By Timothy L. Coyle.
In response to California’s housing crisis, housing advocates are calling for price controls – specifically a cap on rents. It’s a popular reprise: “Blame it on the landlords” and hold them responsible. The critics of high rents say those who provide the housing are guilty of manipulating circumstances and are lining their pockets. Indeed, the state’s miserable housing condition can only be solved, these groups say, by proposing greater restrictions on just who property owners can and can’t rent to and for how much. Locally, at the state Capitol and even in Congress they’re calling for changes in law.
Yet, rent control has never worked.
The renowned economist Milton Friedman railed against price controls of any kind, particularly rent control:
[R]rent control, along with laws protecting tenants against eviction, involves partial expropriation of property rights. It limits the owner’s right to use and to profit from the use of his (or her) property. It also restricts the opportunity of everyone else who would like to bid for the use of the properties thus controlled by government.
Brookings Institute scholar Anthony Downs – a liberal economist who warned lawmakers long ago the perils of rent control – shows how basic economics works well in housing markets. Higher rents, Downs says, are natural and healthy – attracting more housing and eventually competition among providers. Left alone, he says, competition in markets breeds lower prices (rents) and, therefore, increased access and affordability. This becomes a cycle that’s repeated over and over again until, Downs says, “too many resources are already at work.”
In other words, says Downs, rent control is precisely what communities experiencing unusually high rents shouldn’t do.
If rents were prevented from rising . . . no signals would be sent to developers to create more units. The basic problem of inadequate supply would not be remedied, because the market would not respond to greater demand by producing greater supply.
In communities where rent control is practiced the results are predictable:
- Less housing, as investors see no economic benefit in building;
- Scams, as “beneficiaries” exploit excessive demand; and
- Deteriorating conditions, as rules prohibit pass-through’s, and thereby discourage capital improvements and regular maintenance.
A now decades-old study by Sacramento State University shows the destructive impact rent control has on the housing markets in Berkeley and Santa Monica – which have boasted rent control for decades – and that the policy gravely misses its mark of helping poor people:
Berkeley and Santa Monica lost rental housing units while their reference counties added to their rental housing stock. Both cities lost structures with five or more ·units, while their reference counties gained this type of housing structure.
The Sacramento State study also found that both Berkeley and Santa Monica have seen declines in their rental populations, with Hispanics being disproportionally impacted.
These are outcomes that should discourage lawmakers and policy makers from pursuing something as hostile to the interests of stabilizing rental housing markets and increasing supply as rent control. But, frustration or, perhaps, guilt feelings are motivating politicians, like those serving on the Richmond City Council – which recently enacted a rent control ordinance – to act on those feelings. The cities of Burlingame and Santa Rosa, and several other Northern California communities are poised to do the same thing soon. And, to keep the pressure on, thousand of tenant activists recently took to the streets, nationally.
High housing costs in California are a direct result of the state’s chronic, substandard production. For years, the Golden State has faced a housing production deficit. One has to return to the mid ‘80’s – during an unusual spike in production – to find the last time housing construction matched population growth and consequent new household formation. Since that time, California has suffered an annual housing-production shortage of, on average, 100,000 units.
And, while there are plenty of builders at the ready to build, the constraints to their doing that economically are enormous. Consider fees for building in California are more than most home prices in the U.S.; myriad environmental rules are regularly used to block or stall development; and succumbing to their social-engineering instincts, state and local decision-makers layer onto new housing projects uneconomic, “affordability” requirements.
The dirty little secret to what gives rise to enact things like rent control are that they are man-made, and getting worse. As the editorial board of the San Diego Union-Tribune recently wrote:
This editorial board is sympathetic to those who struggle with housing costs, and welcomes any demonstration that gets elected leaders to grasp the seriousness of the housing crisis. But rent control doesn’t work. Economists’ surveys show near universal agreement that a “ceiling on rents reduces the quality and quantity of housing.”
Let’s hope a majority of legislators see things the same way.
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