In this election, California voters will decide whether or not to expand rent control in California. Around 93% of economists say rent control is bad, because it reduces the quantity and quality of housing. California already has rent control ordinances in various cities, and statewide, most landlords already can’t raise rent by more than 10% per year, or 5% plus inflation, whichever is less (so if the inflation rate is 15%, landlords still can’t raise rent more than 10%).
Proposition 33 would repeal “all state-level limitations on rent control. The implications of a ‘yes’ vote would be dire for new housing supply,” reducing the quantity of housing available over time, notes journalist Christian Britschgi.
“The state may not limit the right of any city, county, or city and county to maintain, enact or expand residential rent control,” Proposition 33 says. This could abolish some state constitutional limits on arbitrary, onerous rent controls.
Proposition 33’s “main supporter is the AIDS Healthcare Foundation (AHF),” a scandal-ridden left-wing nonprofit that is a slumlord in the rental housing it operates. As Reason Magazine notes, “AHF has been the subject of numerous lawsuits from tenants, and investigations from media outlets, over living conditions on its properties. A detailed Los Angeles Times investigation published in November 2023 reported a number of issues at AHF-owned properties, including apartments infested with cockroaches, exploding radiators, water shut-offs so regular that tenants had to defecate in wastebaskets, violent crime and drug dealing left unaddressed, and months-long elevator shut-offs that left disabled tenants stuck on upper floors or forced to sleep in the lobby….A former AHF employee described the living conditions at foundation properties as “inhumane.” Tenant lawsuits against the foundation claim…it’s just another “slumlord in a long line of slumlords.”
Proposition 33 is so extreme that it is opposed by not just economists and housing providers, but even some supporters of mild forms of rent control. As Britschgi notes, “Prop. 33 has attracted predictable opposition from business and real estate groups, who have spent a combined $112 million opposing the measure. A healthy cadre of the state’s Yes In My Backyard (YIMBY) academics and activists, some of whom have endorsed more modest rent control policies, have also come out against it.
More than 30 cities and counties in California (including Los Angeles, San Francisco, and San Jose) have rent stabilization ordinances dating back to the 1970s that limit rent hikes to some fraction of inflation.In 1995, California’s Legislature passed the Costa-Hawkins Rental Housing Act that placed several limits on municipalities’ rent control powers. As Britschgi explains,
Under Costa-Hawkins, cities with existing rent stabilization ordinances were forbidden from expanding them to cover newer housing. Cities without rent control could still adopt it but only on units built before 1995. Costa-Hawkins also established statewide “vacancy decontrol,” meaning landlords could raise the rent as much as they wanted at rent-controlled properties once an existing tenant moved out.
In 2019, the California Legislature approved a statewide rent control law that limits annual rent hikes at multifamily buildings built within the last 15 years to the lesser of 10 percent or 5 percent plus annual inflation. Backers of the 2019 law argued it struck the right balance between guaranteeing stability for existing tenants while preserving developers’ incentive to build….Prop. 33 would repeal Costa-Hawkins in its entirety and give local governments free rein to adopt whatever rent control policies they want…..damaging supply
Even within the confines of Costa-Hawkins, there’s evidence that California’s rent control policies have reduced the supply of rental housing. A landmark 2019 study on rent control in San Francisco found that the city’s rent stabilization ordinance encouraged landlords to convert rental units into owner-occupied condominiums (which could be sold at any price).
Abolishing Costa-Hawkins’ guardrails will almost certainly lead to an even greater reduction in the supply of rental housing. By prohibiting localities from rent-controlling newer properties, the law helps ensure that builders have an incentive to construct new units. Whenever localities are allowed to control rents on new construction, developers have responded by building a lot less. Witness the example of St. Paul. In 2021, voters approved a 3-percent cap on annual rent increases with no exception for new construction. As a result, developers canceled existing project proposals and fled the city.
Costa-Hawkins’ vacancy decontrol guarantee prevents situations like we see in New York City, where more and more units are falling into vacancy and disrepair because landlords can’t raise rents to cover the costs of renovating and turning over units vacated by long-term tenants. Should California localities be allowed to control rents on vacant units, it’s likely we will see an increasing number of rental units falling off the market completely….Many municipal officials have expressed interest in expanding those policies.
Last week, the Los Angeles City Council voted 8–3 to endorse Prop. 33, a prelude to expanding the city’s rent controls if Proposition 33 passes.
In early October, San Francisco’s Board of Supervisors voted to expand rent control to 16,000 units built between 1979 (when the city first passed its rent control ordinance) and 1994.
Right now, the Costa-Hawkins Act bars the city from doing this. If Proposition 33 passes, San Francisco’s expansion will automatically go into effect.
Britschgi says that Proposition 33 will also indirectly damage housing construction by eviscerating a “builder’s remedy” contained in California housing law that allows developers to build certain multifamily housing developments that contain affordable housing.
As the Wall Street Journal notes, “If there’s any consensus in economics, it’s that rent control achieves the opposite of its intended goal. It leads to housing shortages by discouraging new development and maintenance of existing properties.” As economic professor Chris Freiman notes, “experts agree that rent control doesn’t work.”
Even progressive economists mostly think rent control is a bad idea: The Swedish economics professor Assar Lindbeck, a Social Democrat, said, “rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” Similarly, the liberal Washington Post explains, “Rent-control laws can be good for some privileged beneficiaries, who are often not the people who really need help. But they are bad for many others.” For example, after San Francisco imposed rent control, “landlords responded by converting their buildings into condos they could sell or business properties they could lease without rent-control restrictions — or by demolishing their old buildings and replacing them with new ones” not subject to rent control. Moreover, “landlords have less incentive to maintain their properties in a rent-controlled environment,” reducing housing quality. “And since rent-stabilization policies often tend to discourage people from moving, they harm worker mobility and the economic dynamism associated with it.” These observations were made by the progressive-leaning editorial board of the Washington Post, which has not endorsed a Republican for president since 1952.
Rent control also reduces the quality of housing over time. As the liberal Brookings Institution points out, “Rent control can also lead to decay of the rental housing stock; landlords may not invest in maintenance because they can’t recoup these investment by raising rents.”
When landlords can’t raise rents to pay for repairs and renovations, they may let apartment buildings decay. After New York limited rent increases to pay for major capital improvements to 2 percent, landlords cut back on such improvements. A survey of rent-stabilized landlords found that when rent increases were curbed,
Three out of four reported cutting back on essential building-wide repairs, such as a roof or boiler replacement, since the rent law passed. Nearly 90 percent said they had forgone kitchen or bathroom renovations. Just over half decided against revamping their buildings’ security systems to include cameras or video intercoms or adding storage lockers for deliveries to thwart porch pirates. Efficiency upgrades have also been pushed to the back burner. Over 40 percent of respondents said they would not replace lighting with LED fixtures that use 90 percent less energy — a budget saver for tenants. A quarter said they opted against installing fuel computers, which better regulate heat and hot water systems and reduce a building’s energy consumption.
Rent control reduces the value of housing stock, shrinking the property tax revenue that funds schools and local governments. “Researchers at the University of Southern California said rent control hurt property values in St. Paul, Minn. by $1.6 billion,” noted Market Watch.
