Bob Milliken, August 2018
Rent Control: A Cure That is Worse Than the Problem
Recently, local government has been pressured to adopt strict controls on the price landlords can charge for their rental units in the city of Costa Mesa and Newport Beach. Proponents claim the drastic step of government intervention into the rental market is an appropriate response to an emergency situation: The insane escalation of rental prices has turned even the most basic, fundamental human need for shelter into an unstable, and downright scary, proposition. As rents skyrocket, renters can’t be sure of whether or not they will be able to keep, let alone find, a decent place to live.
Why then would REALTORS® be opposed to something that is designed to help people keep a roof over their heads? It is a fair question. After all, REALTORS® pride themselves on being the purveyors of the American Dream of homeownership. REALTORS® know about the human need for shelter perhaps better than any other profession.
In short, REALTORS® know housing. And we know what kills it.
Rent control is a well-meaning policy “cure” for a real and serious problem, but unfortunately it does not work. In fact, the “cure” is worse than the problem.
By artificially constraining rental prices, rent control removes the incentive for landlords to improve their properties. A landlord who will not receive a fair rate of return on the property cannot afford to spend money to maintain or improve it.
When property maintenance declines, it has a spiraling effect on the community. Declining property maintenance lowers values. This lowers tax revenue to local government. Less tax revenue undermines government maintenance and services, and the cycle continues.
Rent control is a disincentive for builders and investors to bring new properties into the rental market. Fewer properties coming onto the market constrains an already tight supply of rental housing, putting even more upward pressure on the price of existing rentals. In other words, rent control exacerbates the very problem it is designed to solve.
Rent control is not fair. Most landlords are decent respectable business people who abide by their leases and who want to keep prices reasonable. Many are also small business persons, and in some cases retirees on a fixed income, who rely on the steady income of their rental to survive. Artificially constraining the prices they can charge, and imposing burdensome bureaucracy on their business, hampers their way of life.
Rent control creates a huge bureaucracy for local government. The cost to local government to administer a rent control program is enormous, and one our city cannot afford in these lean times.
Finally and sadly, rent control does not help the very people it is intended to protect. Controlled units become a premium for tenants, who sublease them to family and friends “under the table” and at higher rates. This lowers turnover and only further limits the supply of affordable rental housing for the most needy. Again, the “cure” is worse than the problem.
Anyone who doubts these problems with rent control need only look at many of the cities that have already tried it. Cities like New York, Los Angeles and San Francisco, for example, have lived with rent control for decades and are no closer to solving their affordability issues now than they were when those programs were adopted.
But REALTORS® cannot simply oppose a policy without offering an alternative. We love our community and want to offer reasonable solutions. There are other more effective ways to address the city’s rental housing needs.
First and foremost, the city needs more housing. City government has a moral obligation to plan appropriately so that housing can be built to address the needs of all income levels, ownership and rental. It is short-sighted at best, schizophrenic at worst, to limit supply then put a lid on prices, wondering why they have gone up.
Local government can also help jump start programs to assist the rental market. Working with non-profit organizations, the state and federal government, the city can fund and implement programs that offer security deposit guarantees for people who need help getting into rental housing.
The city should also consider offering non-binding rental mediation as an alternative to rent control. A voluntary, self-policing process would be the most appealing and least expensive to the city.
REALTORS® support the concept of so-called “build by right” rules that streamline the permitting of affordable housing units. Gov. Jerry Brown has proposed a variation of this concept in his state budget, but it has so far not been acted upon. There is no reason for our city to wait on the state. We should adopt a local rule that excuses affordable, appropriate housing from the morass of permitting and red tape that makes it too expensive to build. Parking space requirements, impact fees, multiple inspections and hearings ought to be reduced or eliminated for new affordable housing, especially infill projects, that meet the model rule for a streamlined permit.
The bottom line is this: Rent control is not the answer to making more properties more affordable. Indeed, it is a “cure” that is worse than the problem it seeks to treat. We can, and must, do better for our community.