Rent Control has been proven by many reliable economic studies to be counter-productive. While the goal may be to help low-income renters, the law actually does the opposite: it reduces the housing stock for those who need it and favors mostly white middle-class renters. Data shows that no rental housing market in California has been improved by such policies.
April 2, 2017
There is a belief among Progressives that rent control and other tenants’ “rights” will make housing more affordable, more secure, and more attainable for renters.
Tenant advocates such as CAUSE has been urging the City to adopt policies they believe will help poor tenants. At a special meeting on March 21, 2017 the Santa Barbara City Council decided (5-2) to form a taskforce to examine rent control as well as other tenants’ rights policies proposed by CAUSE.
Tenants in Santa Barbara face one of the tightest rental markets in California. But Santa Barbara is not alone; if there is a housing crisis here it is the same in most Southern California cities. Rents here are high, although not much different than other cities in Southern California. Rents in comparable areas, say West LA—not Santa Monica and not Ocean Park which are more expensive—are higher. But our problem is that there are even fewer rentals available here. Vacancy rates for apartments are less than 1%. My survey showed Santa Monica, a similarly-sized city, has 134 2-bedroom units for rent; Santa Barbara has 38.
This is a problem for our financially disadvantaged residents, most of them Latino immigrants with families. As concerned, caring citizens the urge to help is natural and generous. For our City Council, like most politicians, this means government intervention to solve the problem.
And therein lies the rub. These policies will do nothing to improve the availability or lower the cost of housing. History, as well as basic economics, tells us that they would make things worse.
These kinds of controls ignore the laws of economics. The rental market is based on supply and demand and tinkering with that mechanism always results in unforeseen and unintended consequences. Why? Because a few bureaucrats cannot make better choices for the thousands of us than we can for ourselves. And the history of rent controls has proven me right. They either result in a diminution or deterioration of rental housing, or have no effect on rents or the availability of housing.
I challenge any proponent of rent controls or tenants’ rights policies to show where the rental housing market in California has been improved by such policies. A good place to examine tenant rights and rent controls is Santa Monica, a city of about the same size (92,000) which has had rent control since 1979. There are five takeaways from their controls that stand out:
- Rental housing has diminished by 2,123 units because of the Ellis Act which promotes condo conversions and development. Because of rental caps, many landlords sought greater returns from condo development. While this activity is slowing down in Santa Monica, last year Ellis Act conversion notices for 90 units were filed.
- Because of inflation, changing markets, and occupant turnover, rents for 2-bedroom rent-controlled units, for example, are only $165 less than market rate units. This difference will continue to narrow over time.
- To enforce rent controls they have a large bureaucracy with a very sizable budget. While their website doesn’t list the number of employees, their staff compensation list has a minimum of 23 positions at very high pay. For example, the head of the Board is paid $198,000. If you add up the wage rates at the lowest pay scale, their salary budget would be at least $2.2 million, but probably much higher (total budget estimates are $4 million).
- Such controls resulted in litigation. As of 2016 they were involved in 11 lawsuits filed or pending, which is why they need a staff of 4 attorneys and 2 legal assistants.
- According to the Santa Monica Rent Control Board, after 37 years of rent control, they still have one of the most expensive rental markets in California.
This information is derived from their 2016 Annual Report which is available online.
There is no question that the City with its restrictive development policies has been a prime mover in creating our housing situation, but that is something most of Santa Barbara’s citizens have come to expect and support. So, we can’t expect an increase in housing of an amount that would do anything to reduce rents or give tenants more choices.
Thus it is dismaying to see populist members of the City Council paint landlords as the bad guys in this political drama. Mayor Schneider rails against “corporate” landlords from whom tenants must be protected. Council member Cathy Murillo wishes to relieve tenant suffering from the “harsh reality” of Santa Barbara’s rental market.
The City Council should look in the mirror to see where much of the blame lies. Yet our politicians are quick to blame and punish landlords for a situation they did not create. Unfortunately, this is about politics, and politicians need to create scapegoats to satisfy their political base.
If our politicians would only do a little digging into the economics of “tenants’ rights” they would find a large volume of research confirming the negative consequences of such policies. This research can be found from economists left and right (yes, even Paul Krugman). In other words, these are basic economic truths supported by empirical data.
Here is what the unintended consequences will be from these tenants’ rights policies, depending on what the City Council enacts:
- Landlords will be more selective in choosing tenants. Landlords are operating on very thin margins in Santa Barbara. Making it more difficult to evict tenants will make them more selective, making it harder for poor tenants to qualify for housing.
- Rent controls will diminish the housing stock because a double whammy of rent caps and mandatory maintenance requirements will incentivize landlords to convert properties to condos.
- Tenants will be reluctant to move from rent controlled properties which tends to freeze the rent-controlled rental market leaving fewer apartments available for rent.
- The beneficiaries of rent controls in Southern California have been mostly middle income, educated white folks rather than poor immigrants. We should expect the same here.
- It will necessitate a significant expansion of staff to enforce these rights, imposing a substantial new cost on a budget-challenged city.
- Based on the experience of other rent-controlled markets, it is likely that such controls will have very little impact on rising rents.
I question the motives of politicians who knowingly advocate policies which do not achieve the ends they seek. But then, they are politicians and that class of people would rather cause harm than lose an election.
We are never going to solve the housing shortage, but we can make it worse with these policies.