Rent Control Expansion

Imagine San Francisco were considering a $400 million per year tax on rents, with proceeds distributed as a rental subsidy. The city would structure the tax to be highest for renters who most recently moved into their homes, and structure the subsidy to be highest for people who have been in their homes longest, and for those with the most expensive homes.

Such a law would be roundly criticized as anti-immigrant and anti-young, and we would question why it attempts to neither explicitly tax the rich nor give to the poor. For such an enormous tax, why forgo a progressive policy design?

Yet this is exactly the law San Francisco has had in place since 1994: you might know it as rent control, which limits annual rent increases. That $400 million comes from a 2017 Stanford study, which found that rent control reduced rents by about that much for incumbents while raising market rents by a similar amount.

In November, Californians will vote on Prop 10, which would allow cities to double down on this policy. Doing so would disadvantage immigrants, young people, and the economy. Prop 10 would give cities virtually limitless power over rent control, enabling them to block development amid the state’s worst housing shortage. The state should instead make housing affordable for everyone by ensuring more of it gets built and providing financial assistance to the most housing-insecure.

What are rent control and Costa-Hawkins?

If it passes in November, Prop 10 would repeal the 1995 Costa-Hawkins Rental Housing Act, which limits the types of rent control laws a city can impose. Under Costa-Hawkins, rent control cannot apply to single-family homes, condos, and units built after the earlier of 1995 or the city’s passage of their rent control (for example, 1979 in San Francisco). Costa-Hawkins also prohibits cities from limiting rent increases after a tenant moves out of their unit (such rent increase limitations are known as vacancy control).

Repealing Costa-Hawkins would enable cities like San Francisco to enact vacancy control and greatly expand rent control, potentially to all new buildings, single-family homes, and condos.

That annual $400 million tax on newcomers would skyrocket, and based on other research we could also expect:

• Fewer rental units (the Stanford paper estimated a 6 percent drop)
• Lower-quality rental units (in polls from 1992 and 2012, over 90 percent of economists assert that rent control has not had a positive impact on the amount and quality of affordable rental housing)
• More homelessness
• Longer commutes (creating pollution) and fewer people living where they want to live

The most tragic damage could be the least visible: people shut out of economic opportunity due to high new rents in vibrant areas. These people may be in Stockton, West Virginia, or Mexico, and even if they believe they could improve their lives moving to Los Angeles or the Bay Area, they might never try. These missed opportunities don’t show up in local rent and income statistics, but Costa-Hawkins reduces their numbers behind the scenes.

But this just gives cities options, what’s wrong with that?

Cities’ land use decisions don’t operate in a vacuum. When California has the 2nd-fewest housing units per capita of any state and needs 4 million homes to escape its shortage, and cities like Beverly Hills plan only 0.1 percent growth per year, Sacramento would be abdicating its responsibility by leaving housing decisions to local control.

Repealing Costa-Hawkins would undermine any state legislation to address the housing crisis. If a second version of SB 827 passes next year, cities could effectively evade it by passing extreme rent control laws, such as rent and vacancy control on new construction. They could even use it as a threat against developers seeking protection behind state law, or against Sacramento’s efforts to enact new state laws.

“Without Costa-Hawkins I’m concerned we’ll have cities that use rent control as a de facto ban on new housing.” — David Garcia, Policy Director, UC Berkeley Terner Center for Housing Innovation

If not rent control, how can we achieve its goals?

Rent control is motivated by the noble goal of minimizing displacement of longtime residents, which can tear at the fabric of a community and uproot lives. But reducing displacement doesn’t need to come at the expense of newcomers. We can do it in targeted ways to ensure we’re helping people who need the help, rather than the many (even disproportionately) high-income people who benefit from rent control.

Building more housing is necessary but not sufficient. If we built enough such that market rents only increased by 2 percent a year, it would be as if everyone had rent control, without the problems created by rent control laws.

The most prominent alternative is below-market-rate (BMR) housing, whether that’s publicly-owned or private per inclusionary zoning requirements. BMR targets low-income renters, but its limited supply forces lotteries, demeaning application forms, and years-long waitlists.

Section 8 housing vouchers are also means-tested, and don’t force renters to move. In theory, the voucher values could adapt based on available funds and qualifying households; in practice, the values are fixed, meaning they too require lotteries when demand exceeds supply.

An ideal solution would guarantee a subsidy to low-income people, without byzantine requirements. The tax code is a natural place to do this, as the place where households already provide robust income reports. Senator Kamala Harris (D-CA) just introduced the Rent Relief Act of 2018, a refundable tax credit for individuals spending over 30 percent of gross income on rent. California could also bolster its own renters credit, and individual cities could create their own.

When California cities started implementing rent control and vacancy control in the 1970s, they were driven by good intent to keep housing affordable. Costa-Hawkins reined it in to avoid risky expansions that would be difficult to reverse.

The past 20 years of rent control evidence supports Costa-Hawkins. Rent control provides overt benefits to some, at the severe and hidden expense to many. Voters comfortable with that trade-off should still be concerned about giving cities total power over rent control, given their history of shirking responsibility to build badly-needed housing.

In November, we should reject Prop 10 and get to work on better anti-displacement policies.

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These recommendations are my own, and do not reflect positions of organizations I’m associated with.