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California Adopts Statewide Rent Control Restrictions

 

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California recently joined Oregon as the second state in the nation to adopt statewide rent control legislation. The California measure passed on September 11 and was signed into law by Governor Gavin Newsom on October 8. The law limits annual rent increases to five percent and offers additional protections to tenants facing evictions. Oregon passed its rent control legislation – the first such statewide law in the nation – in February of this year.

There is little dispute about the severity of California’s housing crisis. It is real, and it is getting worse. Anyone who has not been to San Francisco or Los Angeles lately is in for a shock upon arrival. Literally thousands of people live on the streets, many in sleeping bags and tents on city sidewalks, in city parks and under highway viaducts. The scale of the problem is overwhelming. There is no equivalent in Chicago or the Midwest.

There is little dispute about the severity of California’s housing crisis. It is real, and it is getting worse.

But what can be disputed is how best to solve this terrible and seemingly intractable problem. In California, there were two options proposed during this year’s legislative session. From a property owner’s perspective, and the perspective of most reputable economists, the state chose the wrong option – and will ultimately pay for their mistake.

As we have long argued at RPBG, the solution to the affordable housing crisis is to build more housing, not to impose artificial restrictions on rents. By restricting rents, rent control measures only make it more difficult for the private market to build, ultimately driving up the price of the existing inventory as ever larger numbers of people compete for a stagnant supply of available units.

Legislators in California took the politically easy way out, pushing responsibility for the affordable housing problem, and all of its costs, squarely on the shoulders of property owners.

The California legislature faced this choice in stark terms. A competing bill to the just-passed rent control measure was proposed by Scott Weiner, Democrat from San Francisco. Representative Weiner’s bill would have allowed the state to override local zoning laws, allowing denser, multifamily development around transit stops in cities and suburbs across the state. The state opted for rent control; the Weiner bill went nowhere.

The real message of the California State Legislature is this: density generally, and multifamily housing specifically, are fine ideas – JUST NOT IN MY COMMUNITY!

If the irony of the failure of Representative Weiner’s proposed legislation and the success of the rent control measure is not clear, let me spell it out for you. Legislators in California took the politically easy way out, pushing responsibility for the affordable housing problem, and all of its costs, squarely on the shoulders of property owners. What they did NOT do was address the root of the problem – the imbalance between too little supply and too much demand.

California has too little housing largely because it is so difficult to build it where it is most needed.

In short, the California legislature cried NIMBY (not-in-my-back-yard). The real message of the California State Legislature is this: density generally, and multifamily housing specifically, are fine ideas – JUST NOT IN MY COMMUNITY!

This is exactly the reason California is in such a terrible housing crisis in the first place. California has too little housing largely because it is so difficult to build it where it is most needed. Most California communities outside of the state’s largest cities have been extremely resistant to new development. Development patterns that worked just fine in the 50s and 60s when the state had ten or fifteen million people have proven woefully inadequate now that the state’s population is pushing 40 million. Local jurisdictions seem to prefer having people living in tents rather than allowing multifamily housing to be developed within their borders. Their battle-cry is always the same – BUILD IT SOMEWHERE ELSE.

Local jurisdictions seem to prefer having people living in tents rather than allowing multifamily housing to be developed within their borders. Their battle-cry is always the same – BUILD IT SOMEWHERE ELSE.

Despite its upside-down economics, the rent control “solution” was still the easy way out for these lawmakers. It gives them the appearance of having done something about the problem. It has immediate appeal to the state’s large (if not very economically astute) renter population. And it allows them to avoid offending the NIMBY constituents in their home districts who do not want higher density development in their communities.

This turn of events portends trouble for property owners across the country. California’s influence is huge; the cowardice of the governor and legislators will be easily replicated in other states now that the precedent has been set.

Sad to say, in America today, it is just much easier for lawmakers to pass the buck than to make difficult but necessary choices.

If there is a silver lining to the rent control measure just enacted in California, it is that it has a sunset provision that is supposed to kick in on January 1, 2030. Of course, sunset provisions are not written in stone. Just look at New York City where the rent control “emergency” that was declared after World War II has mysteriously endured to this day.

Representative Weiner’s legislation would have done much more to alleviate the housing shortage in California than rent control ever will. But common sense and politics are clearly two different animals. Tenants want cheap rent. Exclusive suburbs want to stay the way they are and do NOT want the state telling them what to build inside their sacrosanct borders. Sad to say, in America today, it is just much easier for lawmakers to pass the buck than to make difficult but necessary choices. This is a problem we understand all too well in Illinois.

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