[guest post by JVW]

Long-time reader and commenter aphrael left a detailed and thoughtful comment with respect to my opposition to California’s Proposition 10, which would remove restrictions imposed by the Costa-Hawkins Act of 1995 and allow localities throughout the state to impose and/or expand rent control by applying it to buildings that were formerly protected by the legislation. I am against rent control and will endeavor to explain why, but I also want to give aphrael’s comment the consideration that it deserves and maybe use this as a launching point for a productive debate.

Costa-Hawkins restricted rent control to apartment buildings built before 1995, declared that owners could raise rents to market value once the unit became vacant, and mandated that single-family homes and condominiums would be exempt from the requirements. Because of these restrictions, rent control only exists in fifteen cities throughout the state, but unsurprisingly the large cities of Los Angeles, San Francisco, Oakland, and San Jose are counted among them. There’s no doubt that these cities are some of the most expensive rental housing markets in the U.S., with the average one-bedroom apartment in San Francisco now exceeding $3,500 per month. Clearly this prices out young people and families of moderate means, and makes these locations affordable mostly to the entertainment and tech elite of the state. aphrael sums this up succinctly:

What this means is that working class people can’t afford to live in the state’s big metro areas unless they were lucky enough to buy houses decades ago or are lucky enough to inherit houses. Instead, they live far away from the metro areas and have hellish commutes — which means traffic sucks everywhere. And *even so*, in the urban areas, it’s becoming difficult for high end restaurants and yuppie food stores (both of which pay more than average) to attract staff, because the staff can’t find a place to live.

Quite true. And this begets additional problems. As young families are priced out of our large urban areas, those cities see troubling drops in the enrollment of school-aged children (San Francisco here, Los Angeles here), which leads to the closure of schools, which in turn leads to fewer teachers finding jobs. California as a whole is scheduled to get older in coming years, as the replacement birthrate and addition of young residents fails to keep pace with the greying of the population and the exodus of young adults to more affordable states. This growth in retired workers will also place strains on our social services budget and force us to continue raising taxes on the working population of the state, largely because we are pushing out middle-class families.

So there is a general consensus that our cities could really use more families, more people of working age, and shorter commutes for middle-class workers who populate the non-glamorous jobs that keep a city functioning. The question comes, then, how to go about accomplishing this goal. Basic economics tells us that the best way is to combat scarcity is to increase supply, but that presents its own problems. Environmentalists and NIMBYs have worked for the past few decades to thwart the creation of new housing developments, citing urban congestion, traffic problems, and (often specious) ecological concerns. Urban utopians dream of large apartment complexes located near metro train lines and large bus centers, but residents of pricey neighborhoods worry about holding on to the value of their homes and the reputation of their school districts, both of which could easily be impacted by bringing in “outsiders” to their twee communities. People already living in crowded middle-income communities worry about overcrowding, and residents of lower-income communities complain about “gentrification” and changes to the current ethnic or racial identity of the neighborhood. Here is aphrael’s summation of the problem:

The problem is that this solution is politically impossible. To *existing* homeowners, who exercise effective control over local politics in most jurisdiction, building more housing means increasing density in their neighborhoods, which means giving up some of their quality of life. It means more traffic, more noise, more people around. Smaller lot sizes, tall buildings casting shade on their homes and their lawns. It means giving up the California dream as they understand it. And to anti-gentrification activists, it means the destruction of their communities (never mind that their communities are being destroyed by rising rents *anyway*).

So if we accept the idea that we simply won’t be able to build enough housing to stabilize rents, we’re left with three choices. The worst one of these as far as I am concerned is imposing rent control. It sounds benign enough: renters get the certainty of limited annual increases in rent in their units and in return property owners are excused from some of the more onerous requirements of maintenance of their buildings, and depending upon the locale they may be eligible for some tax incentives for offering rent control. But at the same time, rent control brings about some perverse results. Here’s a nice encapsulation of rent control’s problems from Kenneth Rosen, chairman of the Center for Real Estate and Urban Economics at that notorious right-wing free-market institution, the University of California at Berkeley:

Specifically, rent control reduces property values and decreases tax revenue for local governments. Rent control hurts mom-and-pop businesses, encourages property owners to neglect building maintenance, and can lead to deteriorating neighborhoods. Rent control is need-blind, so the benefits often accrue to high-income households. Moreover, if applied to single-family homes, rent control could eliminate rental housing for many families and decrease property values for California homeowners.

Not to mention that rent control interferes with a building owner’s right to sell his product at market prices. Government invariably stirs up a hornet’s nest of bad consequences when they try to implement price controls, and the housing market is no exception.

The second worst option is for government to subsidize renters to live in apartments beyond their financial means. There are already Section 8 subsidies available to low-income renters through the federal program administered by HUD; having the state or a particular city expand this with additional dollars would be preferable to rent control, but only by a little. It would have to be a partnership between the government and the landlord whereby in return for being eligible to take in the government vouchers the landlord would agree to limit rent increases. But of course given the fact that there is a shortage of rental properties in the biggest cities, why would a landlord voluntarily agree to limit prices where there are no doubt long lines of people willing to pay market rates to get the place? Though expanded government subsidies do have the virtue of forcing the government to bear some of the cost for the housing shortage, it ultimately is an unworkable solution.

So that brings us to the final choice, which is to do nothing. After all, where is it written that people have a right to a cheap apartment in a desirable location? And what is so special about firms in San Francisco, Los Angeles, New York, Chicago, Washington DC, and other places that governments should rig markets in order to provide workers for them? I understand that young woman who struggled through her computer science degree because she dreamed of working in Silicon Valley is having her hopes dashed because she can’t get an entry-level job that pays enough for her to find a place there, but — you know what? — that’s between her and Google/Facebook/Twitter/Salesforce. Maybe she needs to telecommute from Cleveland, or maybe the time has come when urban America has been built out to capacity and companies need to shift their operations to Kingman, Pueblo, Joplin, Sheboygan, Pine Bluff, Allentown, and Spartanburg. It will be up to the cities to take care of workers in non-tech industries — the teachers, bakers, florists, cops, and nurses — and that will take a willingness to build more housing or somehow figure out how to make their commute easier (I still think the tech companies should pay to extend the boondoggle bullet train from the Central Valley to the Bay Area).

Let me give our friend aphrael the final word, since he plans to vote for Proposition 10 next week. Here is his reasoned rationale for supporting rent control as the best of a bunch of bad options:

The cost of housing ripples through to other things. Groceries, for example, have to be substantially more expensive because (a) the rent on the storefront is more expensive, and (b) the salaries of the workers have to be more expensive so that the workers can afford to live four-to-an-apartment manhattan style. This inflation trickles down through everything. And as the price of housing continues to rise due to a growing imbalance (we’re not building enough new housing to keep up with demand, let alone to backfill the gap), the problem will get worse.

A mechanism that allows those who are already renting to continue to afford their rent helps ameliorate *some* of the inflationary effect of the cost of housing.

And it protects those people from having their lives disrupted and the quality of their life shattered by being forced to move by rising rent.

It’s a bandaid. It doesn’t bring us any closer to solving the real problem. But it helps temper the effects of the catastrophe.

And thanks as always to him for his comments, even (and especially) when we don’t agree.

– JVW