As we learn in economics classes, just about the worse form of price control is price fixing land rents (rent control). Property rights at first and then financial damage to the community are enormous. In theU.S.A., rent controls are relatively rare. Virtually all the history of rent controls is inEurope. Hundreds – even thousands of times the artificial pricing of land rents (real estate economics can be boiled down to one thing: land valuation) have been enacted. Price controls by government began with the birth of civilization. It is treating the symptom without dealing with the cause.
Mobile home park rent controls (property controls) in California show perhaps the greatest damage to the community with Capitola and the small county of Santa Cruz as a perfect example of state seizure of property without just compensation. Although rent controls inflict billions of dollars in economic damages to the state ofCaliforniaa yearSanta Cruzprovides the clearest example of governmental tyranny and financial damage.
In two square mile Capitola, California’s first beach town, there is the Surf and Sand mobile home park, one of the premier parcels of land on California’s coast having a beautiful view of Monterey Bay. The Surf and Sand has severe, remaining, price-fixed rents and has an assessed value at little more than a million dollars. Brought into development, the five acre parcel would probably become a commercial development helping business in the resort town ofCapitola. At its highest and best use, the property would probably be worth around 50 million dollars.
A couple of years ago the owner sued the city government of Capitola and in the process won the right to raise his rents to market when a tenant vacated. This happened also in the city ofSanta Cruzten years ago with another spectacular parcel of rent controlled mobile home park, the De Anza. The result: dead and dying properties. Nobody will buy a mobile home where the land rents were about 10% of the actual land rents. Furthermore, fighting lawsuits over rent control on mobile home parks has cost thecountyofSanta Cruza million dollars in legal fees and a little bit less than a million in the city ofSanta Cruz. In tiny Capitola (population 10k), the bill for mobile home parks “affordable housing” was $1,779,242.00 in legal fees and related damages and is still mounting.
About 150 acres of some of the most expensive land in American has been also swindled from the owners of the mobile home park and the tax base in the form of “resident owned mobile home parks” because the owners had given up on governance inCalifornia. The owners sold their land to the renters at between 15% and 35% of the land’s fair market price. These parcels of land now pay minimum taxes and are stuck in this depressed situation for usually around 40 years.
In order to graduate from high school inCalifornia, students must pass a course in basic economics. One of the first things taught is why there should be no price controls with NYC as the prime example via rent controls.
About ten percent of Capitola’s land is in the form of “resident owned” mobile home parks. Mobile home parks are a transitional form of land use. As land values rise, there should be appropriate development on the land. This has not happened with the renters of mobile homes in Capitola andSanta Cruzforming into a very solid voting bloc and the politicians developing amnesia when it comes to election time.
As a resultSanta Cruzhas a large mobile home owner population virtually all of whom are middle class. This is because the sales price of the mobile homes worth about 10 to 20k are selling for 20 to 30 times their actual value. This is more than the price of the average house throughout theU.S.A..
Meanwhile the Surf and Sand and the De Anza mobile home parks sit on the beach like dead immovable whales but perhaps leading the way to the removal of rent controls inCalifornia. Sooner or later economics trumps politics.
George Drysdale is a social science teacher and may be reached at email@example.com.