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Manhattan Institute

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Californians — Resist the Rent-Control Temptation

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Californians — Resist the Rent-Control Temptation

The San Francisco Chronicle September 4, 2018
Urban PolicyHousing

The Affordable Housing Act on the November ballot would repeal a California law that sharply limits cities’ ability to impose residential rent control.

It’s not hard to understand why 450,000 Californians would sign the initiative to repeal limits on rent control in the state. Of the top 10 most expensive major city rental markets in the United States, four — San Francisco, San Jose, Los Angeles and Oakland — are in California.

The effects are well-known and serious. Those who would move from parts of the country with high unemployment to Silicon Valley, for instance, find they cannot afford to do so, leading some economists to link California’s housing costs to increased income inequality. And the ranks of Californians burdened by housing costs — an official census calculation, based on paying more than a third of household income in rent — reaches beyond those of low income well into the middle class.

But as tempting as it is simply to use price regulation to clamp down on housing costs, it’s a temptation voters should resist.

The effects [of rent-control] are well-known and serious.

In the run-up to the Nov. 6 election, voters will hear what have already become familiar arguments: The surest route to lower housing costs is increased housing supply. Private owners should not be asked to provide what amounts to a subsidy. For those unconvinced, however, it’s worth looking at rent control through another lens — how it actually works.

Perhaps the best city to which to turn for such guidance is New York, where rent-regulated housing constitutes fully a third of the city’s 3 million-plus housing units, including 63 percent of all rental units. What happens in New York leads to more general conclusions about the flaws of rent regulation, including:

There is no guarantee that those of low income will benefit. For instance, a study by New York University’s Furman Center for Real Estate and Urban Policy found that in the most desirable parts of Manhattan, the incomes of rent-controlled households were “higher than the median income of market-rate tenants” in most other New York neighborhoods. It’s not hard to see why. Higher-income households are more attractive than lower-income ones. Owners who can only charge a limited rent have a strong incentive to make sure that tenants pay what landlords are allowed to charge.

Many of the lower-income households being served are elderly, not the young families with children or new tech workers moving from Buffalo whom initiative-backers have in mind. In New York (again, according to NYU), just under a quarter of all rent-regulated tenants are retiree households whose income may be limited but whose assets are not necessarily low.

The elderly are not moving. The over-representation of the elderly leads to a broader and much more serious problem: exceptionally low turnover. Indeed, the Furman Center has found that “about 23 percent of households in rent-stabilized units have lived in their unit for 20 years or more, compared with only 7 percent of households in market-rate units.” It’s logical. Those who are lucky enough to hit what amounts to a housing lottery in New York tend to stay put — even when, in the case of many older tenants, they are “over-housed,” meaning they are empty-nesters with empty bedrooms. New York, in fact, despite its historic reputation for welcoming the ambitious, has the lowest housing turnover rate of the top 10 U.S. cities. That means newcomers must double or triple-up, as they face high rents on the non-regulated units that become available.

Rents are high — just behind San Francisco because, although rents on regulated New York apartments are low, the bidding war that ensues on nonregulated units (those in exempted, smaller buildings or new construction) are bid up.

Newcomers are boxed out. Low housing turnover means that longtime residents are “grandfathered in” and that is exactly the wrong prescription for a tech industry hungry for talent from across the country and around the world.

If not rent control, then, what to do about a housing-cost crisis that has emerged as California’s leading political issue? State Sen. Scott Wiener, D-San Francisco, is right to look for politically practical ways to relax zoning laws and to encourage dense new construction near transit hubs.

Rent control will, as it has elsewhere, fail those in whose name it is proposed

But Californians should not have to choose between aging, single-family ranch houses and small, new apartments near rail stations. Historically, cities had what I call a housing ladder — attached houses, two- and three-family homes, four- to nine-unit apartment buildings. Zoning to permit new construction of such housing, especially near commercial main streets, can increase supply through incremental “densification.” So, too, can accessory dwelling units, which are beginning to enjoy a boom thanks to state legislation.

Nor should new exurban development be ruled out; the prospect of Uber-style small buses and self-driving cars means that residents of such areas may not have to own as many cars as they have historically. New transit modes to link households in lower-cost inland areas to jobs on the coast are also part of the solution.

Rent control will, as it has elsewhere, fail those in whose name it is proposed. It’s not sound housing policy; rather, it’s a sort of musical chairs, where the fortunate get a seat and the unlucky are left out.

This piece originally appeared at The San Francisco Chronicle

______________________

Howard Husock is Vice President for research and publications at the Manhattan Institute. 

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