Rent Control Will Harm the Poor

Affordability in Santa Barbara Is a Myth

Credit: Courtesy (from file)

A recent Voice, “Rent Stabilization Is a Necessary Tool,” is an exercise in polemics. It picks three studies by progressives, most of whom are non-economists, which the authors claim supports rent control, yet they ignore the 81 percent of economists who concur that rent control is a bad idea.

I will concede that criminalizing rent increases would be an effective tool to prevent rising rents. Landlords would be committing a criminal act by raising rents beyond what is permissible. Governments would have the power to fine them, sue them, arrest them, seize control of their property, or even confiscate their property.

The problem is that there are major negative consequences to rent controls: Rent control would harm the very people the authors thought they were helping.

Rent control is not something new on the planet. Various schemes of rent and price controls go back millennia. Economists have studied rent control programs in the U.S. for many decades. It’s rare in academia for scholars to agree unanimously on anything, but economists almost unanimously agree that rent control is a bad idea.

The authors, Professor Alice O’Connor, a history professor, and Rich Appelbaum, a sociology professor, intentionally ignore the negative consequences of rent control because it doesn’t fit into their progressive social justice ideology.

They dismiss offhand the conclusions of a fellow UCSB professor, Peter Rupert, former chair of UCSB’s Economics Department, who studied the economic literature on rent control and concluded that rent control has never worked anywhere, ever.

Why doesn’t rent control work? It basically worsens the housing situation by reducing the supply of rentals. Here are some results gleaned from studies of rent control:

Landlords will be more selective in choosing tenants. Landlords operate on very thin margins in Santa Barbara. Making it more difficult to evict tenants and to raise rents will cause them to be more selective, making it harder for poor renters to qualify for housing.
Lower profitability margins on investment combined with rent caps would lead some landlords to reduce maintenance costs, which will lower housing quality.
Tenants will be reluctant to move from rent-controlled properties, which tends to freeze the rent-controlled rental market, leaving fewer apartments available for rent.
A substantial reduction in tenant mobility occurs as a result of rent control.
The beneficiaries of rent controls in Southern California have been mostly middle-income, educated white folks rather than poor immigrants. We should expect the same here.
The supply of rental housing will stagnate because rent controls dis-incentivize developers from building new rental housing.
Landlords will have more difficulty in financing or refinancing their properties when loans come due because of lower profit margins.
A significant expansion of staff will be necessary to enforce these controls, imposing a substantial new cost on a budget-challenged city. While this is dismissed by the authors, the rent-control department of Santa Monica (a city the same size as Santa Barbara) has a $6 million annual budget and a staff of 25, including attorneys, a hearings officer, and support staff, plus five rent-control board members. It’s not a small bureaucracy.
Based on the experience of other rent-controlled markets, it is likely that such controls will ultimately have very little impact on rising rents. The authors say this time will be different because they advocate “smart” rent control.

It is interesting that the article relies on the University of Minnesota study of Minneapolis upon which to base their claim that rent control could “work.” Minneapolis has no rent control and, based on the study’s data, it has a relatively healthy, competitive rental market. Nowhere in the 63-page report does it mention the impact of rent controls in St. Paul, the “Twin City” right across the river. St. Paul voters approved a strict rent-control law. As a result, new construction of apartments shriveled up, rental properties declined in value, and developers walked away from ongoing projects. I’m sure that the authors would say their “smart” rent control would avoid such bad consequences.

The reality is that there is no solution to the perennial Santa Barbara “housing crisis.” We like our town the way it is and don’t wish to ruin it with massive apartment blocks or the ADUs jammed down our throats by Sacramento. Forget low-cost rentals: In an expensive city famous for blocking new development, it just can’t be done. You can’t blame landlords for that.

Yet progressives demonize landlords as greedy capitalists because they seek “profit maximization.” Without the possibility of maximizing the profit of one’s investment, there would be no rental properties. Waving the bloody shirt of “profit” is part of the progressive playbook to rile their base against landlords.

Helping poor renters is society’s problem. The fair solution is for the community to subsidize rents for the poor. Instead of imposing an unfair hidden tax on landlords, the citizens of Santa Barbara should back an increase of the sales tax to provide the funds to subsidize poor renters. Otherwise, rent control will just make it worse for the poor and for Santa Barbara.

Jeffrey Harding is a real estate investor and a former attorney and adjunct real-estate investment professor at SBCC.

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