Rent Control and Prop. 10: Pros and Cons

The Debate Between the Housing Shortage and Market Forces

Don’t expect goodwill among the parties to smooth the path to a resolution of differences about rent control and Proposition 10 on the November ballot, nor experts to find answers that please all involved. And don’t expect power and political pressures to be less than decisive. But do hope that democratic procedures are capable of dealing with the issues, ultimately, with fairness and reasonable efficiency.

To the immediate issue, then, should the Costa-Hawkins law continue broadly to prohibit local rent control, or should Prop. 10 be approved to permit rent control with local control over its form and limits?

What is clear so far is that the battle about Proposition 10 will not determine whether rent control will be allowed in any local jurisdiction. If any is allowed, Prop. 10 doesn’t state what kind of rent control it will be. The initiative simply opens the door to local determination whether a particular community wants rent control, by repealing Costa-Hawkins, which denies local communities such a choice. If Proposition 10 passes, the battle about rent control will simply have been moved to the local level, where housing policy decisions are usually made.

The key argument for considering rent control is simple and basically noncontroversial: There is a serious housing shortage in virtually every community in California, particularly severe for families and individuals with lower incomes but also affecting middle-income households. It is an absolute shortage of units, aggravated by the increasing prices of existing housing which exceed what is affordable, producing gentrification, displacement, ghettoization, evictions, and ultimately homelessness for a surprising number. And all this despite a strong economy well situated to produce what is needed but not doing so as things now exist. There is general agreement that something needs to be done.

The key argument frequently made against rent control is also simple: It distorts the market. In a free market, the housing shortage will simply be solved by the laws of supply and demand in the private market, supply driven by the expectation of profit. But that is obviously not working to produce housing where demand is not “effective,” that is, financially able to meet the prices demanded by suppliers. It is precisely the private market that is the problem. The purpose of rent control is to improve the market so that it will better provide the housing that society needs, rather than only the housing that provides a profit.

Another argument around rent control goes deeper and rests on deep differences of belief in the proper role of government. Opponents of rent control frequently refer to government invading private rights if it interferes with activities as to housing that should be solely in its citizens’ private control, that the less government the better, that government taxes used to subsidize housing take “your” money for the benefit of others who should be able to take care of themselves.

Advocates for rent control often link their argument with calls for recognition of a right to housing, and they hold the equally fundamental moral/ideological beliefs that it is the obligation of society to see that all its members have access to the necessities of life, that housing is one of those necessities, and that government provision and regulation are an appropriate and just means to fulfill that social obligation.

So deep a difference of basic philosophies cannot expect to be overcome in a debate that is about whether private rents should be controlled by government and, if so, which government and how. The more useful debate is probably simply about whether there should be rent controls at this time in this place and, if so, how and by whom they are shaped and implemented. That does not mean ignoring the fundamental issues but rather leaving them to be addressed at some other time and venue. There is probably enough practical agreement that the basic need for some changes in the housing system are needed, leaving the issue to be addressed immediately only what changes are to be made, when, where, and how.

One apparent answer is deceptively simple: Let the free private market do what it does best, provide housing for those who can afford it and then provide subsidies to those who cannot afford it. The subsidies might be provided by vouchers, or by tax credits, or other more or less blatant means of having the public pay the prices demanded by the suppliers of housing in providing a social necessity of life, in a market in which demand substantially exceeds supply and suppliers have a virtual monopoly. And indeed it would work. Economically, its result is, however, also to guarantee the profits of suppliers which in the private commercial real estate market will be everything the market and the government will bear.

But subsidies that do not regulate prices, and thus cover the profits of commercial participants in the housing market, including landlords, developers, land owners, financiers, brokers, and the myriad of others reaping financial benefit from the business of real estate, will be a tremendously unfair and unnecessary cost to all taxpayers.

If the goal is both meeting a critical necessity of life for members of society and distributing the cost of that provision fairly among all, certainly increasing the supply of affordable housing and regulating the distribution of its costs must be a major goal. Once Proposition 10 is passed and the ban on local consideration of rent control is removed, there is a wide variety of ways rent control measures can be drafted, including the setting of price limits permitting fair profits to be earned, exemptions for single-family homes not in speculative commercial ownership, appeals arrangements, coordination with subsidy and tax programs, technical assistance, zoning policies favoring affordable housing and inclusionary housing, nonprofit or co-ownership arrangements, eviction regulations, flexibility for unique cases, and so on. Other housing and planning measures can also be considered in a comprehensive approach, e.g., zoning, land use regulations, tax policy, coordination with social service, security policies, and more.

But for any of such potential steps toward fulfilling the hope of guaranteeing a decent and affordable home in a desirable neighborhood — the decades-old promise of federal policy, with its necessary national implications, also needing still to be addressed — the first step is the repeal of Costa-Hawkins, the passage of Proposition 10 on the November ballot.


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