Soaring rents are a serious problem. Many Californians are paying much more rent than in the past or cannot afford to live where they’d like to. Unfortunately, Proposition 10’s solution — allowing for more rent control — does not fix this problem for the community as a whole. Instead it helps current tenants who decide to stay in their units long term, but hurts future renters and those who might want or need to move.
The primary problem with rent-control laws is that they invariably reduce the available supply of rental housing. First, if rent-control ordinances apply to single-family homes, landlords may find it more profitable to sell their income properties rather than continue to rent them out. Landlords, likewise, may find it more profitable to convert their apartment buildings into condominiums and sell those. Third, developers of new housing units will be more likely to build and sell condominiums than apartments for the rental market.
The “fair return” that landlords can legally earn under rent control is always lower than the market return, so the economic winds continue to blow toward a reduced supply of rental housing. Proposition 10 would also allow cities to decide if rents can be reset to market value when a tenant leaves — which is how rent control currently works in Los Angeles. In that scenario, landlords will prefer tenants who they believe will move soon over those who stay long term, such as the elderly or disabled. If rents don’t get reset upon vacancy, landlords will discriminate on other grounds and have even more incentive to sell their units to owner-occupiers.
An additional impact of rent control is that when it is enacted in one city, renters in neighboring cities are hurt. The depressed supply of available units in rent-controlled cities leads to greater demand for rentals in nearby non-rent-controlled cities, pushing up rental prices and hurting all renters.
It is also not clear that those who get to live in rent-controlled units are more deserving on social justice grounds. For example, in Berkeley and Santa Monica, there is no income test to ensure that the poorest have priority for rent-controlled units.
The fact that rent control makes things worse for renters in general is a standard economics textbook example of unintended consequences despite good intentions. We urge voters to heed these economic arguments against rent control. The teachers, nurses, and other labor unions that support Proposition 10 should listen to economists explain why rent control will make things worse — just as economists should listen to nurses who would criticize a ballot initiative outlawing the use of vaccines.
Economists like us are sympathetic to Californians whose budgets are stretched by high rents. But when looking at the big picture, most economists would agree that Proposition 10 will make things worse for the average renter. Proponents like to characterize rent control as a win for renters over landlords, but in fact, such laws are a win for one set of renters over another set of renters.
For those looking for policies that would actually reduce the cost of housing, vote to loosen zoning restrictions so that more residential units get built. For those who are concerned about the poor, vote for California ballot Propositions 1 and 2, which direct housing funds to those who are most in need. None of these will miraculously solve the affordability problem, but they do move things in the right direction, unlike Proposition 10.