Rent Control Will Not Fix California’s Housing Crisis
On October 8th, California Assembly Bill 1482, which caps rent increases statewide at 5% plus inflation until 2030 and covers housing that are at least 15 years old, was signed by Governor Gavin Newsom.
Unfortunately for California renters, the arguments for rent control do not address the real problems. If legislators in other states want to make housing more affordable, they should look to California’s AB 1482 as what not to do.
Advocates for rent control assert that rent is too high for working people and that limiting rental increases will give people breathing room for future cost of living increases. Rent in California has increased by as much as 25-50% from 2015 levels in large metropolitan rental markets, especially those along the coast.
They argue further that rent control has an immediate impact on housing affordability, keeping tenants from homelessness or from moving to cheaper, far-flung suburbs. On the national stage, rent control has gained notoriety with Congresswoman Alexandria Ocasio-Cortez of New York proposing a national rent control system.
However, the data shows that rent control polices have failed to provide affordable housing, while creating negative, unintended consequences. Researchers at Stanford, the American Economic Review and the Center for Economic Studies found that restricting the amount of rent a landlord can charge decreases housing supply, lowers housing quality and leads to higher prices for non-rent-controlled apartments.
Despite benefiting incumbent tenants who already had housing in San Francisco from 1979 to the mid-90s, Stanford professors found rent control encouraged landlords to transform rent-controlled units into high-income residential units – like condos and other non-rental units – not covered by the measure. This involved evicting rental tenants and selling the properties to wealthier customers. As a result, people had fewer rental options.
Researchers have also found that rent control discouraged landlords from maintaining the quality of rental units. For example, if the rental value of a property is $1,500 per month, but rent control prohibits the monthly rent from exceeding $1,400, the landlord is less likely to invest in the property, and the quality of the rental unit will slowly diminish toward a $1,400 per month value.
Frustrations around the high cost of housing are well-founded, but insisting on more restrictions does not promote long-term housing affordability. California needs a housing construction boom to create a supply of affordable housing, and it is not happening because of excessive regulations. Three studies clearly articulate these barriers:
- An issue brief by the Pacific Research Institute highlighted a web of hurdles that have discouraged residential development in California, including overreaching environmental protections, local ordinances capping the number of new homes, costly construction permit fees and even parking requirements.
- A literature review from the Mercatus Center found that minimum-lot-size requirements for housing, urban growth restrictions and exclusionary zoning in affluent neighborhoods have deterred housing development.
- The Obama White House in 2016 recognized that barriers to housing construction push working families away from job markets with the best opportunities. This leads to longer commutes for workers, which reduces general well-being and increases time spent away from families. Besides increasing rental and construction costs, these hurdles also diminish the value of public assistance per housing unit.
Rather than distort the market through rent control, state legislators in California – and across the country – should examine how excessive regulations hinder new housing construction and increase rental costs in their states. By eliminating these barriers, lawmakers can encourage new rental developments and make housing more affordable.