Rent control

California Passes Statewide Rent Control Despite a Massive Housing Shortage

Economists have long warned that rent control only limits housing supply and drives up prices in the long-run

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On Wednesday, California lawmakers approved AB 1482, which caps rent increases at 5 percent per year plus inflation, and prevents landlords from evicting tenants without citing a government-approved reason.

Wednesday's vote makes California the latest state to pass a rent control bill. Oregon passed a statewide cap on rents in February. In June, the New York legislature passed a bill strengthening existing rent controls in New York City while giving other cities in the state the ability to pass their own rent regulations.

Economists and other policy experts have long criticized rent control for reducing the supply and quality of rental housing in the long-run. California's rent control bill is no exception says Michael Hendrix, state and local policy director at the Manhattan Institute.

"What we are going to get is a reason for landlords to convert apartments to condos," says Hendrix. "The net result of that is potentially more units being taken off the market, and long-term this housing crisis getting worse, not better."

Hendrix argues that landlords, when faced with limits on how much they can raise their rents, will simply take their rental units off the market, converting them into condominiums that can be sold at market price.

A study of rent control in San Francisco published in the journal 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."

Supporters of rent control counter that they protect current tenants from rent spikes.

"These anti-gouging and eviction protections will help families afford to keep a roof over their heads, and they will provide California with important new tools to combat our state's broader housing and affordability crisis," said Democratic Governor Gavin Newsom in a statement following the bill's passage.

Newsom's support for AB 1482 appears to have been crucial in securing its passage, and in removing some amendments that would've lessened the impact of the bill.

Back in May, lawmakers agreed to raise the annual rent cap in AB 1482 to 7 percent plus inflation and to include a 2023 expiration date. Other amendments exempted housing newer than 15 years old and most single-family homes from its rent caps.

Those provisions were roughly in line with the rent control bill passed by Oregon early in the year and were enough to get the powerful California Realtors Association (CAR) to take a neutral stance on the bill.

In late August, however, Newsom announced that he had hashed out a deal with legislative leaders to lower annual allowable rent caps to 5 percent and extend the bill's life to 2030.

That flipped the CAR back into opposition but proved to be enough to get AB 1482 passed just two days before the legislature's deadline for passing legislation.

Members of California's pro-development Yes in my backyard (YIMBY) faction also supported the bill which saw the bill, arguing that it, along with an increase in actual housing supply, would help address the state's pressing housing affordability problems.

The California Apartment Association (CAA)—which represents landlords—was also convinced to drop their opposition to the bill in the final days of the legislative session.

The support from YIMBYs is both misguided and somewhat disappointing says the Manhattan Institute's Hendrix, given that AB 1482, at best, does nothing to boost housing supply.

"One concern that YIMBYs in California should have is that we may very well find ourselves five or 10 years down the line with nothing to show for housing deregulation except more rent regulation," he says.

Sen. Scott Weiner's (D–San Francisco) promising, YIMBY-backed bill to upzone residential areas near transit and job centers stalled in the state senate earlier this year.

California's housing crisis has been years in the making, and fixing it will require substantial deregulation of housing development. The rent control bill passed by legislators this week, while benefitting some current tenants, is ultimately a step in the wrong direction

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  1. prevents landlords from evicting tenants without citing a government-approved reason.

    Shitting everywhere is not a government approved reason.

  2. If you realize the purpose is to either drive out the riffraff and generally low-income undesirables of the population or at least make them learn their place, this will make sense.

    1. The purpose is to seem to address the “affordability crisis” while not doing anything to lower property values. Neither voters nor politicians want property values going down by allowing new construction, but that’s literally what “making housing more affordable” means. So you have to do “something else” besides the obvious thing, and thus, voila, rent control. When it fails, blame greed.

      1. At some point .gov needs to realize that “housing should be affordable” and “housing is a way to build wealth” are for the most part mutually exclusive goals.

        1. I’m fairly certain at least half of .gov doesn’t think land should be a way to build wealth, it’s something .gov owns and charges you rent on.

          That’s probably their primary focus when it comes to property in lots of places.

          Plus, it’s California. Tons of people think they deserve to be able to afford property in San Francisco but consistently fail to notice they could afford property in, say, Arizona.

          Those who figured that out already left, I think. The rest are probably just waiting for a callback from L.A. acting gigs.

    2. I don’t think that’s the case.

      They genuinely believe that listening to economists is like believing in creationism.

      It’s also why they don’t believe their climate change proposals will have a negative impact on the economy either.

      You believe it will have a negative impact on the economy for the same reason fundamentalist Christians believe the whole world was destroyed in a flood a few thousand years ago.

      You may have seen Venezuela’s problems coming from a decade away, but that was just a lucky guess. There’s no way you could have known that.

      1. “They genuinely believe that listening to economists is like believing in creationism.”

        Witness Tony, here, arguing that market functions are ‘magic thinking’; he (and they) are simply totally ignorant of those functions, and in Tony’s case at least, likely willfully so.

    3. Isn’t real estate something like 12% of Cali’s GDP? It’s pretty clear they’re going with the Veblen good model rather than the long tail.

    4. It IS tacit Gubmnt approval.

    5. It IS tacit approval.

    6. You couldn’t be more wrong. It’s the “bourgeoisie” Middle class they want gone. We’re not politically dependable as are the Lower Classes, the Upper Classes and a goodly chunk of the Upper Middle Class. You need look no farther than San Franshitsco. There is are no discernible Lower-Middle Middle Classes.

  3. Seeing stupid policy like this–it’s the fruit of a one-party state. It won’t get better until there are two competing parties in Sacramento.

    Hillary beat Trump by about 4 million votes in California. It was the first time Orange County voted for a Democrat since 1936. Even then, 2 million votes out of 14 million cast–that’s what’s needed to make the Republicans relevant in Sacramento again.

    It’s doable. I know it’s possible for things to get so bad, like in Detroit, and people still won’t vote for change, but Detroit has been so bad for so long, the politicians there may have benefited from lowered expectations. Maybe things will get so bad that California’s voters won’t be so easily distracted by Trump’s tweets anymore.

    1. It’s why they keep wanting more homeless, drug addicts, and illegals. They are more easily pliable to offers of free stuff.

      I keep hearing it is not a sound idea to blame Democrats for the problems in Dem run cities. Both parties have corruption problems. Except long-term Republican run areas don’t have the problems of long-run Democrat areas. They just do not.

  4. CA Legislature: Housing costs too much.

    Gov Newsom: I agree. Do you know why?

    CA Legislature: No.

    Gov Newsom: We have too many houses here.

    CA Legislature: Let’s reduce the number of living places for people.

    Gov Newsom: Hey, great idea.

    CA Legislature: We can pass rent control. And when people take apartments off the market, we can blame BOTH greed AND Airbnb for the problems.

    Gov Newsom: Genius. And Trump thought adding housing might lower prices.

    CA Legislature: ORANGE MAN BAD! ORANGE MAN BAD!

  5. It is not about housing; it is about control of the individual.
    Welcome to the revolution.

    1. But will it be televised?

      1. After the mandated government ‘review and rewrite’, it will be broadcast only on NPR.

  6. The vast majority of voters are economically illiterate, particularly those on the left, and this legislation “sounds good.” It’s no wonder it passed; it will be a feather in the cap of legislators come November.

  7. …and California wonders why it has such a large homeless population.

  8. Just this year I sold a house in CA that I had rented out. Glad to be done with that state.

    1. Idle curiosity; how much money got paid to various government types during the closing? How much did the property taxes go up?

      And congratulations on your new found freedom, welcome to the revolution.

    2. I’ll be joining you next year bro. I only hope I can get out before the mass exodus defines the top – if it hasn’t already.

      If only I had know a 10 year contract was at way too long. “Come to California” they said, “the weather is perfect” they said, “we’ll pay you lots” they said. I blame my own naivety even given the great recession.

  9. Could this be sweet grapes on YIMBY’s part? I just coined that as counterpoint to sour grapes. Like they’ve been working for this, and then the product turns out to be sour, but they’ll make like it’s sweet because they can’t bear to think that their work was wasted or worse.

    1. Well, I think the YIMBY movement’s problem is that to get big enough to matter in a very blue state, they had to include a lot of democrats. Consequently, if the state’s democratic leadership promises them that they’ll pass some zoning reform or something in exchange for this “harmless” rent control (“it’s just to protect people in the short term while we fix things, honest!”) they’re willing to believe it, because these guys are their guys, after all.

  10. No worries, I’m sure the limits on housing supply will be more than offset by people leaving the state.

  11. “Members of California’s pro-development Yes in my backyard (YIMBY) faction also supported the bill which saw the bill, arguing that it, along with an increase in actual housing supply, would help address the state’s pressing housing affordability problems.”

    But, you see, the law will pretty much guarantee there will be no increase in (rental) housing supply.

  12. The real culprit in this whole mess is all the regulations California has on building anything. There are plenty of real estate developers, construction crews, etc who’d jump at the chance to develop many of the open areas here, but the state, and local municipalities, makes it a pain in the ass. A giant proposed housing development north of LA just got scuttled. So, there are not enough houses, the rents are still going up across the state, and rather than admitting their error, California compounds it by adding even more regulations, but this time instead of preventing building, they are trying to prevent rent increases. What a clusterfuck.

  13. I shared this article in a Facebook group of disgruntled Californians. The most common response has been “I voted against this!”–a reference to Prop 10, which was defeated only last November. A recall petition has been started for Gov Newsom. Yeah, we’ll see how far that gets.

  14. We’re now back to an old principle. Housing is not the business of government. New York is the shining example of corrupt politics, poor management, rent control, laws that transform lawful people into felons and high taxes. The result of course is astronomical numbers of businesses and productive people relocating to friendlier states, e.g., Carl Icahn. California is vectored toward the same hell.

  15. They know they have a housing-of-any-sort-of-affordability problem. They reject market solutions (high rent causing conservation of amount rented, and high rent prompting developers to build more apartments.) Will they find non-money ‘direct action’ methods of finding enough space for people unable to find space, or will we look at California in 10 years to see that the problems have become even worse?

    (Venezuela has enforced their nationwide rent-control law since 1958. Not a single new apartment has been built since then. Instead they have shantytowns built up the slopes of the mountains ringing their cities.)

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