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Dec. 4, 2017

Rent control discourages housing production

Economists are nearly unanimous in their agreement that capping rents reduces both the quantity and quality of available housing.

1204 ps lamarca

By Christine LaMarca

As housing costs rise in San Diego County, local leaders and advocate groups have pushed affordability to the top of their policy priority lists. One proposed solution that keeps coming up in news reports is rent regulation, AKA Rent Control. These policies would cap or limit a property owners' ability to raise rents and discourage the production of more housing. This is not the answer.

Plain and simple, we need to build more housing at all price points - rental and for sale housing and we need to control construction and operation costs.

Most news reports ignore or minimize the undeniable negative consequences of rent regulation policies. Simply put, rent control policies are irrational and do nothing to grow the supply of affordable housing. Too many city councils, county boards of supervisors, and voters are spending time considering a solution that is universally recognized as flawed - think San Francisco and New York, least affordable places to live in the country. This discussion distracts our leaders from implementing viable long-term solutions to increasing housing supply and conceptually decreasing the cost to build and operate housing. Those are the key elements to making housing affordable.

Rents are fundamentally driven by the microeconomic principle of supply and demand. The evidence is so strong that economists are nearly unanimous in their agreement that capping rents reduces both the quantity and quality of available housing. In fact, according to widely accepted polls of professional economists, there is no issue on which economists agree more.

Rents are tied to a number of other expenses as well. Trash, recycling, water, sewer, electricity, wages, property taxes, school bonds, emergency response bonds and on and on, all increase the cost to own and operate rental property. The amount charged for rent must keep up with all of those costs in order to be able to reserve money to replace roofs, repave parking lots, maintain pools, replace blinds, flooring, cabinets, etc. Government policies and ballot measures, although altruistic in intent, often create barriers and additional expenses, which contribute to rent prices.

Implementing rent control will impact jobs. When the potential for rental income is limited, investors are discouraged from building new housing, which would limit the growth of local jobs in construction, apartment management and maintenance, and all of the businesses that supply services to the construction and rental property industry ... home improvement stores, architects, plumbers, electricians, flooring installers, pool maintenance, gardeners, etc.

Rent control and rent stabilization policies also reduce the turnover rate of rental units. Tenants living in rent-regulated units have a strong incentive to stay put, even as their incomes rise or as their families grow. Also, there is no means testing for rent control. Studies of rent control communities like Berkeley, Santa Monica and New York all point to rent control primarily benefiting more affluent renters.

On a very practical note, administering a system of rent control adds to costs of local government. Taxpayers must pay for government workers to educate renters and landlords, monitor rent levels, investigate complaints and take legal action against those who violate the requirements. That leaves less revenue available for providing vital public services, such as road repairs, parks, libraries and police. Or it requires tax increases to fund a rent control bureaucracy which leads to higher operating costs of rental housing.

Supply and demand: We know that we can stabilize prices by expanding the supply of housing. There are a number of ways to increase supply: allow more land to be developed, increase the development potential of already-developed land, reduce parking requirements, cut processing and administrative fees for construction, re-evaluate certain energy efficiency requirements, etc. All of these potential solutions deserve more attention than they are receiving.

A San Diego Housing Commission report, "Addressing the Housing Affordability Crisis in San Diego" lays out an 11-step action plan that "could reduce the cost of affordable housing construction by an estimated $36,000 to $174,000 per unit and reduce market-rate housing costs by $23,000 to $51,000 per unit." None of the 11 steps include rent control measures.

To find some relief from the housing affordability problem, local policymakers will have to get creative. They will likely have to adopt policies that will inevitably leave some constituents unhappy. But to anyone who has done their economics homework, it should be abundantly clear that rent regulation is not the answer. Let's focus instead on increasing supply and increasing the number of people who can afford to live in and enjoy San Diego.

Christine LaMarca is president of the San Diego County Apartment Association.

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