Rent Control Often Hurts Not Helps
The housing crisis in California continues to spiral out of control with little to no real effort being made to address the problem using practical, effective solutions. Neglect, poor planning, and a lack of important services for the homeless are only exacerbating these issues.
Another significant contributor to the problem can be found in the rent control ordinances that have been slowly implemented throughout the state of California since the late 1970’s. The goal of these policies was to ensure that affordable housing was available in light of climbing inflation and vacant units growing more scarce. Policies that were introduced in the 70’s were revisited in the mid-90’s with the Costa Hawkins Act, a set of regulations that aimed to set some exemptions from the rent control ordinances in the state.
Since then, a variety of initiatives and bills strengthened the grip of rent control and provided further protections geared towards safeguarding renters from evictions. None of these new bills managed to repeal the Costa Hawkins Act, though some recent attempts have been made as recently as 2018. These have all failed.
Rent control was intended to create a foundation of affordable housing in parts of the state where available housing is limited due to the popularity of the market and the inevitable rise in prices that puts most rental properties out of reach for low and middle income residents. The policies of rent control are designed to put a cap on rent increases annually with maximum allowable rent costs that can not be exceeded while a unit qualifies for rent control status. Tenants can not be evicted from these units without cause.
Negative Impacts on the Community
Unfortunately, rent control has often hurt the communities and residents it was aimed at helping. Since rent control restricts property owners from raising rents or exceeding maximum allowable rent costs for a property until it can be placed on the market at the current market rate, the properties themselves often suffer and low and middle income renters are prevented from enjoying the benefits of housing they were supposed to be able to afford. This has been seen in a variety of negative impacts:
The lack of fair market revenue streams and a considerably lower ROI on rental properties has a direct negative impact on the quality of the housing and potentially reduces the amount of units that are available to the people who need them most. A lack of financial resources for proper maintenance of an apartment building usually results in a rundown, dilapidated building badly in need of repairs. Before long, the building can become unsafe and uninhabitable.
In order to avoid a complete loss on the investment, a property owner might opt to convert it into a condominium or, if the building is showing significant disrepair, the owner might take the hit and abandon the property. This ends up reducing the number of available units instead of safeguarding affordable units for those who need them in order to stay off the streets.
Reduction in Tenant Mobility
A rent-controlled apartment is something that most tenants are extremely reluctant to give up.This defeats the purpose set forth by rent control policies in most major cities. A tenant who resides in a rent-controlled unit is less likely to move on to other housing in a different building that does not qualify for rent control consideration.
Instead, the tenant stays put to enjoy the benefits of far less expensive rental property than fair market value. This results in a domino effect where units remain occupied by tenants who are paying far less than what the units are worth, spurring landlords to put fewer resources into the building and focusing those resources towards other properties where the revenue earned from the units is more in line with the current market value.
Smart property owners who realize they are missing out on revenue will convert their properties into condominiums or co-ops that are unaffected by rent control ordinances. This, in turn, creates new housing that is well out of reach for low and middle income residents as demand rises and prices rise with it. Once again, rent control policies have failed to meet their established objective.
Fail to Benefit those in Need
The criteria for meeting the qualifications of rent control sometimes dictates that a unit be occupied by members of the same family, transferring the property from one member to a next and often from generation to generation. As the years go by, the value of the property increases and the market price rises but the landlord is unable to collect what it’s worth. If the family has attained great wealth during that time or have been wealthy from the outset, they are not the intended recipients of the benefits that rent control promises. On the contrary, these units remain out of reach for low and middle income tenants in need.
Let Me Leave You with This…
These are only some of the many unanticipated yet very evident disadvantages of a program that was supposed to help so many communities. So what are the more effective solutions? The first is to drastically reduce or even eliminate rent control and incentivize developers and property owners to embrace new construction, promote maintenance, and improve the quality and quantity of rental units. This helps to drive the prices of new properties down into ranges that better serve the community.
It’s time to emphasize the role that property owners and developers play in driving the economy through construction of new properties and investment in housing for the communities that are struggling to obtain sufficient rental supply that best meets demand.
When the rental prices of a community are not in line with the market value, it sends the message to developers and landlords that housing is not at a premium and, thus, a slow down on construction is appropriate. But that only serves to leave fewer units open in a crowded market.