Tuesday, September 11, 2018

The Proposition That is on the Ballot in November That Could Destroy California

The 1970s Bronx Under Rent Control 
By Robert Wenzel

While California state and local government officials set all kinds of guidelines for structures to withstand powerful earthquakes, a proposition sitting on the November ballot could, over time, bring more destruction to California housing than a major earthquake.

In November, California residents will vote on Proposition 10. The measure would allow cities to impose a wide range of rent-control policies.

Specifically, Proposition 10 is an initiated state statute that would repeal the Costa-Hawkins Rental Housing Act, thus allowing local governments to adopt rent control ordinances—regulations that
govern how much landlords can charge tenants for renting apartments and houses.

Costa Hawkins is a state law that sets some requirements for the 15 cities in California with rent control—Los Angeles and San Francisco included.

There are three main provisions:
  • It allows landlords to raise the rent to market rate on a unit once a tenant moves out.
  • It prevents cities from establishing rent control—or capping rent—on units constructed after February 1995.
  • It exempts single-family homes and condos from rent control restrictions

Proposition 10 would end all these free market-leaning allowances.

 Proposition 10 would:
  • Open up all multifamily units in California to rent control
  • Allow the application of  rent controls to single-family homes and individually owned condominiums and townhomes
  •  Allow for regulations that would force landlords to keep regulated rents in place even after a tenant moves out
 There is no question that city rent control-boards are waiting anxiously in the hope that the proposition passes.

 Damon Conklin, Director of Government Affairs, Sacramento Regional Builders Exchange, has stated that California rent control boards are a growing bureaucracy.  

In Berkeley, for example, each landlord must kick-in $272 per unit owned to support  that city's board.

The City of Oakland, which supports the proposition, already has a 21 person rent control board.

A key claim made by supporters of the proposition is that it will help middle class and low-income workers. But this is a questionable claim on many levels. Rent controls tend to shut down new construction, thus limiting the housing stock.

Indeed, in Portland, Oregon, which enacted “inclusionary zoning” on all new construction in
February 2017 that  required 20 percent of new units to be affordable to residents
earning less than 80 percent of median family income ( a limited form of rent control), the impact was massive: 

Since the adoption of inclusionary zoning, fewer than 600 units have moved through the city’s approval pipeline—compared to 3,200 apartments per year on average from 2012 to 2016. The problem?

Builders can’t make the numbers work for multifamily housing, so the projects can’t get bank financing.

In some cases in the past, where rent controls were so onerous that rents didn't cover necessary costs, owners abandoned buildings (or burned them for insurance money).

In total, over 40% of the South Bronx was burned or abandoned between 1970 and 1980, with 44 census tracts losing more than 50% and seven more than 97% of their buildings to arson, abandonment, or both (see picture above)

“The smell is one thing I remember,” says retired Bronx firefighter Tom Henderson. “That smell of burning — it was always there, through the whole borough almost.”

Economist Walter Block writes:
Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement. The agreement cuts across the usual political spectrum, ranging all the way from Nobel Prize winners Milton Friedman and Friedrich Hayek on the “right” to their fellow Nobel laureate Gunnar Myrdal, an important architect of the Swedish Labor Party’s welfare state, on the “left.” Myrdal stated, “Rent control has in certain Western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” His fellow Swedish economist (and socialist) Assar Lindbeck asserted, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”
Even the idea that rent controls will allow middle-income or low-income wage earners to gain most of the apartments of those that exist is questionable. According to a Marcus Millichap white paper:
[H]igher-income people with connections get the spoils. A 2015 report in The Economist noted that “those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market rate apartments,” possibly because “wealthier households may be in a better position to track down and secure rent-stabilised  properties.”
Separately, a study of rent control in Boston found that only 26 percent of rent-controlled apartments were occupied by renters in the bottom quartile of household income, while 30 percent were occupied by tenants in the top half of income. “This suggests that much of the transferred surplus may have been received by wealthier households,” the study noted.
Those who do win the rent-control lottery will stay put, locking up the supply of open apartments, and creating more competition for what’s available. Higher demand means higher prices. That’s what happened when San Francisco expanded rent control in 1994. The people who got in at the start gobbled up the benefits—and tenants who came along later experienced equally big losses in the form of higher rents, a Stanford study found. 

The major cities in California could be ruined over time by rent controls. City regulators seem to understand nothing about the damage they are doing by adding restrictions, even before rent controls. Restrictions on development are already outsized in California:

The regulatory cost of putting up single-family houses are estimated to be $22,000 per single-family home in California, compared to about $6,000 in the rest of the country.

The slow, complex approval processes also add costs: It takes seven months in California (and more than a year in San Francisco---sometimes as much as four years) to obtain a building permit, compared with an average of four to five months in other U.S. metros. One study found that in the Bay Area, each additional layer of independent review was associated with a 4 percent increase in a jurisdiction’s home prices.

With these restrictions already in place, many believe that new construction projects on the drawing board will be halted if Proposition 10 is passed, since California’s 450+ local cities and municipalities and 58 counties could all enact different rules and regulations around rents.

 "If this measure passes, builders are going to wait and see—and that means less housing for renters,” said John Eudy, Executive Vice President, Development, Essex Property Trust, which built about $3.5 billion in new housing over the last decade in California.

New York City residents beyond the Bronx who lived in the city have also faced the horrors of rent control. Building owners stopped any repair work but the most necessary maintenance. Elevators were sometimes not fixed, a new tenant was more likely to be welcomed by cockroaches than a new paint job.

And so in a state where local government harrases builders regularly with oppressive regulations, voters may hand over to local government officials a weapon of housing destruction.

How bad it will get is anyone's guess if the proposition passes. It will depend on what kind of rent control bombs rent control boards decide to drop on landlords.

But this is California, which has no respect for private property or free markets and has a hate for capitalists who actually build things, so the expectations are not good.

If the voters unleash the rent control board officials on landlords, California residents shouldn't count long-term on elevators working, cracked windows or leaking shower fixtures being fixed, and that's if they are lucky. If they are not, and the control boards turn totally mad, think the Bronx of the 1970s and 1980s.

Robert Wenzel is Editor & Publisher of


  1. I hope it passes! I would love to see CA libtard cities going down in flames. This may also result in more libertarian homeless people you love so much in the streets of SF. What is the big deal if more people sleep and take a dump on the sidewalk near your home? It's not like they are violating NAP.

    As for 21 people on a rent control board, well, gotta have diversity. I hope it has a transgender or a ze on the board.

    1. "I would love to see CA libtard cities going down in flames."

      Are you under the impression that you are not a sociopath?

    2. That's just good old-fashioned shadenfreude; it hardly passed for sociopathy.