1995 and on single-family homes and condos.

That bill also grandfathered in rent control laws passed by cities like Los Angeles and San Francisco, meaning that major portions of both cities' rental housing stock are already subject to price regulations.

In 2017, local governments were also explicitly given the power to require developers to include rent-restricted units in new buildings.

Tenant advocates argue that rent control helps keep renters in their homes and protects them from opportunistic price hikes. Economists generally oppose rent control, arguing that it does little to help poor tenants and that it comes with a host of bad incentives.

Landlords of rent-controlled units are incentivized to not maintain their properties, they say. Others might redevelop their properties into condominiums that they can sell at market rates, while developers, looking at reduced returns from construction, can be dissuaded from building more units.

Empirical studies suggest both sides are right—to a degree.

A study of an expansion of rent control in San Francisco published in American Economic Review this month found that "while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law."

Another study from researchers at the Massachusetts Institute of Technology found that the elimination of rent control in Cambridge, Massachusetts resulted in higher rents and more tenant turnover but also a more-than-double increase in housing investment.

There's a growing consensus that California's high housing costs are the product of too little supply. Supply is in turn constrained by onerous zoning laws and lengthy permitting processes for new housing.

Ultimately, rent control is a poor way of dealing with the high rents that result from these limits on new housing development. Far from fixing the state's affordability problems, it could well make them worse.

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  1. Empirical studies suggest both sides are right—to a degree.

    You know, you say that – but your two supporting examples only show that rent controllers are wrong.

    Tenant advocates argue that rent control helps keep renters in their homes and protects them from opportunistic price hikes.

    I think they mean that rent control *forces* renters to stay and allows *them* to be opportunistic instead of the owners.

    1. Price controls, like all other aspects of central planning, would only work in a perfectly static economy, where no one ever innovates, gets sick or old or dies, where weather never upsets the status quo, where earthquakes and fires are non-existent.

      Sure it protects tenants in the short run. But that itself is an economic upset which requires further changes which are also upsets; and the “need” for price controls is a sign that something has changed. So much for that static society!

      1. They don’t even work in a static economy. The very act of setting a price changes the individual incentives that form the economy, thereby causing the economy to shift to a new state. Which then changes the conditions the original price was fixed at for, necessitating more price fixing.

        Its like the Uncertainty Principle but for people.

        1. Yes, I addressed that 🙂 I meant that if price controls were built in to a perfectly static economy, they would work. But you could never get to that point.

          The only perfectly static economy I can think of is a simulation on a statist’s computer. “Assume a spherical cow …”

          1. From far enough away (DC) all cows (people) are points.

  2. There’s a growing consensus that California’s high housing costs are the product of too little supply.

    By people who are idiots or are oversimplifying.

    ‘Too little supply’ is just another way of saying ‘too much demand’. And California’s doing its best to rectify the latter.

    In any case, the ‘problem’ is the price at where the supply and demand curves meet. Not that there’s too much of one or the other. Until these people understand that, they will continue to push for rent control.

  3. One of my libertopia fantasies is that every bill has to include expected consequences, and anyone can sue to declare a bill defective and void if it does not live up to those expectations. Any legislator who voted for a defective bill would be banned from ever again receiving any government money — not pay, not pension, not anything.

    I would loooove to see the expected consequences for bills like this, because they would at least have to pay lip service to reality. A few idealistic newcomers might be willing to wager their future pay and pensions, but the old-timers would be way to skitterish. They’d be sweating buckets trying to think up some new political jargon and economic theory that would effectively promise nothing, so they could keep their pension and job, while fooling voters.

    1. Expected outcomes:
      1) The sun will continue to rise in the East.
      2) Winter will continue to be, on average, colder than summer.
      3) The moon will continue to orbit the Earth.

      There are so many ways to game this. I’d rather see all laws automatically sunset every 2 years. And you can’t lump all the old ones together to re-up them all at once. And if any law is found to be unconstitutional, then everyone who voted for that law, during their next campaign, would have to send half of all money donated to their campaign to pay down the national debt.

      1. I’d also have sunsetting, at the end of the next session, toprovide some overlap.

        Yes, “expected consequences” would be gamed, but I want it out in the open, and I don’t think most laws would say “sun rises in the east”. I expect more vague stuff like “decreased crime”. Something like this rent control bill — there is no good expected consequence that will come true, but I don’t think they could get away with “increased tenant satisfaction”. Too many other legislators would demand just a little but more reality to cover their asses with their voters.

        As for gaming, one way to game sunsetting laws is lump them all together in an omnibus renewal bill: “All laws from the last session are hereby renewed.” The only way to prevent that is to allow all citizens to challenge all laws, standing be damned; if you area citizen, you have standing. Any law which is vague, textually inconsistent, inconsistently enforced, confusing, or has unexpected consequences, as judged by a jury of 12 random people, with no appeal of any sort, is voided in full, and all who voted for it are barred forever from receiving any government money, such as pay and pensions. This makes an omnibus renewal very unwise.

  4. The California government has ensured that housing costs and rents will continue to rise, by passing yet another law that discourages more rental housing from being built or made available, since it caps the potential returns investors might realize for meeting the true market demand.

  5. “There’s a growing consensus that California’s high housing costs are the product of too little supply.”

    “while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.”

    Morons.

  6. property owners in California get a boost in value, and continue to cash out. The exodus will continue.

  7. Rent increases could be capped at 5 percent plus inflation

    5% annually isn’t too bad, especially if it’s plus “inflation” (CPI, I guess?), so it could be 7-8%. I mean your rent could start at $2000/mo and be pushing $3000/mo in 5 years at that rate. That might cover the increases in property tax over that time, which are most likely not rate controlled. It’s not like you’ll be able to pay the same rent forever, like I’ve heard in NYC or something.

    Here in Maryland property taxes can be whatever. There’s no homestead exemption or anything like that and you can only dispute your assessment within a little time window every 3 years. Fuck you pay me. But, if your property tax bill increases more than 10% in a year, the state will give you a tax credit for anything over 10% (if you’ve successfully signed up for the “program”). So your property tax bill is already outrageously high, it can compound upward 10% every fucking year and there’s really nothing you can do about it. Fuck you. How about some property tax control around here?

  8. The deal is thus: The politicians get 50% under the table, the property owners get to do as their told when they’re told and like while the little people who make just enough to rent and not enough to buy a home get fucked.
    How’s that for a deal of a century?

  9. Without in the least approving of rent control, I think that inflation PLUS 5% should eventually mean that the controlled rent will be higher than the market rent, which will mean the rent control will have little effect.

    What happens when people start getting evicted to make room for higher-paying tenants 10 or so years from now… I can’t predict.

  10. Rent control in California is sort of like socialism; it has not worked anywhere else, but it will work here and now because our boundless good intentions will subvert human behavior and make us all emboldened virtual signalers.

    I guess anything that accelerates the slide of California into the third world pit is a good thing – go for it – good and hard.

  11. @Reason puts forth another pragmatic view on why rent control MIGHT be bad.

    Principled stands by @Reason are almost non-existent except for “punch lines” meant to appeal to people like “free press”.

    When is the last time @Reason actually bothered to write an article on ideology – particularly a non-repeat.

  12. Rent control is really about diluting geographical areas with more conservative views with locked-in rent control tenants with more left ideals (hence, why they want a portion of a building complex to have mixed rent-control / below market rate units). This is about locking in liberals to housing for votes in that area, not actually assisting low income families.

  13. Go Gavin go! At this rate when I’m finally outta SoCal I won’t have a mortgage on the end stop. Might even be able to afford a fishing pier and a permanent duck blind.

    1. The translation I get is “without stress medication.”

      But the text seems to be in Arabic, and we all know Arabic-speakers are experts in reducing stress.

  14. I’m moderate here: the market is so messed up due to the Federal Reserve and the organized crime racketeering behind the mortgage securitization crisis that lead to artificial speculative bubbles. It’s not a free market. In other words, the lack of democratic or public service interest over the money supply has basically prevented many individuals from accumulating assets or purchasing their residence, which would be the case if the value of fiat money was tied to the property taxes backing it. Since the system is rigged from the mafia in DC, it’s OK for California to try to make a band-aid.

    1. There are dozens of other, better solutions to the issue of the rent being too damn high.

  15. Empirical studies suggest both sides are right—to a degree.

    This insanity passes for “libertarianism” these days?

  16. Yep.

    Rent control, along with the regulatory nightmare of trying to get anything built in California, will surely have people racing to provide new affordable rental housing.

  17. As my Economics professor explained to me (many years ago) is the Rent Control will essentially guarantee that what ever the maximum allowable annual rent increase there is available to the landlord WILL be made (landlords won’t skip a year even if they think the market is a little soft) . Also, there will be much less incentive for the landlord to more than the minimum required up keep (the building won’t get painted as often, the parking lot won’t be resurfaced as regularly, landscaping budget will be cut). The overall condition of the property will decline and the tenants won’t want to move because they are getting something of a locked in “deal” on their current rent. However, with the current renters less likely to move, it will dramatically make it harder to find a new place when one’s circumstances change. In short, it will be bad.

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