Los Angeles County couldn’t wait for voters to decide this fall if local governments can enact rent-control laws. The Board of Supervisors recently enacted a “temporary” restriction on rent increases. If they think that will relieve the housing crisis, they are mistaken.
The Los Angeles County ordinance sets rents at their current levels, and caps increases to 3 percent a year in unincorporated parts of the county. Supervisors will vote again in December, and if approved then, the ordinance will take effect 30 days later. Rents would be frozen at Sept. 11 levels for six months, and landlords would be required to show “just cause for tenant evictions.”
The vote was 4-1. Supervisor Kathryn Barger was the lone opposition.
It is not the worst policy the supervisors could have cooked up. It’s close, though. While current tenants will benefit from the ordinance, many more will be left unprotected from the steep housing costs caused by a severe, policy-caused shortage. What California needs is a homebuilding boom.
But that will never happen under a rent-control regime. The nonpartisan Legislative Analyst’s Office said in a 2016 report that rent-control laws not only fail to “increase the supply of housing,” they “in fact, likely would discourage new construction” because the laws make it unprofitable to build
“Households looking to move to California or within California would therefore continue to face stiff competition for limited housing,” says the LAO, “making it difficult for them to secure housing that they can afford. Requiring landlords to charge new tenants below-market rents would not eliminate this competition.”
As with so many government efforts to help those with financial struggles, rent control hurts those it is purported to help. When prospective tenants cannot compete for rental properties by raising their bids, landlords “might decide between tenants based on their income, creditworthiness, or socioeconomic status, likely to the benefit of more affluent renters” and to the detriment of the less affluent.
Rent control can ruin neighborhoods, as well. If owners are prohibited from setting rents, they are less likely to maintain and improve their properties. Landlords may also be motivated to sell their homes rather than continuing to rent, leaving renters without homes.
The negative impacts of rent control are widely known. Even left-wing columnist Paul Krugman has acknowledged that economists nearly universally agree that rent-control laws are harmful.
“The analysis of rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial,” Krugman, a Nobel-winning economist, wrote in The New York Times 18 years ago. It was a response to an article describing the desperate lengths “would-be renters” had to go searching for housing in San Francisco as “free-market horror stories.”
It’s hard to imagine any state needing to increase housing stock more than California. The LAO’s 2016 report concluded the state’s housing squeeze “is a long time in the making, the culmination of decades of shortfalls in housing construction.” Analysts suggested policymakers “revisit long–standing state policies on local governance and environmental protection, as well as local planning and land use regimes” to encourage homebuilding.
In a report a year earlier, the LAO said that in addition to the 100,000 to 140,000 units that are expected to be built in California each year, as many as 100,000 additional new units are needed annually to resolve the state’s housing crunch. That won’t happen until policymakers remove the obstacles, such as punitive environmental laws, local resistance to development, and onerous fees and mandates, that have hindered homebuilding in California for decades.
Voters will decide on Nov. 6 through Proposition 10 if the Costa-Hawkins Rental Housing Act, which has prevented local governments from enacting rent control on units first occupied on or after Feb. 1, 1995, should be repealed. Since rent control “is among the best-understood issues in all of economics,” they should have no trouble accessing enough information to help them make an educated decision.
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.