Helping our neighbors is one of the core foundations of American life. Whenever possible we want to find ways to ease the burden of those around us. Which is why so many people feel inclined to support policies such as “rent control.” Stability in housing pricing sounds like a positive solution.
The problem is — sustainable legislative solutions are never that simple.
Renters and homeowners alike can look at that stable housing cost concept and find sympathy for those who are rent burdened and do not see the downside to rent control policies. Taking an optimistic view of people trying to solve a problem is laudable but often noticeably short sighted.
Unanswered questions
One of the key reasons given for pursuing rent control as a policy is that it benefits those in most need. However, these policies never include methods to identify needs, qualify beneficiaries, or ensure future protections.
Who receives the benefits of rent control? What standards exist in order to qualify for rent control? What reviews exist to ensure beneficiaries remain in need? The policies fail to address the needs of the beneficiaries. The result of which is a problematic policy in many ways.
First, housing is not a one size fits all product, regulations should not be either. Second, examining West Hollywood, Santa Monica, and Berkeley show many rent controlled units are not primary residences. Third, housing policies such as section 8 require beneficiaries to qualify and requalify to continue receiving benefits — rent control policies have no similar metric to ensure the benefit matches the beneficiary’s need.
The result is residents lease rent controlled units longer than they need – forcing those in need into more expensive or over-crowded units. If rent control seeks to assist those in the most need, the policies implemented should address these failures seen elsewhere.
Unintended consequences
Everyone’s neighborhood has houses in need of some work, but in general things seem fine. Our individual experiences often shape what we see as normal.
Well, what happens when your neighbor can no longer afford to maintain their property? What happens when the people across the street need to care for a sick family member? What happens when the neighbors’ kid that has been away at college moves back home and needs more space?
The lack of mobility created by rent control forces people into living conditions that do not meet needs. Rent control’s outcome leaves people stuck and unable to address the changes they face in life — lessening their quality of life, and the neighborhood’s overall stability.
Losing affordability
Affordability is a primary reason given for rent control. The factor most cited by proponents is that the costs are predictable. They’re right, but not in the way they think.
Capping rents provides predictability for the residents but does nothing to cap the costs to maintain the property. Caps also fail to predict how future inflation, salaries, or maintenance will be impacted. Last, property valuation is based on the income to debt ratio. This leaves the only option of increasing rents every year as much as possible to ensure the property can be maintained to the resident’s standards.
In the instances where the owner doesn’t take that tact, the result eventually is that the property is too costly to maintain, upgrade, and provide quality housing. Forcing the owner to sell an undervalued property with little to no chance of becoming an attractive property to most investors. That is except for large corporations that can either afford to bring the units up to market, or sustain the losses until they outlast the residents paying low rent rates.
The last option is to build new housing. Rarely are new products of any kind the most affordable option, but more so with the inability of cities to process housing starts in a timely manner — this isn’t a real option until there are significant changes in local planning… everywhere. But that said, who wants to build housing when they know they can not get a reasonable rate of return on their efforts?
In other words rent control guarantees maximum rent hikes, consolidation of the market to corporate investors, and a lack of opportunity.
Rent reality
Montana became the 33rd state in the country to ban rent control this week.
Two-thirds of the states in our country have seen the negative consequences that rent control brings and acted to protect their communities. Orange County needs to do the same.
The truth is addressing the cost of housing is multi-faceted and requires a great deal of cooperation and coordination between government, business, non-profit housing, and steadfast community leadership to overcome.
There is no “one size fits all” approach, and there is no “singular magic bullet” solution. And lazy approaches that seem good but create more problems than they solve… is not going to help.
Chip Ahlswede is vice president of external affairs at the Apartment Association of Orange County.
This article was originally published in the Orange County Register on May 30, 2023.
