RENT CONTROL – Part 1

Rents in the Bay Area are expensive… for some, NOT All!

Brief History

California law makers are once more introducing rent control bills and various groups are trying to create new rent control ballot propositions. California has some rules limiting rent control. The Costa-Hawkins Rental Housing Act of 1995 prevents cities and counties from imposing rent control on single-family homes or apartments built after 1995. The law also froze rent control rules in cities such as Los Angeles that had policies before Costa-Hawkins was implemented.

Last year 62% of California voters rejected Prop 10 which was an attempt at imposing new state-wide rent control laws. Lawmakers are now trying to alter Costa-Hawkins. There are two bills being proposed:

  1. would allow cities and counties to impose rent control on single-family homes and apartments more than 10 years old — with exemptions for small landlords.
  2. would prevent landlords from increasing annual rents above a certain as-yet-to-be-determined percentage while also allowing for inflation.

No Means Testing

Housing seems to be one of the few privately owned assets that we seek to control pricing on, but not with other basic living requirements. We do not impose price limitations on drugs, medical care, or food. Safeway is not told how much it can increase the price of bread per year? The way we deal with the basic need for food is we subsidize it as a society. We offer people that are economically challenged assistance in the form of food stamps. This is a means tested solution; society collectively assists those that can prove that they are in need.

Rent control is not means tested. Rent assistance, like that of Section 8 or other housing voucher programs, are means tested methods for helping those that need it. Limiting how much rent can be increased or charged altogether is like telling Safeway what it can charge for food, regardless of whether the purchaser is poor or a billionaire. There are plenty of people living in the Bay Area making hundreds of thousands of dollars per year; current rents are affordable for these folks. However, imposing blanket rent controls means that the people that can easily afford their rent will also greatly benefit at the cost of the property owner. This could discourage investors from purchasing or building rental properties and thus reduce the quantity of available rentals.

Wages vs. Subsidies?

I’m not an economist, I struggle with the answer to this question. This is where I become a total hypocrite; I’m for capitalism on rents, but wishy-washy on wages and subsidies. I believe that no one should be homeless simply because of the wage they are paid. A functioning community needs many services that are often undervalued; babysitters, gardeners, housekeeper, etc. I’m sympathetic to the reality that Bay Area rents start at around $3,000/month, this is a huge burden on many people. A tenant needs to make at least $50,000 gross per year just to pay rent; this is roughly a $25/ hour wage just for rent. Many people don’t make anywhere near that altogether.

The conundrum becomes either paying a living wage or offering housing subsidies? A pure capitalist might argue that the market should set wages; supply and demand. Others will argue that they do not wish to pay higher taxes just so others can have a discount on services many can’t afford. Ex: why should I pay higher taxes for a gardener’s housing subsidy when I can’t even afford a gardener myself? The person hiring the gardener should pay a higher wage so the gardener does not need a housing subsidy. These are valid arguments. The correct solution to the problem is above my pay grade and intellect.

Even if rent control were applied across the State, in the Bay Area we still have limited housing, lower income folks will still get driven out because many will likely have lower credit scores. With the multitude of rent applications received on properties, the owner will still select the most qualified applicant based on credit score and income. Those already renting may be able to hang on to their home, but they will eventually mostly be replaced by people that can afford a market based rent. Meantime, denying the property owner fair market rent may also lead to deferred maintenance on properties.

The conclusion is that I’m not offering any solutions to the problem, I’m only stating that rent control is unfair to the property owner.

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