Rents Blog: Does rent control work?
Rents Blog: Does rent control work?
With rents rising and vacancies rare here in Alameda and across the Bay Area, it’s perhaps no surprise that rent control has become one of the hottest topics on the Island. It’s also one of the most emotional, pitting renters and housing advocates who say housing is a basic human right against property owners who feel controls would take their own rights away.
Renters who have asked the City Council to consider controls and “just cause” eviction rules say they are needed to protect them from losing their homes through rent spikes and no-cause evictions. But landlords have said they fear rent control would curtail investment in the Island’s rental housing, creating blight and making housing even more scarce by discouraging builders and slowing renter turnover.
In a nutshell, research on rent control in other cities shows that the answer lies somewhere in between: It provides protection from sudden rent spikes and, if “just cause” eviction rules are in place, arbitrary evictions. But it also has some impact on housing quality and availability.
If Alameda’s political leaders were to implement rent controls – and the council is showing few signs that it intends to do that – what if any relief would those controls provide to renters? What impact would rent control have on property investment in Alameda? And what other factors affect housing costs and supply?
To answer those questions, The Alamedan reviewed studies on the impacts of rent control and also, of restrictions on and repeal of rent control rules in San Francisco, Berkeley, Los Angeles and Cambridge, Mass., which had “strong” rent controls in place for nearly a quarter century before a state referendum forced their repeal.
Here’s what the research had to say about the impacts of rent control and the loss of rent control in those cities, and about some of the most commonly held notions about its impacts, good and bad.
How much protection does rent control provide?
Rent control was originally implemented in this country as a temporary anti-profiteering measure designed to protect workers aiding in war efforts and then extended to ensure vulnerable renters kept their housing after World War II when population growth outpaced residential development. But it has a unique history in California. The 10 California cities that have rent control laws on the books passed them when Proposition 13 proponents’ promises of reduced rents failed to materialize after the tax-capping law passed.
In 1995, state lawmakers passed the Costa-Hawkins Rental Housing Act, which severely restricted the rent controls cities could impose – and, some researchers have argued, also limited the controls’ effectiveness. It prohibits cities from controlling rents for any housing built after 1995 and, perhaps most critically, required cities to allow landlords to raise rents after a tenant moves out, a policy known as “vacancy decontrol.”
A 1988 study of Los Angeles’s rent stabilization ordinance conducted by researchers at the RAND Corporation determined that rent control rules offered big benefits to renters in their early years of implementation and greater costs in terms of lost housing as time progressed; long-term renters benefited from “rent discounts,” while short-term renters often gained less after absorbing big rent increases up front.
As originally implemented by some cities – with vacancy decontrol, additional rent hikes for property owners who made capital improvements and other rules softening its effects – RAND’s researchers determined that rent controls were “no controls at all.” Decontrol in particular “greatly reduced” renters’ benefits from the Los Angeles ordinance, the researchers determined.
Still, researchers in San Francisco and other cities determined that the controls provided renters some protection from rent spikes and evictions.
Berkeley was one of a handful of cities that had “strict” rent control rules on the books prohibiting vacancy decontrol until state law abolished it, making the city a telling case study for the effects of strong controls. A 2013 City of Berkeley rents study found that the average rent in a rent-controlled apartment that hadn’t turned over since the law changed found the average rent at around $780, similar to rents in Portland; units subject to decontrol were nearly twice that, at $1,436.
Conversely, renters in San Francisco and Los Angeles – both cities whose rent control ordinances contained decontrol provisions, even before it was state mandated – saw limited benefits from rent control. A 2002 telephone survey found that San Francisco renters in market rate units were paying average monthly rents of $1,350, while those in rent controlled units paid an average of $1,094. A 2009 survey of Los Angeles renters found that on average, those in rent-controlled units paid $142 less rent per month than those in market rate units.
Who does rent control protect?
Proponents of rent control say its limits on rent increases protect low-income renters, seniors, disabled people and people of color. Opponents say the laws indiscriminately protect rich and poor alike.
The research shows that both arguments are accurate.
San Francisco’s 2002 survey of renters famously showed that nearly a fifth of the residents it polled who lived in rent controlled apartments earned household incomes of $100,000 or more. Some 72 percent of the rent-controlled apartment dwellers researchers surveyed there were white.
The 2013 study of Berkeley’s rent control rules found that two-thirds of the people still living in units that hadn’t been subject to vacancy decontrol were low income, and a third were seniors.
A 2009 study of rent control in Los Angeles, which determined that the city was “on track” to meet the housing needs of higher income residents but was set to make only “modest headway” on meeting the needs of the city’s lower income residents, determined that rent control largely protected lower-income tenants. That study found that homeowners’ household income averaged $73,000 a year, compared to $32,000 for renters. (The divide is equally sharp in Alameda today.)
An economists’ 2012 study of Cambridge found that its rent control protected rich and poor alike, but also that less affluent residents and students were “overrepresented” as tenants in the city’s 14,000 rent controlled units. A 1998 study of the impacts of decontrol found that 40 percent of the city’s rental housing had turned over in the three years since rent control was abolished, with most of those residents leaving the city, news reports on the study said; rents in previously rent controlled units had risen 50 percent, and evictions had grown by 33 percent.
The elimination of rent control left Cambridge with fewer elderly and low-income residents, The Economist reported in 1998. But the city also became home to more people of color, the magazine wrote.
Does rent control impact investment?
Opponents say rent control curtails real estate investment in the communities that have it and creates blight by providing an economic disincentive to maintain property. Research findings on these points are mixed.
Studies show that property owners invest more when rent controls are relaxed or abolished – but only a tiny fraction of the profits they reap. And most of the research points out that rent control doesn’t impact new construction, because none of it is covered by rent control (The state’s Costa-Hawkins law, for example, expressly prohibits extending rent control to new units).
Economists’ 2012 study of Cambridge after rent control found that property values for formerly rent controlled units – which had been valued at half their market rate counterparts – rose by 18 to 25 percent after it was abolished. But they also found that values for market rate units grew more – by $1 billion, as compared to $770 million for the city’s formerly rent controlled housing stock. One potential factor impacting values: A real estate boom that coincided with the end of rent control.
Conversely, researchers in Berkeley determined that owners of rent controlled units there took in $100 million more in rents than they earned for costs and profit based on the housing they offered; while they spent more to maintain their property after vacancy decontrol went into effect, it was still only a small percentage of that amount, the city’s 2013 rents study found. (The study acknowledged that the amount doesn’t account for financing costs, which can be high for newer owners.)
The Berkeley study also notes that while the value of rental properties has risen sharply, property taxes for longtime family and corporate owners have not increased to reflect the true value of their property. If all the city’s residential rental properties were reassessed, the city would reap an additional $9 million to $10 million a year, it said.
Researchers in Los Angeles found that 80 percent of the city’s rent-controlled housing stock had been resold since its rent control rules went into effect – meaning that purchasers knew about the rules but bought anyway. They also found that between 2003 and 2008, only 1.3 percent of the city’s landlords applied for rent increases tied to property renovations (though twice that number did so under prior rules allowing landlords to charge 100 percent of the cost of the fixes to tenants).
Two-thirds of the rent-controlled property owners the researchers surveyed said they maintained their property as well as or better than owners of market rate units. (Other studies determined that rent-controlled units were not as well maintained.) Of the owners who financed their properties, two-thirds were earning money or breaking even, while one third were suffering losses.
That study determined that high land and construction costs impact housing development.
Does rent control restrict supply?
Opponents of rent control correctly point out that it does nothing to address the real driver of skyrocketing rents: scarcity. But does it take housing off the market, making it harder for disadvantaged renters to find a place to live?
The end of rent control in Cambridge reportedly increased its rental housing stock by 6 percent despite condominium conversions, while the relaxing of conversion rules in Los Angeles left that city at a deficit despite increased housing production. In Berkeley, 85 percent of the city’s 19,000 rent controlled units turned over after the state mandated vacancy decontrol, in 1999. But another 3,000 had not.
Survey takers in San Francisco found that residents in market rate units were less likely to move than those in rent-controlled ones, with 38 percent of market rate unit dwellers having moved over the previous five years compared to 56 percent of renters in controlled units.
Two-thirds said that they were able to find a new place to live in a month or less, the 2002 survey found.
Is increasing supply the solution?
Would increasing a city’s supply of affordable housing fully address residents’ needs? The answer is no.
Cities that have relied exclusively on new housing to address their lower-income, senior and disabled residents’ needs have fallen far short, studies examined by The Alamedan show.
Cambridge lost 14,000 rent-controlled units when rent control was abolished and was only able to replace 100 a year through its housing trust fund, originally increased to $4.5 million a year post-decontrol to create more housing. While 15 percent of the city’s housing stock was deemed “affordable” in 1998, 40 percent of its residents had incomes that qualified them to live in it.
Berkeley’s researchers determined that rent control was the city’s most effective program for keeping people in housing.
Policymakers in Alameda have worked to increase its supply of affordable housing in recent years by requiring developers to make 15 percent of the housing they build affordable for lower income residents, including seniors. Council members also permitted multifamily housing development on several planned development sites, and the city has stepped up its efforts to develop new homes on its own.
Whether council members will approve additional housing is to be determined. Meanwhile, rules to strengthen the city’s Rent Review Advisory Committee, which mediates rent disputes, are pending.