Rent Control Takes Center Stage Again

Industry News ,

By Doug Bibby

The year was 1978. A small group of prominent apartment builders and owners established the National Multifamily Housing Council (NMHC) for a singular purpose: to fight rent control. Here we are 40 years later, and, sadly, another round of the debate has begun.

In response to rising housing affordability challenges, renters and activist groups coast to coast are mobilizing in the name of housing justice. They’re pushing hard for more rent regulations from Massachusetts to California (see “Rent-Control Debate: A Snapshot of Battleground States," below).

We know how deleterious rent control can be. It can actually do more harm than good. Not only does it fail to address many of the underlying issues, like supply constraints, rising development costs, and stagnant wages, but it ultimately undermines local and state economies. However, when passion and deep pockets find a raw nerve, a clash is inevitable. And make no mistake: This round will be epic.

A Brief History Lesson
Today’s debate over rent control has its roots in the early 1970s. It was an era marked by social and political turbulence and economic strife as inflation swelled out of control. In response, government intervened and we saw initiatives such as wage and price controls and, eventually, rent control.

Rent control hit a fever pitch by mid-decade. The NMHC responded with a systematic attack on rent-control restrictions, which by then had stymied rental housing development in 35 states. California was ground zero for the debate.

What few realize is there was something else going on in California at the time that not only helped set the stage for more aggressive rent-control measures but also offers a glimpse of what could happen in the future if many of today's rent-control intitiatives are left unchecked.

In 1978, an anti-tax activist named Howard Jarvis began drumming up support for Proposition 13, which essetially capped property taxes. Like a Pied Piper for California, he promised homeowners and buyers a rosy future if they would help him get Prop 13 passed. It was an easy sell when many had experienced large annual increases in their property taxes.

There were warnings about the grave fiscal consequences that would invariably flow from such legislation, but the populist, anti-tax tsunami swept the proposition to a resounding victory.

Fast Forward to the Future
Today, there’s a new Pied Piper in California, and his name is Michael Weinstein. Well known and well heeled, Weinstein is an activist by trade. He’s been busy of late collecting signatures to underpin a ballot initiative for the fall of 2018 that would repeal the Costa-Hawkins Rental Housing Act, which established a statewide ban on rent control for buildings built after 1995.

Like Jarvis, Weinstein is fabricating a fiction where rent control will somehow stabilize the rental housing market writ large in California. While a lucky few could benefit from his proposal, it also would be an unmitigated disaster for the state’s housing markets and economy.

For decades now, economists and academicians of all political persuasions have debunked the meretricious allure of rent control. And it’s a relatively simple truth: Rent control does nothing to promote the production of rental housing.

And when there’s strong demand and no mechanism for increasing supply, it raises housing costs and hurts affordability overall. Layer in onerous regulations, punitive entitlement processes, and stagnant wages and it’s hardly surprising rents have climbed.

But Weinstein’s message resonates strongly with people who’ve experienced seven or eight years of rent increases that have outpaced their paycheck growth.

Facing the Fight
This is how we find ourselves once again at an existential moment in our industry’s history. And it’s likely to be all-hands-on-deck for a bloody, expensive and, ultimately, senseless fight that should never have gone this far.

The total cost of the Weinstein initiative has the potential to reach $100 million or more. And similar fights, albeit on smaller scales, continue to crop up in other markets. That’s a lot of money earmarked for political and legal battles that could be used to support actual solutions; i.e., initiatives and programs that result in the real production of much-needed housing units. For example, a $100 million equity fund dedicated to affordable housing could make a measurable difference.

So, while we need to continue to vigorously oppose the resurgence of rent-control measures, we also need to focus on finding solutions. Given the scale and social and economic impact of the problem, as well as the costs associated with fixing it, these solutions are undoubtedly going to require public–private partnership.

Local, state, and federal governments; the housing industry at large; and the broader business community are all going to have to engage with each other to develop creative solutions to the affordability issue. Without such cooperation and coordination, housing costs will continue to escalate, hurting our residents, our industry, and the communities in which we work and live.

 

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