Blogging Bayport Alameda

February 2, 2018

Boon and bust

Filed under: Alameda — Lauren Do @ 6:02 am

With the possible ballot initiative repealing Costa Hawkins looming, there is a new working paper on Rent Control out for review.  From City Lab:

While these policies are a boon to many low-income tenants who directly benefit, they worsen the affordability crisis in the longterm. “It’s somewhat of a transfer from future tenants to incumbent tenants,” said Rebecca Diamond, an assistant professor of economics at Stanford University, who authored the paper along with colleagues Timothy McQuade and Franklin Qian.

Rent control policies impose limits on rent increases for the duration of a tenant’s stay. But since landlords have many loopholes for escaping those requirements, the Stanford researchers found that that they ended up pulling properties from the rental market—shrinking the rental housing supply overall.

These are pieces that we’ve heard anecdotal stories about (“I know a landlord who has done this and that because they don’t want to bother with rent control”) but here’s some historical data points from the big city right across the bay.

More:

What they found was that the tenants who benefited from the law were between 10 and 20 percent more likely to remain at the same address, compared to their counterparts in the non-rent controlled buildings. This was particularly true for the less mobile tenants—elderly folks and those families who’d lived at that address for a long time.

The dollar value of these tenants’ benefits was immense. If what they collectively gained between 1995 and 2012 were given out as a lump sum today, it would amount to $2.9 billion, the researchers calculated. That’s around $2,300 and $6,600 per person per year.

But it also harmed some tenants within those rent controlled units because of the change in landlord behavior due to rent control:

As a result of these landlord reactions, rent-controlled buildings saw a 15 percent decline in the number of renter residents, and a 25 percent decline in those living in the rent-controlled units, compared to 1994 levels. In other words, rent control had a counterproductive effect.

“It just dramatically limited the supply of rental housing. On top of that, it pushed landlords to supply owner-occupied housing and new housing—both of which are really the types of housing consumed by rich people,” Diamond 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.’”

But here’s the uncomfortable kicker for housing activists who think that not building anything because it will prevent displacement and simply shoring up rent control laws will protect the vulnerable:

This had a city-wide effect, according to the paper, decreasing rental housing by 6 percent, and increasing rent in San Francisco by 5.1 percent in the time period examined. The rent control policy therefore “likely fueled the gentrification of San Francisco,” the paper concluded, contributing to “a higher level of income inequality in the city overall.”

 

 

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3 Comments »

  1. Yes rent control does eventually result in more units being taken off of the rental market and fewer residents per rental unit. While the eventual reduction in the number of units is a strong argument against rent control, the reduction in the number of renters per unit is an argument for rent control where high rental rates lead to overcrowding of units to share the high costs.

    The last paragraph of the article by Tanvi Misra makes a key point – “If we’re really serious as a society about ensuring that rents remain affordable to tenants, we potentially should share that cost burden …You could imagine raising revenue through a tax … and providing rental subsidies in tax credit, but making landlords pay 100 percent of those costs in a world where they can avoid paying those costs really undermines the goals of policy.”

    This is Ms. Misra’s concluding point: the housing market alone cannot pay for the needed affordable housing, and neither can landlords. The question is how can the pain experienced by low and increasingly middle-income citizens caused by high housing costs be shared with landlords, businesses and wealthier citizens to motivate them to provide the funding necessary for housing? By reducing the supply of housing for an increasing proportion of workers while providing a stable core of renters that can organize, strict rent control laws will hasten the day of reckoning. Then a majority of citizens will insist that government permit and finance housing so that far more than 15% of new housing built in the inner Bay Area is affordable.

    Since existing housing shortages largely caused by government restrictions on zoning drive up housing prices, recapturing a portion of this increase in value experienced by all homeowners would be a fair and equitable approach to financing housing. Recapturing a portion of the increases in value of all housing would enable all homeowners to contribute to financing affordable housing, not just developers and landlords. A portion of the increase in value of industrial and corporate property could also be tapped to fund affordable housing – and that would be fair and equitable as well since Bay Area businesses are complaining that high housing costs are making doing business in the Bay Area increasingly difficult.

    Comment by William Smith — February 2, 2018 @ 6:53 am

  2. Yes, market dyslocation, no matter how well intentioned, can have unintended consequences.

    Comment by Tom Schweich — February 2, 2018 @ 7:30 am

  3. I have posted this link a few times but for any readers not familiar with Costa-Hawkins here is quick primer.

    https://calmatters.org/articles/5-things-californian-know-now-rent-control/

    Comment by Mike McMahon — February 4, 2018 @ 9:50 am


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