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New Attacks on Landlords Will Worsen Housing Crisis in California

New Attacks on Landlords Will Worsen Housing Crisis in California

A “For Rent” sign posted in front of an apartment building in San Francisco, Calif., on June 2, 2021. (Justin Sullivan/Getty Images)

John Seiler

John Seiler

8/7/2023

Updated: 8/8/2023

Commentary
I don’t get why people don’t understand basic economics. If you reduce supply, the price goes up—one way or another. Either the price goes up directly so you can see it. Or the good or service being reduced goes onto the black market and the price goes up in the shadow economy.
That’s obvious from rent control, in particular in New York City. Rent control was first imposed during World War II as a “temporary” measure as GIs, including my father, crowded into the city on their way to being shipped to Europe to defeat Hitler.
The controls are still in place on 44 percent of rentals, according to a 2022 survey by the city. And, “Among rent stabilized units, the median monthly rent was $1,400 and among private, unregulated rentals it was $1,825.” That shows the gap between what the market is demanding, and what city rent controls will allow. It means the landlords are being cheated out of $425 a month, or 23 percent.
California also has rent control at the state and city level. And it could get worse. On July 27, Secretary of State Shirley Weber certified for the Nov. 5, 2024 ballot an initiative called Expands Local Governments’ Authority to Enact Rent Control on Residential Property.
According to Weber’s summary, “This measure would repeal that state law and would prohibit the state from limiting the right of cities and counties to maintain, enact, or expand residential rent-control ordinances.” Proponents call it the Justice for Renters Act.
Renters and housing advocates attend a protest to cancel rent and avoid evictions in front of the courthouse amid the COVID-19 in Los Angeles, Calif., on Aug. 21, 2020. (Valerie Macon/AFP via Getty Images)

Renters and housing advocates attend a protest to cancel rent and avoid evictions in front of the courthouse amid the COVID-19 in Los Angeles, Calif., on Aug. 21, 2020. (Valerie Macon/AFP via Getty Images)

If this initiative is enacted, no doubt the most liberal cities would be the ones to impose more onerous rent controls. Yet those also are the cities, such as Los Angeles and San Francisco, with the greatest crises in housing affordability and homelessness. The recent decline in home prices appears to be over, with prices rising again.
“Homes in San Jose, California, lost 10% of their value last year, but inventory is starting to fall again, and prices there are now reheating,” reported CNBC on July 10. “They rose 1.4% in May, the second largest month-to-month increase of any market on a seasonally adjusted basis. San Diego, Los Angeles, San Francisco and Seattle also saw price growth in May, as well.”
Although not exactly the same, house and apartment rents are related. And rent control pushes landlords to turn their units into condos, taking them off the rental market—thus reducing the number of apartments available, pushing up prices—often on the black market.
The Costa-Hawkins Rental Housing Act of 1996 exempts some units from rent control ordinances. And it cancels rent control for new units.
The new initiative, warned the Apartment Association of Greater Los Angeles, “would dismantle Costa-Hawkins and would allow local jurisdictions to have complete control over regulating rental housing, including control over rental pricing upon a vacancy for all types of rental housing, including single family homes, condominiums and new construction. If this ballot initiative were to pass in 2024, all types of residential rental properties could be subjected to local rent control ordinances, and local governments could control rental rates for vacant units. Prior to the passage of Costa-Hawkins, cities like Santa Monica had ‘vacancy control’ in place and controlled the amount rent housing providers could charge upon a vacancy.”
The good news is rent control initiatives failed in 2018, with Proposition 10. And in 2020, with Proposition 21.
However, in 2019 Gov. Gavin Newsom signed into law Assembly Bill 1482. It limited rent increases to 5 percent a year, plus inflation, or a maximum of 10 percent. So far, the bill has not proved too onerous for landlords.
A "For Rent" sign is seen on a building Hollywood, Calif., on May 11, 2016. (Robyn Beck/AFP/Getty Images)

A "For Rent" sign is seen on a building Hollywood, Calif., on May 11, 2016. (Robyn Beck/AFP/Getty Images)

Security Deposit Control

A second new attack on landlords’ property rights comes as Assembly Bill 12, by Assemblymember Matt Haney (D-San Francisco). In the bill’s language, it would “prohibit a landlord from demanding or receiving security for a rental agreement for residential property in an amount or value in excess of an amount equal to one month’s rent.”
But what if the potential renter has no history of renting, or bad credit, or some other problem that increases the risk of renting? Eviction laws in California are very liberal and make it hard to push out bad tenants, even after they have failed to pay the rent for months. Again, this bill only would discourage landlords from maintaining apartments, instead of turning them into condos. To make up for potential lost rents from deadbeats, it also would force landlords to raise rents on honest tenants.
AB 12 passed on May 22 in the Assembly, 53-14, and in the Senate Judiciary Committee on June 20. It’s now in the full Senate.

Conclusion: Property Rights Needed

To defeat Prop. 10 in 2018 and Prop. 21 in 2020, each time landlord groups spent more than $100 million in campaign ads. What a waste. That money could have gone toward building more housing.
Typical of the mentality of those pushing rent control is Michael Weinstein, the head of the AIDS Healthcare Foundation, and a major backer of all three rent-control initiatives. “The situation has gotten so extreme and dire and catastrophic,” he explained. “Rates of homelessness are going up. Where are people going to live? That’s the question. The rent limits of the Justice for Renters Act don’t go far enough. This is the root cause of the homeless and affordability crisis in California. The California dream is dying.”
But the Justice for Renters Act better would be called the Restrict Apartments Act. If Weinstein and others pushing this initiative really want to help housing, why don’t they gather signatures for initiatives reforming the California Environmental Quality Act, which severely restricts housing construction? And the California Coastal Commission, which does the same? And Project Labor Agreements, which mandate high union wages even for housing construction by non-union firms?
The answer to the housing shortage is not less housing, but making it easier to build more housing.
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John Seiler

John Seiler

Author

John Seiler is a veteran California opinion writer. Mr. Seiler has written editorials for The Orange County Register for almost 30 years. He is a U.S. Army veteran and former press secretary for California state Sen. John Moorlach. He blogs at JohnSeiler.Substack.com and his email is writejohnseiler@gmail.com

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