Opinion: “Justice for Renters” Would Obliterate Reasonably Priced Local Housing

By Lauren Oliver, Opportunity Now

Californians will vote next year whether to pass the Justice for Renters Act, which would reallow rent control ordinances statewide (they’ve done so well in SJ, right?). Here, Daniel Yukelson—Executive Director of the Apartment Association of Greater Los Angeles (AAGLA)—pinpoints why “stabilizing” landlords’ rents would drive up housing scarcity, making home offerings lower quality and rent much costlier for already-struggling tenants. An Opp Now exclusive.

Opportunity Now: The Justice for Renters Act purports that California’s ban on rent control prevents local governances from addressing housing market crises. But you assert the contrary. How can something as innocuous-sounding as “stabilizing rents” actually be harmful for Bay Area cities?

Daniel Yukelson: Rent control and layers of related renter protection regulations literally obliterate the investments in income property made by private citizen owners, who had purchased these properties to own what had traditionally been a secure investment and a means to provide stable income when they retired.

As a result of more than four decades of these types of housing regulations and the continued ratcheting down of these types of regulations, many owners are being forced to leave the business or invest outside of California. This has led, in part, to the housing shortages we experience today. As these independent owners sell their properties, they are often re-developed into condominiums, luxury rentals, or some other type of uses; and year after year, California loses what has traditionally been “naturally occurring affordable housing.” The City of Los Angeles loses 5.5 rent stabilized units every week, and the City of San Francisco (according to a university study) has lost about 13% of rent-controlled units since their ordinance’s inception.

When it comes to analyzing local news for free market-minded folks, Opp Now’s as stable as SJ rent—no, let’s say a rock. Click HERE for lots more articles.

Look at it from the macro level—after 4-plus decades of these types of rent regulations, which continue to expand, California’s cities have the some of the worst (if not the worst) housing shortages. In particular, they are seeing affordable housing shortages, the largest homeless populations, and skyrocketing rents due to shortages in available units.

Rent control regulations have many other negative consequences. They really only benefit tenants who are in place at the time the regulations are enacted. So rather than give up a below-market, rent-controlled unit, tenants will commute long distances if offered better employment so they can keep living in a cheap apartment. Or in some cases, tenants won’t take the better job offered them. Also, because tenants remain in place for so long, their apartment unit is never on the market for the next tenant that wants to move in, even if the next tenant is a family of four wanting a three-bedroom apartment which a single parent whose family has grown up and moved out continues to occupy because he/she cannot find a one bedroom apartment that is less expensive than their existing apartment to rent. In addition, rent control benefits tenants irrespective of income—so wealthy tenants often get the benefit of cheap rent. We have seen this in coastal areas that are under rent control: Tenants purchase property elsewhere while keeping their cheap rental unit so that they have a beach pad on the weekends—thus adding more to the housing shortages.

In the end, all of these regulations that limit rent increases and impose varying degrees of fines on housing providers increase the risk of being in the rental housing business—to the point where owners no longer have the stomach for it. And at the same time, costs of owning and maintaining these rental properties are skyrocketing due to the ever-increasing regulatory environment. One example is several major insurance carriers have stopped doing business in California, and renewal rates are up 50% or more. And in the past three years, many owners were subjected to freezes on rent increases and were challenged to collect rent due to pandemic-related protections.

Aside from the severe housing shortages caused by these regulations, the price controls placed on rental housing coupled with the cost burden of massive regulations harm renters in the end because property owners cannot afford to provide upgrades such as paint, new flooring, quieter windows, air conditioning, newer appliances, etc. As a result, some of these cost burdens fall on renters if they want new floors or to paint a room.

As the socialist Swedish economist Assar Lindbeck once said: “In many cases, rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.” 

Opportunity Now: Then if rent control is this destructive, should we be surprised that many locals truly want the Justice for Renters Act passed?

Daniel Yukelson: Residents want the Justice for Renters Act passed because they think they will get cheap rent out of it. They are being sold a bill of goods under the banner of “rent control.” Everyone wants a good deal, so long as it doesn’t cost them any money. Heck, I wish I could have a free or discounted mortgage, property taxes, insurance, maintenance and repairs, but I know that is not in the cards.

What this bill would do is put us back over 40 years to the most destructive types of local housing regulations that could impose price controls on all types of properties from single-family homes to new construction and would also allow cities to control the rental rates on vacant units. That would lead to even greater housing supply shortages and as a result, make those units that do become available even more expensive due to high demand for an insufficient number of rental units.

Cities that want to make rent affordable should provide rental assistance to those who qualify and need it. This “blanketed” approach of offering cheap rent via rent control to everyone irrespective of income is killing private property owners.

Opportunity Now: Let’s take top-down controls out of the equation. How else can we reform California’s housing market, so landlords and renters alike are benefited and protected?

Daniel Yukelson: First, we need to encourage growth in housing supply. There are many changes we must make here in California in order to achieve that goal, including first and foremost reforming the California Environmental Quality Act so that we can streamline housing production, provide tax incentives, and explore alternative housing options (including dormitory style living, micro units, multi-use, and converting commercial buildings, to name a few).

Housing affordability is a community issue and not an issue that should be solved by antagonizing one aspect of society, rental housing providers. Local and state governments need to come up with funding for rental subsidies to be provided to those who qualify based on income.

The housing regulations we have today that so severely restrict rental housing must be rolled back and balanced so that existing housing providers can make a reasonable return and stick with the business of providing housing, and also to encourage developers to invest in rental housing.

There are some great solutions out there that I have seen. One is a nonprofit housing developer in South Los Angeles called SOLA, which has the formula “down” to build one-bedroom apartment units for about $250,000 per door. They are renting these units out primarily to low-income renters with Section 8 vouchers. This is how private industry works. In contrast, however, we have governments like the City of Los Angeles, which has raised billions in public bonds to construct affordable housing but is way behind schedule, and one-bedroom units built by the City cost about $800,000. It’s a joke and a complete waste of public money, let alone a complete loss of public trust!

I do not think that California will ever be able to solve its housing crisis for one simple reason—elected officials have a scapegoat in landlords. Placing blame on landlords works well for any elected official’s vote pandering.

This article was first published by Opportunity Now and was reprinted with permission of the author. Follow Opportunity Now on X, formerly Twitter, @svopportunity. Opportunity Now is an educational, non-profit organization focused on exploring how free market ideas could be applied to Silicon Valley government challenges.