This [month], Californians saw several taxpayer threats on the ballot, not the least of which was Proposition 10, titled “Local Rent Control Initiative.” This measure would have opened the floodgates to big government bureaucracies, burdensome regulations and a loss of property rights.
Proposition 10 would have repealed the 1995 Costa-Hawkins Rental Housing Act, a law that was enacted after a compromise was worked out between dozens of different interest groups. Costa-Hawkins stopped local governments in California from enacting a hodge-podge of different rent control laws, each with its own big bureaucracy. The law prohibited rent control on newly constructed buildings, single-family homes and condominium units. It also guaranteed the owners of existing rent-controlled buildings the right to raise the rent on a unit to market value for new tenants when the former tenants moved out.
Proposition 10 would have allowed cities to enact any type of new rent-control law. New bureaucracies could have imposed new rules, fees and price controls on old buildings, new buildings, small buildings, garage apartments, granny flats and even single-family homes and condos. Proposition 10 would have made California’s well-documented housing crisis even worse by discouraging investment in rental housing and incentivizing conversions or even demolition of existing rental property.
The nonpartisan Legislative Analyst’s Office warned that this measure could have hurtCaliforniataxpayers, predicting a loss of hundreds of millions of dollars in state tax revenue. That would have meant less money for schools, roads and emergency services.
What’s more, the initiative would have unleashed a massive new regulatory bureaucracy in control of all housing. Unelected rent boards would have had the power to raise fees on housing without any caps, and no vote of the people or the local elected body would have been required.
Rent control is a deeply flawed policy. It forces property owners to subsidize tenants regardless of need. The property owner might be a retiree who’s barely getting by and the tenant might be a highly paid Google engineer. It’s just unfair for the government to require one person to subsidize the living expenses of another.
There is a reason why 44 states either have no rent control or have made rent control expressly illegal. Even the liberal state of Massachusetts voted to repeal rent control because of the negative economic impact rent control was having on access to and availability of rental housing.
Affordable housing is a community good that provides a basic need to those on limited incomes – seniors, disabled, veterans and students, among others. But broad-based rent control is inconsistent with affordable housing principles.
Rent control is unfair to renters because it artificially inflates the rental price of all other available rental units. It is simple supply and demand, new rental units are not developed because housing providers cannot long stay in business with a ceiling on revenue but not on costs. So there are fewer units in the market (supply), increasing demand for open units and making prices go up.
A poll of the American Economic Association found 93 percent of its members agreeing that “a ceiling on rents reduces the quality and quantity of housing.”
Well-known liberal economist and columnist Paul Krugman has called rent control “a textbook case of economic stupidity.” Indeed, many freshman-level economics textbooks contain a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand.
Proposition 10, if it had passed, would have unfortunately added to California’s long list of foolish policies that produce results exactly opposite of those intended. Voters who want to helpCalifornia’s housing crisis have rejected Proposition 10 [and made it a good day for both renters and property owners.]
[AOA: The above original article was changed by AOA prior to the vote assuming that Prop 10 would be defeated.]
Jon Coupal is President of the Howard Jarvis Taxpayers Association – California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights. For more information, visit www.hjta.org.