When a policy abysmally fails at the municipal and local level, making the original problem even worse, the only logical solution is to force it through statewide.
Such are the mental gymnastics of California legislators. They just passed a new law forcing through rent control across the Golden State, and Democratic Gov. Gavin Newsom is expected to sign it into law. The law would bar landlords from pursuing eviction against tenants without a reason the government deems acceptable and simultaneously restrict annual rent increases to 5% plus inflation.
Legislators see this as an answer to the housing crisis gripping California. But rent control has already made the problem much worse in many California communities. In fact, this effort flies in the face of countless real-world examples. The overwhelming economic consensus is that rent control exacerbates housing problems.
For instance, a recent study investigating the effectiveness of San Francisco’s rent control policies found that “while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.”
Washington Post columnist Megan McArdle dug deeper into the issue, finding that rent control is one of the rare areas where economists have pretty much reached a consensus. She wrote “there are a few questions where there’s near unanimity, and rent control is one of them. Pretty much every economist agrees that rent controls are bad.”
McArdle is correct: Economists as disparate as the libertarian icon Milton Friedman and the left-wing Swedish economist Gunnar Myrdal have opposed this policy, all with good reason.
Even the left-leaning Brookings Institution found that “rent control appears to help current tenants in the short run, [but] in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.”
This is all consistent with the basic economics of rent control. Regulating a certain price might help, in the short run, some families who have already found housing. But in restricting profit opportunities for developers and potential landlords, it causes the total supply of housing to constrict.
New rental housing stops being built, and potential landlords, fearful of losing control of their real estate to tenants who know how to exploit the rules, get out of the business or avoid going into it. This in turn causes prices to soar for apartments not already locked down. Meanwhile, rent-controlled apartments, carefully guarded by privileged tenants, are allowed by their owners to fall into disrepair. There is no incentive to keep them up when the landlords are really hoping that current tenants will leave.
This has happened across the country wherever rent control has been implemented, and California is no exception.
As Christian Britschgi wrote for Reason, “California’s housing crisis has been years in the making, and fixing it will require substantial deregulation of housing development. The rent control bill passed by legislators this week, while benefiting some current tenants, is ultimately a step in the wrong direction.”
A step in the wrong direction, indeed. If this bill becomes law, working-class Californians will have to pay the price for their legislators’ foolishness.
