Proposition 10 Would Only Inflame California Housing Crisis

house-constructionThis November, Californians will see several taxpayer threats on the ballot, not the least of which is Proposition 10, titled “Local Rent Control Initiative.” This measure would open the floodgates to big government bureaucracies, burdensome regulations and a loss of property rights. The word must be getting out, because a poll released last week by the Public Policy Institute of California shows Proposition 10 lagging.

Proposition 10 would repeal the 1995 Costa-Hawkins Rental Housing Act, a law that was enacted after a compromise was worked out between dozens of different interest groups. Costa-Hawkins stopped local governments in California from enacting a hodge-podge of different rent control laws, each with its own big bureaucracy. The law prohibited rent control on newly constructed buildings, single-family homes and condominium units. It also guaranteed the owners of existing rent-controlled buildings the right to raise the rent on a unit to market value for new tenants when the former tenants moved out.

Proposition 10 would allow cities to enact any type of new rent-control law. New bureaucracies could impose new rules, fees and price controls on old buildings, new buildings, small buildings, garage apartments, granny flats and even single-family homes and condos. Proposition 10 would make California’s well-documented housing crisis even worse by discouraging investment in rental housing and incentivizing conversions or even demolition of existing rental property.

The nonpartisan Legislative Analyst’s Office warns this measure could hurt California taxpayers, predicting a loss of hundreds of millions of dollars in state tax revenue. That would mean less money for schools, roads and emergency services. …

To read the entire column, please click here.

Mobile Home Rent Control Measure Passed in L.A. County

Mobile HomesLos Angeles County Supervisors approved a mobile home park rent-control ordinance on Tuesday for unincorporated areas that will limit rental pad inflation to 3 percent a year — the latest sign of high housing costs in L.A.

The Los Angeles Times reported the supervisors approved the Mobilehome Rent Regulation Ordinance by a 3-to-1 vote. It initially provides a 180-day temporary limit on rent increases to maximum of 3 percent a year for annual or short term leases. The ordinance is scheduled to come back before the supervisors next month for another vote to make it permanent.

Supervisor Janice Hahn, who sponsored the rent control measure that will impact about 8,500 mobile home tenants, told Southern California Public Radio that she proposed the ordinance because skyrocketing apartment rents are spilling over to mobile home pad rentals.

Hahn argued that with 100 California communities already having passed rent control laws to protect mobile home tenants, “If we believe in affordable housing, and we believe in keeping these people from being homeless, we should really protect people who are in our mobile home parks in L.A. County.”

Hahn claimed that LA County needs an immediate temporary ordinance to stop mobile home operators from raising rents before a study is conducted to measure if tenants are rent-burdened. But the language of her ordinance states that it can be “extended or replaced by the Board of Supervisors.”

According to a June report from Apartment List, the median rental price for a two-bedroom apartment in Los Angeles was $1,750, and $1,360 for a one-bedroom unit. That was up 3.2 percent, about the same as inflation in the last 12 months, but down from the 6 percent average annual rate since 2015 that had been more than triple the rate of inflation.

Patricia Boerger of the Manufactured Housing Institute told Curbed late last year: “Mobile homes in the 1960s were for young people who were starting out and making their place in the world. Anything after 1976, though, can’t be called a mobile home.”

With the average sales price for a new manufactured home approximately $292,600 less than a site-built home, mobile homes are  a form of low-cost housing for 18 million Americans with an average income is about $28,300 a year and 13 percent on food stamps.

According to the Mobile Home Park Homeowners Allegiance, most residents own their mobile home but rent a pad from a landlord. Allegiance member Kort & Scott Mobile Home Parks, for example, is one of the largest operators in California and has 13 parks in Los Angeles County. K&S monthly pad rents in L.A. County range from a low in Carson of $398 at Laco Mobile Home Park and $420 a month in Carson Gardens Trailer Lodge, to a high of $1,700 a month at the Royal Western Mobile Home Park in Gardena.

Jarryd Gonzales, spokesperson for the Western Manufactured Housing Communities Association, told SCPR before the vote that the mobile home park owners do not believe that a crisis exists: “We’re saying take a wait-and-see approach, as opposed to rushing right in and limiting increases on rent, and going on in with a rent control ordinance.”

Gonzales argued that rent control could have unintended negative consequences, including cutting off capital improvements, or potentially causing mobile home park operators to shut down, evict the tenants, and sell their property.

This article was originally published by Breitbart.com/California

Rent control fuels costliest fight on California 2018 ballot

Rent ControlA Los Angeles-based health care nonprofit known for funding controversial ballot measures is waging an expensive battle with the real estate industry over rent control in California.

The AIDS Healthcare Foundation has poured more than $12 million into a November initiative it’s spearheading to let cities and counties regulate rental fees in buildings that state law currently shields from such control.

A $10 million contribution the foundation reported Wednesday made the initiative the most expensive on the 2018 ballot so far.

Started in 1987 to provide hospice care to AIDS patients, the AIDS Healthcare Foundation has grown into a global health care organization similar in size to Planned Parenthood. The group also has waded into politics, bankrolling measures ranging from prescription drug pricing to housing policy, as well as lobbying at the state and federal level. …

Click here to read the full article from CNBC

Making the Housing Shortage Worse

Rent ControlWe have a severe housing shortage, and last week our mayor said that he’d help make matters worse.

If Eric Garcetti gets his way, rent control could be imposed on far more apartments in Los Angeles and throughout the state. That’d be great for the few folks lucky enough to get a rent-controlled unit. It’d be bad for everybody else.

That’s not a surprising statement. Studies have shown that. Let’s look at one of the latest.

A working paper published in January by the National Bureau of Economic Research examined the effect of a 1994 ballot initiative in San Francisco that slapped rent control on smaller buildings constructed before 1980. Three economists followed what happened to those buildings and compared their fate to similar buildings constructed after 1980.

So what happened? First, there was a reduction in the number of rent-controlled units as landlords decided to convert their buildings to condos or otherwise redevelop their properties. In fact, rent-controlled buildings were 10 percent more likely than the non-rent-controlled buildings to convert, “representing a substantial reduction in the supply of rental housing,” the report said.

Second, there was a 25 percent reduction in the number of renters living in rent-controlled units compared to 1994, largely because of “landlords demolishing their old housing and building new rental housing,” the study said. “New construction is exempt from rent control.”

So there was a drop in the number of rental units as well as a decrease in the number of tenants who enjoyed rent control. No surprise there.

In short, rent control makes matters worse, which pretty much every informed person knows with the apparent exception of Garcetti. What was a teeny bit more surprising was the working paper’s assertion that rent control increased gentrification as well as worsened income inequality in the city.

How so? One of the authors of the working paper, Rebecca Diamond, an assistant professor of economics at Stanford University, was quoted as saying that rent control “pushed landlords to supply owner-occupied housing and new housing – both of which are really the types of housing consumed by rich people,” she said.

“So we’re creating a policy that tells landlords, ‘It’s much more profitable to cater to high-income housing taste than low-income housing tastes.’”

In other words, rent control makes matters much worse.

What’s particularly alarming about last week’s news is that the current move to impose more rent control would make matters even worse than you might expect. That’s because the proposed statewide ballot initiative that would roll back the Costa-Hawkins Rental Control Act (the initiative which Garcetti last week called a news conference to endorse), would not only give cities the green light to allow rent control to be slapped on apartments built after 1978, but it would take the extra step of limiting the ability of landlords to raise rents after one tenant leaves. The way it works now is that when one tenant leaves a rent-controlled unit, the rent can immediately catch up to market rates for the incoming tenant. Rent increases are limited thereafter, until that tenant leaves.

That provision alone is a killer. It would mean landlords would be doomed to falling further and further behind market rates. That means more apartment buildings would not pencil out, and landlords would rush to empty out their buildings, scrape the ground and construct something new – something that’s not an apartment building. We’d see declines much greater than 25 percent in tenants enjoying rent control.

Look, the yearning to do something is understandable. After all, rents have popped up alarmingly and even folks with good incomes are being priced out of homes. But imposing more rent control would only choke supply and make matters much worse.

The real issue is supply. If we had more construction, the shortage would eventually disappear. But for that to happen, developers need to feel confident that they can build with the certainty that they can earn enough income to pay their mortgage and other bills and get a reasonable return. Right now, they can’t. And mayoral endorsements of rent control make matters worse.

ditor and publisher of the San Fernando Valley Business Journal.

This article was originally published by Fox and Hounds Daily

Rent control backers say they expect to qualify for ballot

Supporters of more rent control in California say they have gathered enough signatures to put an initiative on the November ballot and held a Monday rally to generate support for the measure.

If the secretary of state certifies that the campaign collected enough signatures, voters will weigh in on repealing a 1995 law that restricts rent control.

The law, known as the Costa-Hawkins Rental Housing Act, bars cities from capping rent on buildings constructed after the law took effect and puts other limits on rent control policies.

Roughly 200 people gathered on the California Capitol steps in support of the measure, which would allow communities to pass new rent control laws.

“I’m here fighting for my rights and my kids’ rights,” said Gloria Cortez of Pomona, a speaker at the rally. “We don’t have nowhere to go and we don’t have no one to protect us.”

Cortez said she and her family became homeless 10 months ago when they were evicted from their rental unit after she complained about mold. She was pregnant at the time and has since given birth to her sixth child. Her family can’t find an affordable place to live, she said. …

Click here to read the full article from the Fresno Bee

Rent Control Makes for Good Politics and Bad Economics

affordable housingOne needn’t read very much about public policy before coming across some statement to the effect that “bad economics makes good politics.” This statement is clearly untrue when good politics is defined as furthering mutually beneficial arrangements, as good economics is central to that task. But the statement is often true when good politics is defined as attracting 50%-plus-one votes on some issue or candidate, which is a much different standard, leaving plenty of room for government-imposed harms to be imposed on citizens.

Few issues reflect this divergence between “good” politics and bad economics more clearly than rent control. One of the most universally accepted propositions among economists is that rent control produces a host of adverse social consequences with its large involuntary redistribution of wealth and suppression of market prices as communicators of information and incentives. Despite that, it has been adopted as policy in many places and times — and now is a good time to revisit these issues, as efforts are currently underway in several states (including California, Oregon, Washington, and Illinois) to repeal existing statewide restrictions on rent control.

How Rent Control Destroys Value

Rent control takes a large portion of the value of residential properties from landlords. It does so by removing owners’ rights to accept offers willingly made by potential renters. And the value of the rights involved are large. For example, after Toronto imposed rent control in 1975, affected building values fell by 40% over five years, and a decade ago, such losses were estimated at $120 million annually in Santa Monica. A law like rent control, which can take half or more of each apartment’s value from the landlord, harms them just as much taking away half of their apart­ments, even though the latter is recognized as theft. Those stripped property values are given to current tenants, whose resulting bonanzas are shown by the fact that those under strict rent control almost never leave.

Rent-Controlled United Decline in Quality and Quantity

By taking away so much of the effective ownership of rental housing from owners, rent control creates several other additional adverse effects. Without owners’ ability to capture the value of their buildings, the rental housing stock deteriorates in both quantity and quality. Reduced incentives for maintenance and repair erodes existing rental housing. Further, owners retain little incentive to construct new rental units, bringing new apartment construction to a virtual halt, taking with it local construction jobs and tax revenues. Rental units are also converted to condos and non-housing uses to escape the burdens rent control imposes. All of this reduces rental housing availability, which worsens the problem of inadequate housing rather than alleviating it.

Rent control also increases discrimination and landlord-tenant hostility. Owners who can no longer be compen­sated for increased costs created through crowding, water usage, potential damage, or reduced probabili­ty of actually paying the rent — or any other unattractive tenant charac­teristic — have sharply reduced incentives to accommodate those who might impose them. This is why rent controlled areas, rather than helping those of low and moderate means, become increas­ingly popu­lated by higher income tenants with few children. Further, tenants bla­me “greedy” land­lords for not providing the services they desire, and landlords view tenants as the enemy engaged in an ongoing rip-off, even though rent control is the real culprit.

Rent Control Creates Black and Gray Markets

Rent control’s artificial restrictions on mutually agreed upon exchanges also lead to evasion attempts, such as under-the-table payments, agreements to renovate apartments or upgrade appliances at private expen­se, personal connections, etc. Not only do these alterna­tive forms of competition favor higher income renters, rather than “the poor” (who populate rent control rhetoric but far less of the housing available under it), they lead to rent control boards to stymie such at­tempts. That enforcement, as well as the costs land­lords must bear both to defend them­selves and comply with its edicts, consumes a great deal of resour­ces that could have been put to productive uses.

Despite such an overwhelming case for rent control being bad economics, why has it not been equally politically unattractive? The essential reason is that in cities where rent control is imposed, existing local renters, who are the recipients of the value taken from landlords, form a political majority who approve of that theft, vote for it, and go to great lengths to rationalize and defend it as part of “the wonders of democracy.”

Rent control offers current tenants perhaps the greatest economic returns of any policy they could use their majority power to enact. Not only do they save what can far exceed $1,000 a month compared to what market prices would be, they are also awarded what amounts to life tenure. If you saved $1,000 a month and stayed 10 years, that would be $120,000, while staying 21 years would generate over a quarter million dollars in benefits. And many long-term tenants have saved themselves far more. What other political act offers local renters so great an economic benefit in exchange for their votes?

Rent control’s “pro renter” rhetoric also allows a powerful form of misrepresentation. Rent control benefits current renters, but it does not benefit renters overall. It harms all renters and potential renters who aren’t already in rent-controlled units. It harms all those who seek to rent apartments after rent control is imposed, mainly finding “no vacancy” signs instead. But they don’t get a vote in the communities to which they’d like to move. Even though those who are eventually successful in finding a controlled unit have been harmed, once there, they don’t want their finally-achieved good deal halted. Rent control also harms renters in surrounding communities, as the restricted supply of available units raises rents there, as well. But they don’t get a vote, either. Rent controls also harm those who rent houses, which are usually exempt, because rent control’s reduction in housing availability leads those rents to be bid up as well.

Rent control also involves unusual characteristics that weakens and divides opposition.

The Long-term Effects of Rent Control

Because housing is durable, there is an unusually sharp dichotomy between short-run and long-run effects. The short-term effect of imposing rent controls on the available supply of rental units is quite small. Proponents can focus only on the immediate effects to argue that objections are unsubstantiated. However, the cumulative effect of ongoing rent control is very large, leading many economists over the years to recognize its ability to decimate the supply of urban housing.

Property owners, who might be expected to be unified in opposition to the threat to property rights rent control poses, are also subject to divide and conquer techniques.

Not only are rental housing owners far outnumbered by current tenants, many of them live outside the jurisdiction considering rent control, undermining their voice. And if they raise money for an opposition campaign, their efforts against the harm that would be imposed on them can be easily demonized as proof of how much they rip off tenants whenever they are given a chance.

Some Property Owners Benefit

Property owners are also split in other ways. Owners in neighboring areas, who would otherwise tend to side with those in the jurisdiction considering rent control, due to the similar threat posed against them, can be bribed away because the reduction of housing supply “next door” increases their demand and raises their rents. Owners of commercial property, who are usually exempt from rent control, can benefit from higher rents for their properties due to the influx of higher income residents rent control brings. The restriction in supply of rental units in an area also raises the price of owner-occupied homes, undermining their support against rent control.

Rent control can give current tenants massive windfalls taken from owners by their dominant majority vote. That also means politicians who cater to that politically dominant majority can more easily acquire and maintain power. The fact that current tenants benefit at the expense of those in nearby areas and all other future prospective tenants can be masked by pretending current tenants interests are the same as all actual and prospective tenants. Rent control also splits owner opposition to the threat of expropriation by exempting commercial uses and houses in the jurisdiction by increasing the value of their properties, as does the spillover gains they capture from the reduced supply of rental housing nearby. That combination goes a long way to explain why, in majority renter areas, the truly bad economics of rent control frequently translates into “good” 50%-plus-one piracy politics.

Gary M. Galles is a professor of economics at Pepperdine University. He is the author of “The Apostle of Peace: The Radical Mind of Leonard Read.”