Frozen Out in the Golden State
A rent-control measure could soon make California even less affordable.
California is an expensive place to live. New residents of San Francisco face median monthly rents of around $4,000 per month, and median rents are cresting $1,900 even in Sacramento. Housing supply runs well short of demand, pushing up prices in more corners of the Golden State than ever before. Many residents are moving to cheaper locales like Idaho or Texas, while others are falling into California’s growing homeless population. Bad as things are, the state might yet make them worse if it goes ahead and declares war on the housing market—that would be the effect if voters approve an initiative on November’s ballot, supported by tenants-rights advocates, repealing a law limiting local rent control throughout California.
The Costa Hawkins Rental Housing Act prohibits rent control on single-family homes and apartments built after its 1995 enactment. Municipalities that already had local rent control laws have earlier cutoff dates; for Los Angeles, this means that rent control is limited to buildings completed before October 1978. San Francisco’s older housing stock means that its 1979 rent control ordinance still applies to three-quarters of the city’s rental units. When a rent-controlled unit is vacated, landlords are free to charge market value. At present, 15 California cities have rent-control ordinances on their books. Repealing Costa Hawkins will allow more localities to impose rent control, which, based on past experience, will deform the market and make it even harder for renters to find affordable housing.
Repeal advocates submitted some 588,000 signatures—200,000 more than needed—and a political fight is brewing that is expected to cost about $100 million in organizing and ad spending. “This ballot measure will pour gasoline on the fire of California’s affordable housing crisis,” said Tom Bannon, CEO of the California Apartment Association, in the Sacramento Bee. Landlord-affiliated lobbying groups are trying to stave off that conflagration by supporting efforts in the legislature to curb “price gouging” as a concession for taking the anti-Costa Hawkins initiative off the ballot.
Economists generally agree that rent control protects incumbent renters at the expense of newcomers, while leading to more gentrification and income inequality. A 2017 Stanford University study found that rent control in San Francisco effectively acted as a $3 billion wealth transfer to protected renters from 1995 to 2012. Over that same period, the city’s rental housing stock decreased by 15 percent, while rents rose by more than 5 percent. In short, a lucky few won the housing lottery at the expense of everyone else.
Scott Weiner, a California state senator who became known for his recent attempt to sweep away housing-density limits statewide, explained to the San Jose Mercury News how rent control could be part of a housing bargain: “We want to make sure that people have incentives to build new rental housing while also ensuring that we have a rent-stabilized housing stock. You can do that. You can find that balance.”
But the cost of using rent control to purchase political support for housing development is high, and its logic is faulty. California real estate investors are already selling off apartment properties or holding off on developing new housing. As the Wall Street Journal reported, Santa Monica, whose leaders have signaled an expansion of rent control if Costa Hawkins is repealed, is seeing the number of multifamily properties on the market jump by 80 percent, to the highest level in two decades. Who wants to own an asset when the government will soon be able to cap its price?
If housing demand is outpacing supply in California, the right answer is to build more housing. The lifting of caps statewide on accessory dwelling units in 2016—and the skyrocketing number of them now being approved in places like Los Angeles—suggests that there is a will and a way to add housing in California. Naturally affordable and invisibly dense development is a more efficient and equitable means of providing dwellings for Californians than locking up their housing stock and throwing away the key.
Photo by Justin Sullivan/Getty Images
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