A core selling point of federalism is that it enables those ill-treated by one government body to vote with their feet toward less abusive jurisdictions. That is a good reason for reserving some political policy determinations to state rather than national government, or to local rather than state government. However, devolving political power to lower level governments does not serve citizens rights when it comes to rent control, because rent control paralyzes owners ability to escape imposed burdens by voting with their feet.
Why is this an issue in California today? The 1994 Costa-Hawkins Rental Housing Act took the power to impose new rent controls out of local government hands (joining a majority of states that restrict local rent control). That decision is currently under attack. The Affordable Housing Act ballot initiative on the November ballot would move rent control decisions back to local governments. That raises the question of whether rent control policy should be vested at the state or local level.
Often, voting with your feet favors local governance. It is generally less costly to leave a local government jurisdiction providing fewer benefits than costs than to leave state jurisdiction,which is less costly to leave than the U.S. Citizens ability to more easily leave smaller jurisdictions generally more tightly limits governments ability to use them as cash cows rather than better serving them. For instance, dissatisfied residents can avoid the burdens of sales taxes by leaving. However, that is not true of rent control.
Voting with their feet does not allow owners to escape the burdens. Owners can move away, but must still bear the reduced earnings imposed if they maintain ownership. If they sell their properties, they bear the capitalized value of the burdens in lower sales prices. Consequently, even selling rent control property and leaving the jurisdiction provides no escape from the burdens it imposes on them.
Absent voting with your feet protections, what would current voters in majority-renter cities want to do? Rob owners of their existing rights by providing themselves reduced rents at landlords expense, for as long as they can politically impose. Current tenants providing themselves such huge wealth transfers from property owners unable to defend themselves by moving was why Costa-Hawkins was enacted.Current renters get to vote. Owners are far outnumbered, and those living outside the jurisdiction get no vote. Prospective future tenants, who will be harmed by the reductions in available rental housing that results, cannot vote. Neither can renters in neighboring jurisdictions, whose costs rise due to the reduced regional housing supply. In other words, It is piracy enabled by limiting who can vote on rent control.
That is why state determination of rent control policy may protect citizens rights better than local determination. Those harmed, including owners, renters nearby, and prospective future renters, get to vote at the state level. State level determination allows owners to more effectively fight the robbery, unlike local determinations splitting of property owners opposition. Even government officials outside the local municipality, who face falling tax revenue from the reduced construction and income that results from rent controls disincentives, get a voice, rather than being ignored under local determination. The result is that, given rent controls immunity from owners escaping by voting with their feet, citizens may be better served by state level determination, because it makes it harder for local renters to steamroll others rights.
State determination is no guarantee of appropriate rental housing policy, as demonstrated by rent controls presence on the November ballot. However, a statewide ban on rent control is perfectly consistent with the essential job of governmentprotecting individuals and their property against force and fraud. Just as state prohibition of grand theft, auto, regardless of the municipality it is committed in, better protects California residents, so does state prohibition of grand theft, housing, which rent control represents.
|Gary M. Galles is a Research Fellow at the Independent Institute, Professor of Economics at Pepperdine University, and Adjunct Scholar at the Ludwig von Mises Institute.|