Full disclosure: I support the repeal of Costa-Hawkins. Cities should have the ability to provide greater housing stability to renters. However, I disagree that repealing Costa-Hawkins is an affordable housing prescription.
On its face, repealing Costa-Hawkins would seem to simply create more opportunities to provide for housing affordability. In reality, giving cities the ability to extend rent control to newer and, even, unbuilt housing, as well as establishing vacancy controls, would be a radical departure from existing policies that could have significant implications that we must consider if we are to have an honest conversation about this ballot measure.
There are two key areas that warrant further evaluation:
- California's existing rent controls have never applied to housing that has not yet been built. We have little idea what this change might do to new housing construction.
- Simply broadening rent control to newer or unbuilt housing is not actually a very good mechanism for guaranteeing affordable housing for those most in need.
Rent control (or stabilization) in California has only ever existed retrospectively, for buildings constructed before 1980. Given this, the number of apartments that qualified for rent control started at its highest possible number and has decreased over time. In 1980, California's population was 23.7 million people, and today it is nearly 40 million. So, while rent control applied to nearly every multiple dwelling unit available in 1980, and it accommodated a large swath of the state's population at that time, both the share of population in rent controlled units and the absolute number of rent-controlled units has declined significantly in the interceding four decades.
One question then arises: what would be the impact of extending rent controls to unbuilt housing?
We have no direct experience telling us what the impact would be if rent control were extended to unbuilt housing. We can, however, make an educated guess. A decent corollary on this is the impact of Prop 13 on the housing supply in California. [I won't go into explaining Prop 13, but you can get more information here.]
For cities and counties, Prop 13 upended their entire revenue structure. Where they once depended largely on property taxes for income, they have since come to rely much more heavily on sales and income taxes, which come largely from commercial and retail property. Additionally, while turnover of existing homes might have once meant very little difference in the overall generation of property taxes, now it is the only mechanism through which a new assessment is triggered, and the only way that the amount of property taxes collected on a residence increases substantially. These factors are a double-whammy to the construction of new housing, which (a) is less lucrative than new commercial and retail space and (b) undermines how much additional property taxes can be realized in existing housing by reducing turnover in existing housing stock. Not only can cities limit the demand on their infrastructure by restricting the ability of new residents to call them home, but they can realize additional property tax revenues by forcing more turnover - and, thus, reassessments - in a constrained housing supply.
Where cities once saw the construction of new housing as a revenue generator, it now compares much less favorably to other uses. And how is this relevant to rent control? Consider this chart:
|Credit: Shane Phillips, Abundant Housing LA|
Of note, Prop 13 passed in 1978, and immediately afterward the amount of housing being constructed in the City of LA declined. Since 1990, the average number of homes built each decade is less than half the average of what was built in each of the decades leading up to Prop 13's passage. If housing were as financially appealing to cities today, they'd be more likely to support its construction. Instead, a new review of cities' compliance with their own housing goals showed 97% failing to meet their (sometimes laughable) goals.
So, the imposition of an artificial limit on the revenue that a city can receive for a specific type of land use might be incentivizing cities to curtail their desire for more of that type of land use. Why would we expect anything different with the application of artificial limits on rent revenue that developers could realize (through rent controls) to unbuilt housing? If an artificial constraint is placed on the amount of rent that future housing could return to investors who lend financing to that project's construction, the only logical outcomes are either (a) less new housing construction and/or (b) developers seeking ways to further push up rents to finance their projects. Applying rent controls to unbuilt housing could have serious implications, and our history with Prop 13 tells us we have reason to be wary of the impact of this kind of measure on housing affordability.
Rent control is not a policy prescription to provide affordable housing to those who need it most.
Our current rent control programs apply to housing stock that is at least 40 years old and with is often (though not always) substandard to new construction in meaningful ways. This connection between rent-control policy and the age and condition of the buildings to which it applies feeds into a common perception that rent control equals (relatively) affordable housing, since older housing will almost always rent for less than newer housing with more amenities and more stringent construction standards.
|Standard rent-stabilized buildings in LA|
|Typical newer apartment building in LA|
This connection between a building being old and its being rent-controlled colors our discussion of rent control. When we consider extending rent control to newer apartments, we're generally talking about apartments that have more amenities and more stringent construction standards and thus cost more up front. These newer apartments will, generally, be less affordable than older apartments. Does rent control make housing more consistently priced over the long-term for a tenant? Sure. However, does it make an apartment more affordable? Not necessarily. We have to decouple the idea of rent control from building age in any discussion of extending these types of provisions or newer or unbuilt housing, and that has a direct correlation to affordability.
Further, rent-controlled housing is available to anyone, regardless of income. Unlike designated low-income housing, which uses a means test to determine eligibility, rent control is simply a mechanism to lock in an agreed-upon rent, with limited increases over time. Not advocating here for a means test for rent control; just pointing out that rent control is not a mechanism for directing affordable housing to those who need affordable housing the most.
Still further, if a city were to institute vacancy controls, that would just create an issue with scarcity. Vacancy control, while limiting housing price increases, does nothing to address housing scarcity overall, and it would create fierce competition that would still likely result in those with the most means beating out those with the least. Short of additional means-testing-type measures to give a leg up to those with less income, vacancy controls would only create more challenges for both the lessee and the lessor. This is particularly true if cities continue to do little to address housing shortages overall.
WRAPPING IT UP
We can and should repeal Costa-Hawkins. If for no other reason, renters deserve the same year-over-year protections that Prop 13 extends to homeowners, creating consistency that enables a more stable community.
Still, our affordable housing policy cannot amount to "get into a place and don't move." Nor should we mistake repeal of this bill as creating affordable housing, even if rent control does provide some stability. We should be wary of the effects that extending these protections to housing not yet built could have on our ability to supply housing for our growing region.
Repeal of Costa-Hawkins is not an affordable housing solution, at least not in the way that is directed toward those most in need. We need to take a hard, long look in the mirror to make difficult choices to create real, meaningful change. This will require being open to supporting the creation of a lot more housing, even in our own neighborhoods. It will require supporting many housing projects that could impact our views, traffic, etc. And it will require demanding that our elected leaders create ways for permanent supportive housing and housing projects with designated affordable units to move quickly through the planning process from rendering to ribbon-cutting.
I welcome thoughts from others and thank y'all for hearing me out.