MCViewPoint

Opinion from a Libertarian ViewPoint

EconomicPolicyJournal.com: The Proposition That is on the Ballot in November That Could Destroy California

Posted by M. C. Fox on October 4, 2018

“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.”

http://www.economicpolicyjournal.com/2018/09/the-proposition-that-is-on-ballot-in.html

By Robert Wenzel

The 1970s Bronx Under Rent Control

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.

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.”

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