Some issues in public life lend themselves to endless, inconclusive debate. Is the minimum wage good or bad for employment? Is a tax cut good for the economy and a tax hike bad? Does a strikeout happen because the pitcher is an ace or the batter a stiff?
Sometimes the answer is elusive because the empirical evidence is thin, and sometimes because it depends on the debater’s vantage point. When the topic is rent control, both factors are in play.
Rent control is back on the front burner of public discussion nationally because rents are squeezing middle- and lower-income Americans from coast to coast, and locally because the issue is on the California ballot in the guise of Proposition 10.
Before getting into the pros and cons of rent control, let’s be clear about what Proposition 10 would do and not do. That’s necessary because it’s been hopelessly obfuscated, mostly by the opposition.
Proposition 10 would not change rent control laws anywhere in the state. Rather, it would overturn the Costa-Hawkins Rental Housing Act, a pro-landlord measure signed by Republican Gov. Pete Wilson in 1995. Costa-Hawkins barred municipalities from imposing rent control on single-family homes, condos or apartments constructed after Feb. 1, 1995, and sometimes even earlier. It generally mandated “vacancy decontrol,” in which a rent-controlled apartment is exempted from control after a tenant moves out.
Proposition 10 would take those handcuffs off municipal lawmakers and voters. Developers have spent heavily over the years to keep the handcuffs in place, and the current campaign is no exception. The No on 10 campaign has raised more than $45 million, much of it contributed by apartment developers such as Michael K. Hayde and Geoffrey H. Palmer. The Yes campaign has raised more than $24 million, much of it from the measure’s sponsor, the AIDS Healthcare Foundation, headed by persistent government gadfly Michael Weinstein.
Nineteen California municipalities have some form of rent control, including the cities of Los Angeles, San Francisco, Beverly Hills and Santa Monica. But they’re all constrained by Costa-Hawkins.
That brings us to the question of whether rent control is a good idea, including whether it leads to more available housing, less or no change. This debate is generally waged between economists and urban planners.
The former, consulting their textbooks and economic orthodoxy, are certain that rent control contributes to a housing shortage, on the principle that when you cap the price that can be charged for something, you’ll get less of it. Housing advocates examine the issue from the standpoint of existing renters, who are protected from being priced out of their homes.
Indeed, rent control generally becomes more popular when affordable housing grows scarce — a housing shortage just after World War II produced some of the strictest such measures in U.S. history. A crisis is building again. In California, more than 54% of renters spend more than 30% of their income on housing, a benchmark for unaffordability. Housing experts at UC Berkeley blame the cost of housing for the state’s persistently high poverty and homelessness rates.
Even economists skeptical about rent control tend to acknowledge that it’s good for people living in rent-controlled units. They’re less sanguine about its other social effects.
Stanford economist Rebecca Diamond and colleagues, examining the evolution of rent control in San Francisco from 1979 through the present, found in a recent paper that the law enabled a sizable percentage of residents to remain in the city rather than being driven out. But they also asserted that it encouraged landlords to seek exemptions for their properties by converting them to condos or moving in because owner-occupied buildings also were exempt. As a result, they say, rent control fueled the gentrification of San Francisco and increased income inequality by creating more housing for rich tenants and condo buyers. (It’s also probable that the tech-fueled housing demand in that city encourages gentrification on its own.)
The biggest mistake made in discussions of rent control is viewing it in isolation. Rent control can’t address the housing affordability crisis on its own, and it won’t have much effect on housing availability by itself. On the other hand, it’s one housing policy that can be implemented quickly.
“Making up for 40 years of insufficient rental housing production is going to take a minimum of another 20 to 30 years,” says Stephen Barton, a former housing director for the city of Berkeley and coauthor of a brief on rent control for UC Berkeley. “So what do you do when you have immense hardship now and the ultimate solutions are very long-term? Pretty much the only thing on the table is rent control.”
Few would dispute that the neighborhood stability fostered by rent control is a crucial social good. “We know we value stability,” says USC sociologist Manuel Pastor, the lead author of a recent study on the positive aspects of rent stabilization. “But we don’t have tools to protect it for low-income renters. Rent control should be seen as one tool in a toolbox. I can’t see why you would want to remove that tool.”
In other words, the question of whether rent control in general — or Proposition 10 in particular — will lead to more or less affordable housing is a distraction. Relieving the housing crisis requires many other measures, such as streamlining the housing permit process and creating better incentives for construction of market-rate and affordable units.
“Rent control is not a silver bullet, but without it, all the other solutions will come too late,” says Nicole Montojo, lead author of the Berkeley brief.
The No on 10 advertising campaign has been remarkably fact-free (and misleading when it claims to be purveying facts). It stands out even when compared with typical California ballot measure commercial campaigns, which almost invariably are garbage.
One theme of the No campaign’s commercials is that Proposition 10 has “no protection for renters, seniors, veterans or the disabled.” But that’s just gaslighting. The proponents of Proposition 10 don’t claim it does — the measure’s goal is to place the protection of those groups into the hands of local officials, where it belongs.
Another No on 10 TV ad features anti-tax crusader Jon Coupal of the Howard Jarvis Taxpayers Assn. asserting that Proposition 10 would allow “unelected bureaucrats” to impose government fees on all housing.
The claim is attributed in the ad to the state Legislative Analyst’s Office, but that misrepresents the LAO’s analysis. The LAO said that Proposition 10 would allow local governments to enact broader rent-control measures, some of which might involve fees on owners of rental housing — but that would be up to elected government officials and voters, not Coupal’s sinister “unelected bureaucrats.”
My favorite part of this ad is the hand-wringing by Robert Gutierrez of the California Taxpayers Assn. about how Proposition 10 “puts taxpayers on the hook to defend it” if the measure gets challenged in court. Yes, it costs money to defend an enacted law from challengers, who in this case would probably be the real estate developers and other property owners who help to support campaigns by organizations like Coupal’s and Gutierrez’s.
Gutierrez’s warning that taxpayers might have to defend the law against anti-tax advocates like himself is reminiscent of the ancient joke about a mafia hood visiting a shakedown target: “Nice little business you got here … Be a shame if something happened to it.”
The right approach to Proposition 10 is to take it on its own terms. It’s not a rent-control mandate, nor is it designed to bring new protections to renters or encourage the construction of new housing, affordable or otherwise by itself. The initiative is an enabling measure aimed at giving municipalities greater flexibility to design rent control ordinances that fit their local conditions. It’s up to them to decide how to protect renters or place rent control in the context of policies aimed at increasing their housing stock.
If the initiative passes, we should expect communities with a majority of renters to consider expanding rent control. “My prediction is that Bakersfield [share of residents in rental housing: 43%] won’t impose rent stabilization,” Pastor says. “But you would see it in Los Angeles and Long Beach, where the politics are different and housing problems are more severe.” In those cities, about 60% of residents are renters.
Too often, the argument against rent control boils down to the threat that landlords will be skinned, leaving them without resources or incentives to keep their properties in good repair. The history of rent control doesn’t lend much support to that fear. Indeed, a string of state court decisions prohibits localities from depriving landlords of a fair return on their investments.
As long ago as 1983, a California appeals court ruled that a suitable rent control law would “permit an efficient landlord to pay all actual and reasonable expenses and receive a fair profit while … having affordable and properly maintained rental housing available to the citizens of the community.”
Pressure for rent control ordinances, the same court observed seven years later, would continue “so long as the state's urban population continues to grow and the urban space available for new housing remains finite.”
That’s where we are today. A law that ties the hands of municipalities while offering home builders and landlords loopholes for evasion needs to go. Costa-Hawkins was a boon for developers, but it didn’t avert a housing crisis. Proposition 10 won’t solve the housing crisis, but it will at least allow local city councils to try balancing protections for tenants while allowing developers to build more at a profit. That’s good enough, for a start.