Rent control policies on the east and west coasts is causing a housing crisis. And California seems prepared to make things worse.
A 2018 California initiative likely to make the November ballot called the “Affordable Housing Act” would expand state and local government power to control rent prices.
“In many cases rent control appears to be the most effective technique presently known to destroy a city — except for bombing,” Swedish economist Assar Lindbeck said. While the comparison is extreme, Lindbeck makes a good point.
The Affordable Housing Act, and rent control in general, is a bad policy for three reasons: It leads to housing shortages, is inefficient for the market, and de-incentivizes the type of economic interactions that help homeowners and renters.
Due to the government-imposed cap on how much landlords can charge in rent, there is a drastic shortage of housing. This has had a devastating effect on California already. More than 100,000 homeless people currently live in California, the state which also has the strictest rent control policies.
Nationwide, the homelessness problem is increasing, but in some areas like Los Angeles, the homeless population has increased by a whopping 75 percent in just 6 years. Since the government does not allow landlords to charge any more than the mandated rate, there will be a shortage of housing that will only get worse due to population increase.
This epidemic is not limited to sunny California. Many coastal cities with these kinds of policies experience a similar predicament. In New York City, for example, more than 125,000 people were housed in homeless shelters last year. That doesn’t even include the number of homeless people that weren’t sheltered.
It’s not as if there simply aren’t enough homes built in California, it’s just that landlords cannot afford to rent them out. In San Francisco alone, there are an estimated 10,000 apartment units that sit vacant. If the government would end rent control, these apartments would be filled immediately by those who could afford it.
There would be a certain percentage of renters who could afford to live in better homes, and would choose to do so if they were to leave their rent-controlled apartments. As a result, there would be a surplus of lower-end, formerly rent-controlled residences that would be filled by a certain percentage of people for whom there was no housing available, thereby decreasing the homeless population.
Rent control also de-incentivizes the type of economic interactions that help homeowners. If landlords must pass through the bureaucratic red tape of getting past local housing ordinances and abide by imposed rent control, there may not be enough money in it for them to improve their properties, or lower their prices because of other government codes and requirements. This means that not only will there be vacant houses and apartments, but those that are filled are likely to remain unimproved, which will lead to low-income tenants permanently doomed to occupy slum-like apartments and condos.
On the other hand, those that are in rent-controlled apartments and are happy with their living situation are not going to leave anytime soon. Frankly, why would you? Rent in such apartments is determined on the initial lease date. Thus, for example, if you signed an agreement in the late 1980s for an apartment in Upper East Side Manhattan (much like Carrie Bradshaw from “Sex and the City”), then you would be all set through the 1990s as rent increased dramatically in the Big Apple.
Instead of government intervention, landlords should be unburdened to sell and rent their properties on the free market. If this were the case, the market would determine the most efficient prices for rent whereby a maximum number of people could be housed at a price which was best for both the consumer and the producer.
This is by no means a golden promise of real estate heaven. Things would not be perfect, there could be abuses in the system, and there would still likely be homelessness — but it is a much better alternative than the government solution of rent control.
This is probably one thing New Yorkers and Californians should agree on: Rent control is only making the housing crisis worse.
Zach Lang studies Political Science and Economics at St. Lawrence University. He is also a Media Ambassador for Young Americans for Liberty.
