Rent Control Unfairly Taxes Landlords
Part two of two
In last week’s issue I offered my point of view of the how the rents have evolved in Alameda (“Rent Control Raises Its Head in Town,” Nov. 12.) This week I’d like to offer my brief summary of how renters and landlords addressed rent control at the Nov. 4 City Council meeting, as well as my perspective on rent control.
Landlords say they are — for the most part (there are always some bad apples) — reasonable in what they charge for rent. Many charge far under market. They fear rent caps will deprive them of planned-for retirement income, or funds needed to maintain the property.
Tenants agreed that many landlords are not all unethical, but they still fear that they’ll be put on the street because there is no cap on rent they can be charged by the unscrupulous ones. Many cannot afford to live here anymore, or fear that they won’t be able to. They believe they too have a right to live where they choose.
Supply and demand: Measure A restricts supply. A booming economy increases demand. But is rent control the answer? That rent control is an ineffective and often counterproductive housing policy is no longer open to serious debate.
The profound economic and social consequences of government intervention in the nation’s housing markets have been documented in study after study, over the past twenty-five years. In response to this hard-earned experience, states and local jurisdictions from Massachusetts to California have banned or greatly constrained rent control.
Nevertheless, a number of communities around the country continue to impose rent controls, usually with the stated goal of preserving affordable housing for low- and middle-income families.
But, rent control does not advance this important goal. To the contrary, in many communities rent control has actually reduced both the quality and quantity of available housing.
Too often, those who advocate rent regulation have ignored the basic laws of economics that govern the housing markets — treating privately-owned, operated and developed rental housing as if it was a “public utility.” In so doing, they harm not only housing providers, but also, in the long-run, the tenants they claim to serve.
Rents compensate landlords and developers of new units for the cost of providing shelter to tenants and provides the economic incentives needed to attract new investment in rental housing, as well as to maintain existing housing stock.
In an unregulated market, a housing shortage — the reason usually cited for imposing rent control — will be addressed in the short-term, by a rise in rents. Over time, these higher rents will encourage new investment in rental housing — through new construction, rehabilitation, and conversion of buildings from nonresidential to residential use — until the shortage of housing has been eliminated.
When a community artificially restrains rents by adopting rent control, it sends the market a false message. It tells builders not to make new investments and it tells current providers to reduce their investments in existing housing. Economists are virtually unanimous: “a ceiling on rents reduces the quality and quantity of housing available.”
And that’s where we should all be afraid.
Remember those statistics about housing stock in Alameda. 4,000 rental units are SFDs. When rent won’t compensate an owner, the single family house will be sold. To an owner occupant (because an owner occupant will pay more than a rental investor for a SFD). 4,000 units (25 percent) of the rental stock will be ... gone.
What’s next? Those duplexes, of course. Once again, an owner occupant will buy a duplex. Say “bye-bye” to one more rental unit. And the other unit of that duplex? Have you heard of a TIC? A tenant-in-common agreement allows two “owners” to occupy each of the two units. No more duplexes.
Fifty percent of the rental housing stock is gone. (I give it 10 years before the only rentals in Alameda are five-unit or larger apartment buildings. That’s only 8,000 rental units. Period. If you think there is a housing shortage now, just wait.
Rent control inhibits new construction, causes a deterioration of existing housing, reduces property tax revenues, has substantial administrative costs to enforce, reduces tenant mobility (because people stay in rent controlled apartments), increases tenant entry costs (where tenants sometime pay substantial finder’s fees to obtain a rental unit).
Rent control also has difficult questions of social policy:
The substantial costs of rent control fall most heavily on the poor (a substantial drop in the quality of existing rental housing, and the substantially reduced access to new housing), and higher income households benefit most from rent controls. A study of rent control in Berkeley and Santa Monica found that the beneficiaries of controls in those communities are “predominately white, well-educated, young
professionally employed and affluent,” and that rent control had substantially increased the disposable income of these tenants while “exacerbating” the problems of low-income families.
Rent control also promotes housing discrimination, by eliminating rents as the basis of choosing among a pool of potential consumers. Rent control opens the door to discrimination based on other factors, like race, sex, family size or other improper or unlawful factors.
Rent control is, at the end of the day, an unfair tax on landlords — by holding rent at below market levels. Why should the uniquely public burden of providing subsidized housing to the poor and middle class be borne solely by landlords?
Are there effective alternatives to rent control?
Yes. Here are two.
Increase housing supply — by removal of regulatory barriers (like Measure A) to housing construction. This promotes housing affordability for both renters and home owners.
Another alternative: direct financial assistance to needy renters. San Francisco just passed its own Measure A, to do just this. A fund was set up (created by the selling of Municipal Bonds) to pay rental subsidies to landlords of market rate units, on behalf of needy (i.e. low income or fixed income) tenants. These tenants have to meet a “needs based” test to qualify.
Alameda could also fund such a program by way of a “meter tax.” Alameda owns its own utility company. By putting a tax on each meter, the occupant of that property would contribute to the fund - renter or owner alike. This way, ALL of Alameda pays to subsidize those in need - not just the “greedy landlord.” Former redevelopment agency funds could also be used. Or a bond. Or a combination of all three.
Landlords are not all “the 1 percent.” Indeed, many (most) of Alameda’s mom-and-pop owners are far from wealthy (or greedy). Tenants are not the “entitled” takers of an owner’s hard work and property value either. Both groups — when not influenced by rabble rousing, rebel with a cause, fanatics — would like to live in co-existing peace.
It’s up to the residents of Alameda to choose which path they want. Let’s all hope we choose wisely.