Santa Ana’s new rent control law, which went into effect on Nov. 19, will devastate the city, especially its poor. As Swedish economist Assar Lindbeck warned, “Rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”
It’s a little ironic, as during World War II Santa Ana Army Air Base trained pilots to bomb Nazi German cities.
The reason is simple: landlords need to make money, or they do something else. They let the property rot. They sell it. Or they convert it to condos or business buildings.
Santa Ana’s new law is especially egregious, affecting older apartments and trailer homes. It limits rent increases to 3 percent a year, or 80 percent of the cost of living – whichever is less.
But consider: In October, the Bureau of Labor Statistics reported construction materials jumped 18.4 percent from a year earlier.
Do the math: an 18.4 percent increase minus a 3 percent allowed rent increase equals a gap of 15.4 percentage points. How are landlords supposed to fix leaky roofs, broken gutters and soggy drywall if they get shorted on rent, year after year after year?
It’s time to call out the heroes and the villains. The heroes who voted to save the City of Santa Ana, and against rent control, are Council Members David Penaloza, Phil Bacerra and Nelida Mendoza.
The villains who voted to dismantle the city, hurting everyone, are Mayor Vicente Sarmiento and City Council members Thai Viet Phan, Jonathan Ryan Hernandez and Jessie Lopez.
Phan is a special disappointment as she originally took the sensible position and opposed this socialist measure. According to Voice of OC, “Phan agreed that the ‘cure-all’ for the housing affordability crisis isn’t rent control or tighter eviction protections.” Then why did she flip-flop?
It’s true rents are high, and likely to go higher. But the solution is not more socialism, but less. The city and state need to reform regulations, especially the highly restrictive and complicated California Environmental Quality Act. Doing so would encourage more building, increasing the supply and so reducing the price.
What’s next? First, the housing situation is going to get worse. Even though the ordinance doesn’t affect newer apartments, the threat still will be there in the future. If a new state initiative allows rent control on older structures, Santa Ana could pass an ordinance imposing that, too. The rent control measure recently adopted in St. Paul, Minnesota applies to new rental construction, and developers have already paused or cancelled dozens of developments while they re-evaluate, if any, business they’ll do in St. Paul.
Santa Ana is governed by a sharply progressive council majority: if you’re a builder, why take a chance?
Second, there will be vast black-market rentals, and sub-rentals. It’s something that’s become part of the culture in New York City, which has had rent control since World War II.
Third, the population will become static. Those enjoying the rent limits will not want to move to complexes with much higher rents. “Empty nester” families that should “down size” to small apartments, freeing their larger apartments for young families with kids, will stay put. The extra space will go unused, wasted
Fourth, as housing becomes more scarce, not less, homelessness will get even worse.
Fifth, the housing stock will deteriorate from lack of repairs. As Stanford Economist Thomas Sowell pointed out, “Landlords typically reduce painting and repairs when there is rent control, because there is no need to fear vacancies when there are more tenants looking for apartments than there are apartments available.”
Rent control is a type of socialism. And socialism always is a restriction on market forces that introduce competition, thus producing the lowest price. If prices are too high, then it’s government itself that caused the problem.
Santa Ana is called the Golden City. Rent control tarnishes its gold, and its apartments.
