California Rent Control Law Won’t Solve Its Housing Problems

Jose Nino Comments

California’s recent passage of rent control bill AB 1482 makes it the third state to pass statewide rent control in 2019. States like Oregon and New York got the ball rolling earlier this year.

Colorado and Illinois are also considering statewide rent control. Policies like rent control, which cap the amount that rent is raised, have traditionally been handled at the local level. Now, such policies are starting to attract the attention of state capitols across the nation.

California’s proposal would limit annual rent increases to 5 percent after inflation and make it harder to evict tenants. Landlords would need “just cause” when they evict tenants, like failing to pay rent or damaging property.

These policies are most popular in places with high housing prices and growing homeless populations. After all, who doesn’t want affordable housing?

However, rent control is the wrong way to go about it. As the Swedish economist, Assar Lindbeck once said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city–except for bombing.”

Affordable housing starts and ends with doing away with land-use regulations that restrict housing supply. But to politicians eager to seek re-election, this does not occur to them. Hence, their desire to come up with a quick fix.

Rent control acts as a price ceiling where the legislated prices create an artificial demand for housing units that exceeds supply. Simply put, rent control legislation leads to shortages in the long-term if the government imposed price is well below market rates. Further, the degradation of housing stocks and the conversion of traditional housing to more commercial or high-end rental housing are also common results of rent control.

What we see here is another case of bad economics mixing with short-sighted politics. When election season approaches, economic demagoguery is almost a given. Unintended consequences are the last thing on a politician’s radar.

The renewed interest in rent control is clearly a case of politicians confusing a symptom—high prices—with the actual problem of housing shortages, which were caused by the government in the first place. This same lack of foresight is witnessed in many other economic sectors in which the government tries to interfere. Interestingly enough, this is a matter of respecting basic economics.

Maybe elected officials should step back for once and think through their decisions before jumping in to save the day. Nothing positive comes from policy-making based on electoral impulses. When in doubt, respecting basic freedoms at the individual level should be the default answer.

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