Five Things A Californian Should Know About Rent Control

by Matt Levin, CALmatters

One way or another, two words are likely to dominate the complicated politics of California’s housing crisis in 2018: rent control.

Next week state lawmakers will hear a proposal from Assemblyman Richard Bloom, Democrat from Santa Monica, that would allow cities to dramatically restrict what landlords can charge tenants year-over-year. The bill couldn’t even get a hearing last year amid intense opposition from landlords.

But looming over legislators’ heads this time around is a potential ballot initiative supported by tenants’ rights groups that would do much of the same. If the bill stalls, experts say there’s a good chance you’ll see rent control on your November ballot.

What should your average Californian know about a rent control debate poised to gobble up so much political oxygen? Here are five key points:

1.  Under current state law, a wide swath of California’s housing stock can’t be placed under rent control.

Rent control or rent stabilization policies come in different shapes and sizes depending on the city you may find them in. Some place a hard cap on how much a landlord can raise rents year over year, others may be indexed to inflation. Currently 15 California cities have some form of rent control on the books, including major population centers like San Francisco, Los Angeles and Oakland.

But current state law prohibits any locality in California from imposing rent control on properties built after 1995. That’s the year the state passed the Costa-Hawkins Act, which also prohibited cities that already had rent control laws on their books from updating them for new properties. Thus in Los Angeles, rent control only applies to buildings constructed before 1978, and in San Francisco, rent control only applies to buildings built before 1980.

A bit of background: After some cities responded to tenants’ concerns about rising rents in the 1970s and 80s by adopting rent control ordinances, real estate interests first tried to stop them in the courts. Unsuccessful there, they focused on the Legislature. Bills to preempt local rent control would routinely pass the Assembly and then die in the Senate, held up by then-Senate President Pro Tem David Roberti, a West Hollywood Democrat. The year after he was termed out of office, Costa-Hawkins passed by a one-vote margin.

Both Bloom’s bill (as it is currently written) and the initiative would fully repeal Costa-Hawkins, massively expanding the number of properties on which cities could impose rent control. That includes single-family homes, which Costa-Hawkins also excluded from rent control protections.

2. Most economists—left or right-leaning—think rent control is bad

Economists have a hard time agreeing on most things. But regardless of partisan leaning, most economists would say rent control is not great policy. Even prominent progressives like Paul Krugman have expressed opposition to it.

Rent control is quite literally the textbook example of a “price ceiling”-- undergrad economics textbooks will often feature problem sets with questions about what’s wrong with rent control. The classic microeconomic downsides include killing the incentive to build more housing, causing landlords to neglect maintenance and repair, and inflated prices for non rent-controlled units. A poll of ideologically diverse economists found that only 2 percent agreed with the statement that rent control had had a positive impact on housing affordability in cities like New York and San Francisco.

3. Scholars in other fields are generally bigger fans. And if you took away rent control, the results could be disastrous for affordability

Many urban planners and other scholars studying gentrification and displacement cite rent control as an effective policy to keep long-time residents in the communities in which they live and work. And because rent control has become so deeply embedded in the housing markets of some cities, taking it away—no matter how economically inefficient it may be--could spell disaster for current residents.

The Bay Area Council Economic Institute—a business-aligned policy think tank—ran a simulation of 20 policy changes that could improve or worsen housing affordability in San Francisco. The policy that would make things worst? Getting rid of rent control, which they found would plunge 16,000 households into an unaffordable housing situation.

4. One of the best studies of rent control shows that it primarily benefits older households at the expense of households without rent control

There actually aren’t a ton of empirical studies looking at how rent control plays out in practice. But a groundbreaking Stanford University study released last year on San Francisco’s rent control experience has shed new light on who wins and who loses from the policy.

Looking at a roughly 20-year span of proprietary rental and migration data, the study authors found that rent-controlled tenants age 40 or over saw average savings of nearly $120,000 from rent control; by contrast, younger rent-controlled tenants only saved an average of $40,000.

That’s because younger households were more likely to move out of rent-controlled apartments because of various life milestones—a new job, a new family, buying a house in the suburbs, etc.

5. The study also found that rent control paradoxically fueled gentrification, as landlords converted units to condos

The Stanford study also found that rent-controlled buildings were 10 percent more likely to be converted to a condominium or some other type of non-rental property, as landlords searched for ways to evade the law. Those units being drawn off the market partly drove up rental prices for tenants searching for apartments in San Francisco. In this sense, the study authors argue, rent control paradoxically contributed to the well-publicized gentrification the city has experienced over the past few decades.

While the study also found that rent-controlled tenants were more likely to stay in the city than tenants without rent control, the gap may not be as wide as you think. After 10 years, about 11 percent of tenants without rent control were living at the same San Francisco address. Tenants with rent control? Thirteen percent stayed put.

How to participate in the debate: The rent control bill will be heard by the Assembly Housing and Community Development Committee on Thursday, Jan. 11 at 9 a.m., and will include a public comment period. You can watch the hearing—which should be pretty lively as far as legislative hearings go—here.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. For more of Matt Levin’s housing coverage, check out the CALmatters podcast “Gimme Shelter.”