Legislative Analyst’s Office cites flaws with rent control

Leg Analyst headerTo help California’s low-income families secur
e housing, elected officials should focus more on encouraging private residential development and less on existing government programs that subsidize construction or impose rent control, the Legislative Analyst’s Office says in this report.

Removing barriers to private construction, however, will take time and a political shift, says the report by the nonpartisan office, which advises the Legislature on fiscal and policy matters.
“Doing so will require policymakers to revisit long–standing state policies on local governance and environmental protection, as well as local planning and land use regimes,” says the study, Perspectives on Helping Low-Income Californians Afford Housing.

While extolling more private construction, the report highlights significant downsides to other approaches to housing issues, such as expanding rent control — a move being considered by several California cities.

“By depressing rents, rent control policies reduce the income received by owners of rental housing,” says the document, issued in February 2016. “In response, property owners may attempt to cut back their operating costs by forgoing maintenance and repairs. Over time, this can result in a decline in the overall quality of a community’s housing stock.”

The Legislative Analyst’s Office considered the impacts of expanding rent control in two ways — applying the policy to more properties and barring landlords from resetting rents at market rates when tenancies turn over.

“Neither of these changes would increase the supply of housing and, in fact, likely would discourage new construction,” the report says. “Households looking to move to California or within California would therefore continue to face stiff competition for limited housing, making it difficult for them to secure housing that they can afford. Requiring landlords to charge new tenants below–market rents would not eliminate this competition.”

The LAO also refers to the detrimental effects that rent control can have on a household — a phenomenon known as the “lock-in effect.”

“Households residing in affordable housing (built via subsidized construction or inclusionary housing) or rent–controlled housing typically pay rents well below market rates,” the study says. “Because of this, households may be discouraged from moving from their existing unit to market–rate housing even when it may otherwise benefit them — for example, if the market–rate housing would be closer to a new job. This lock–in effect can cause households to stay longer in a particular location than is otherwise optimal for them.”

Despite strong evidence that increasing the private housing stock would bring down prices, much of the focus remains on government programs — such as rent control — that fail to help many of the residents who need it most and never address the underlying problem — a lack of housing, according to the LAO report.

“Existing affordable housing programs assist only a small proportion of low–income Californians,” the LAO says. “Most low–income Californians receive little or no assistance. Expanding affordable housing programs to help these households likely would be extremely challenging and prohibitively expensive.”

The LAO report also debunks some myths about the impacts of residential construction. For example, many believe that new housing doesn’t help low-income families because new homes tend to cater to wealthier households. While this tends to be true initially, residences initially built for the rich aren’t tied to that market forever.

“New housing generally becomes less desirable as it ages and, as a result, becomes less expensive over time,” the study says. “Market–rate housing constructed now will therefore add to a community’s stock of lower–cost housing in the future as these new homes age and become more affordable.”

The Legislative Analyst’s Office concedes that remedying California’s housing crisis will come neither quickly nor easily.

“The changes needed to bring about significant increases in housing construction undoubtedly will be difficult and will take many years to come to fruition,” the LAO says. “Policy makers should nonetheless consider these efforts worthwhile. In time, such an approach offers the greatest potential benefits to the most Californians.”

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