On the November ballot, you’ll see Proposition 33: Prohibit State Limitations on Local Rent Control Initiative (2024), a measure designed to undo the Costa-Hawkins Act from 1995.
Whenever I see legislation in favor of rent control, I want to offer everyone with a vote a free class in basic economics. There’s no denying I’m biased when it comes to rent control—I am a REALTOR and I own rentals. However, anyone who knows the first thing about economics knows that rent control is bad for everyone in the long term.
In my first economics course, I learned of the miraculous supply and demand graph and how it unfailingly predicts how markets will behave. Here’s the short course: the larger the supply, the lower the price. Conversely, the smaller the supply, the higher the price. If we artificially reduce the price investors can earn on their rentals through rent control, it is easy to predict what will happen—the number of rentals on the market will decrease.
Whenever I talk to people about housing regulations, I ask the same few questions.
- Do we have a housing shortage? Most agree emphatically that yes, we have a housing shortage. Just look at number of people looking for a place to live, or call any property management company in the Ukiah Valley and they’ll tell you they have almost nothing available.
- Are housing prices high? Most would say yes.
- Does Proposition 33 solve either problem? Hmm. It will restrict the housing supply by reducing the incentive to invest in residential property. When the market is not allowed to adjust over time, people who own investment property will sell and put their money elsewhere for a better return.
If you already live in a rental, your rent will stay fixed for a period of time (depending on local statutes, the time frame will vary). You will have to stay there for a good long time because almost no new rentals will be coming on the market. If you don’t have a place to live, or your kids want to move out and get their own place, I recommend moving to another state. You’ll have a hard time finding a place to live in Ukiah or anywhere in California.
Also, if rents are constrained to the extent that they cannot go up enough to cover owner expenses, the owner will stop maintaining the property in its current condition. Over time, units will deteriorate until they are virtually no longer habitable.
What we actually need to do is reduce the cost of housing and increase its availability in California to get the government out of the business of regulating housing. I am all for regulations that make sense, like requiring smoke and fire alarms— these are cost-effective and save lives. But other requirements, like sprinklers in all new single-family homes, zoning restrictions, curb gutters and sidewalks, and others, cost more money than they’re worth. Investors need to be able to charge rents that justify the increased costs. So, the government either needs to stop requiring expensive upgrades or it needs to leave rents alone. Ideally, both.
Think about this from your own perspective. If your wages were limited to $3 per hour, would you be pounding the pavement for a job? I doubt it. You would probably find something better to do with your time. If the rent investors can collect, it does not allow them to turn a profit, those who are able will liquidate their rentals, meaning that single-family homes and duplexes for rent will come off market quickly.
No problem, you say, I’ll rent an apartment. Ahh, but here’s the rub. Everyone who was renting a house or duplex has the same great idea, and we don’t have enough apartments for the renters who want them now. And if rents are kept artificially low through rent control, no developer in his right mind would build an apartment building because no one will invest in it.
The current law (Costa-Hawkins) does not permit local jurisdictions to institute new rent control regulations on single-family homes, duplexes, or apartments built after 1995. Proposition 33 would eliminate that, allowing local governments to institute draconian local rent control laws. While I do not think our current city council or county board of supervisors would do this, these people will not be in office forever. We cannot depend on the good sense of future politicians we do not know.
It only requires a simple supply and demand analysis to figure out that rent control is a bad idea. I hope you join me in voting no on Proposition 33 this November.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.