A group of supposedly “progressive” organizations in California, including the California Teachers Association and the union-funded Alliance of Californians for Community Empowerment, are backing a voter initiative this November that would repeal the Costa-Hawkins Rental Housing Act, a 23-year old state law that sets strict limits on local rent control laws.
It’s the centerpiece of an effort to address the state’s affordable housing crisis, which has left low and middle-income Californians priced out of big cities like San Francisco, where the median monthly rent for a one-bedroom apartment reached $3,490 last month. In fact, five of the ten most expensive rental markets in the country are now in California (San Francisco, San Jose, Los Angeles, Oakland, and San Diego) and nearly 1.7 million families across the state currently spend more than half of their monthly income on rent.
Repealing the Costa-Hawkins Rental Housing Act would likely result in a flood of new rent control ordinances across the state. According to Marketplace, a dozen cities in California already have plans in place for new rent control measures if the initiative is approved by voters this fall.
Proponents of the initiative claim that expanding rent control will rein in “out-of-control housing costs, driven by corporate landlords and big real estate” and “protect all families from rent gouging.” For its part, CTA argues that reinstating rent control will alleviate a housing crisis that has exacerbated a (supposed) statewide teacher shortage.
“We’re facing a severe teacher shortage in California, and one of the main issues is affordable housing — for teachers being able to live in the communities where they teach,” CTA president Eric Heins said in a recent interview with Politico. “When I lived in San Francisco, the only way I was able to afford to live there was with a rent-controlled apartment.”
While corporate landlords & real estate billionaires see record profits, 1 in 5 Californians are paying more than 50% of their income on rent alone. The foundations of our society- teachers, nurses, janitors, construction workers- are being uprooted. No more. Vote #YesOn10 Nov 6! pic.twitter.com/yeV1pPWvDc
— ACCE (@CalOrganize) July 19, 2018
While California certainly needs to take decisive steps to address its shortage of affordable housing, it is well-established that expanding rent control is the last thing the state should do. There is broad consensus among economists – from across the political spectrum – that rent control measures, no matter how well-intended, end up doing more harm than good.
“Rent control is among the best-understood issues in all of economics, and – among economists, anyway – one of the least controversial,” Paul Krugman explained in an essay in the New York Times. “Almost every freshman-level textbook contains a case study on rent control, using its known adverse side effects to illustrate the principles of supply and demand.”
Price controls end up shrinking the overall supply of rental housing. Facing a decline in revenues, some landlords will opt to turn their apartments into condominiums, sell them, and invest their money elsewhere. At the same time, real estate developers have less of an financial incentive to build new rental housing that would offset those losses.
The decline in supply is compounded by the fact that tenants living in rent-controlled apartments are more likely to stay put because the bargain they’re getting on rent is just too good to give up. A recent study from a trio of Stanford economists found that San Francisco’s current (limited) rent control regime “increased the probability a renter stayed at their address by close to 20 percent.” This effectively locks up a chunk of existing rental stock, further shrinking the pool of available apartments.
So while proponents may insist that rent control will help working families, don’t believe the hype. Ironically, rent control is more likely to benefit the young tech bro who makes six-figures and already has an apartment in the Mission District than the single mother of three who has to commute to work from Fremont every day because she can’t afford a place in the city.
All of this begs the question of why the California Teachers Association is spending its money and leveraging its political clout to back an initiative that will actually make the state’s affordable housing worse. As with many things CTA does, fact and reason doesn’t seem to be part of their equation.