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Guest Column: The Trouble with Rent Control

Author: Daniel Sanchez
January, 2016 Issue

Reports of rent control’s death, it seems, were greatly exaggerated.

 

Mark Twain wrote, “Reports of my death have been greatly exaggerated.” The same thing is true about rent control. For more than 20 years, no California city adopted a new rent control ordinance. In that time, volumes of academic literature were written on the negative consequences of rent control. But just when we thought it was dead, rent control is back.

This summer, Richmond became the first California city in two decades to pass a new rent control ordinance. Other jurisdictions, such as San Jose and Santa Rosa, are also discussing the issue. Reports of rent control’s death, it seems, were greatly exaggerated.

Over the last two decades, state legislation has limited what types of property are eligible for rent control. In 1995, a state law called Costa Hawkins restricted rent control to multifamily rental units with a certificate of occupancy before February 1, 1995. Single-family homes and condos are exempt, so is all new construction.

If rent control is limited, then it might not be a big deal, right? Wrong. In Santa Rosa, the majority of multifamily rentals are eligible for rent control. And even “limited” rent control has impacts beyond those units it regulates.

The average price of a rental has increased in the last three years because the San Francisco Bay Area economy has drastically improved; new jobs are being created. With more people getting jobs, they need more places to live. Housing availability hasn’t nearly kept pace with job creation. Add to this the fact that many of these new jobs are in the service industry, where wages are low, and you can see what has caused so much angst over rents in the region.

If rent control passed in Santa Rosa, the only winners would be those currently in rental units. All others—future Santa Rosans, landscaping businesses, tenants in non-rent controlled apartments and landlords—would be big losers.

Rent control is not a targeted, anti-poverty policy. The only thing that determines which apartment complex is eligible for rent control is when it received its certificate of occupancy—not how many poor families live in the complex. Rent control doesn’t help poor families equally and only benefits families as long as they live in a rent-controlled unit. Once a family leaves a rent-controlled unit, they’re worse off.

The experience of other cities with rent control shows that the policy hurts the poor while helping a small segment of professionals. In San Francisco and New York, middle and upper income tenants often live in rent-controlled units, because they can afford to pay broker fees to companies that help them find certified units. Those paying the broker fees are not poor families.

For full disclosure, I live in an apartment that would be eligible for rent control. If rent control passed, once I’ve outgrown my apartment, I could sublease it: The new tenant would pay market rate, and I would pay the landlord the stabilized rent and pocket the difference. Alternatively, I could keep the unit as storage, while still paying the stabilized rent. While I don’t plan on doing this, others will; in every city with rent control, this happens.

When rents can only increase by tying itself to the Consumer Price Index (CPI), this gives landlords little ability to offset costs. If landscaping costs increase 5 percent and CPI increased 2 percent per year, landlords will reduce maintenance of their apartments, making the units less desirable and laying off workers.

A less commonly understood aspect of rent control is that it requires every eligible unit to be tracked and monitored, while an Appeals Board must be created to set rents and adjudicate disputes. In Santa Monica, the Rent Appeals Board has 25 full-time staff members and a budget of $4.6 million. The revenue comes from fees on landlords, and a portion of the fee is passed to tenants.

Fortunately, there are policies that could help Santa Rosa’s poor while not permanently damaging the city’s housing market. The city could provide direct tenant assistance for families struggling to pay rent. The city could also devote more of its General Fund revenue to affordable housing projects or donate city land to builders for affordable housing. Santa Rosa could also create a mediation program to arbitrate disputes between landlords and tenants.

Before Santa Rosa wades into rent control, there’s a test case of where this is happening. Months before the Richmond passed rent control, city staff spent significant time and money studying the issue, while the climate in the community became divisive. Enough signatures have now been gathered to force a referendum on rent control. In November 2015, the Richmond city council rescinded the ordinance. Santa Rosa does not have to take Richmond’s path—let’s hope the council pays attention.

Daniel Sanchez is the government affairs director at North Bay Association of Realtors. Before working at NorBAR, Daniel worked for the city of New York under the Bloomberg administration; he holds a masters’ degree from Princeton University. You can contact him at daniels@norbarrealtor.com.

 

 

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