One popular definition of insanity is: doing the same thing again and again while expecting a different result. Decades of evidence show that rent controls are a bad idea, yet several Californian cities maintain their rent-control ordinances. A new proposal working its way through the legislature would double down on this insanity by implementing it statewide.
Assemblyman David Chiu, D-San Francisco, introduced AB1482 to limit annual rent increases to 5 percentage points above the rate of change in the consumer price index or a maximum of 10 percent, whichever is lower. Gov. Gavin Newsom signaled his support for the bill after it cleared the legislatures Housing and Community Development Committee by stating The California Dream is in peril if our state doesnt act to address the housing affordability crisis and thanking the committee for passing the renter protection bill.
If this bill becomes law, California will be the second state, following Oregon, to implement statewide rent control. Oregon recently approved an ordinance to limit rent increases to 7 percentage points above the rate of inflation.
Despite high housing costs on the west coast, the renewed political support for rent control is surprising. After reaching peak popularity in the 1970s, the number of rent-control ordinances has declined nationally ever since. The most common statewide laws regarding rents prohibit local jurisdictions from controlling rents. Thirty-five states have such preemptions.
Even California policymakers, in a rare bout of sanity, weakened local rent controls with the Costa-Hawkins Act in 1995. The act allows landlords in cities with rent controls to return rents to market rates after a tenant voluntarily vacates or is legally evicted, and eliminates rent controls for single-family homes and units built after 1995.
The nationwide retreat of rent control was consistent with the thrust of decades of economic research, and the new controls fly in the face of that research. Economists have compiled a long list of theoretical arguments and empirical evidence showing the destructive consequences of rent control.
As Matthew Brown summarized in my book Housing America, these destructive effects include shortages of apartments for rent, decreases in quality and lack of maintenance, decreased construction of new apartments, long waiting times and high search costs [to find apartments], discrimination, homelessness, abandoned buildings, and labor market inefficiencies.
A 2009 article surveying the vast theoretical and empirical scholarly literature agreed with an 1985 assessment that the economics profession has reached a rare consensus: Rent control creates many more problems than it solves. When polled, more than 92% of economists agreed with the statement A ceiling on rents reduces the quantity and quality of housing available.Rent control is an issue on which the econ-101 textbooks, the opinions of the vast majority of economists, and the current scholarly research all point in the same direction. In 1982 economist Thomas Hazlett observed that economists have been notoriously thorough in convincing themselves of the destructive effects of rent control and notoriously inept at convincing anyone else. For a while the economists had apparently convinced the vast majority of policymakers nationwide. Unfortunately, insane politicians in California and Oregon seem to have forgotten what everyone else has learned.
Rent control will only make Californias housing problems worse. If politicians really wanted to promote affordability, they would remove urban-growth boundaries and other restrictions that limit the housing supply. That would do more to promote affordability than passing destructive rent-control laws.