Assemblyman Richard Bloom (D-Santa Monica) proposed legislation on January 11th to repeal Costa-Hawkins, which would have allowed local governments to implement new rent control policies. The bill failed.
But this is not the end of the rent-control battle. The California Local Rent Control Initiative, which would expand local government’s authority to adopt rent control and repeal the Costa-Hawkin’s Rental Housing Act may be on this year’s November ballot. Locally, the Sentinel reports that a citizen group seeking rent control and just cause eviction requirements in the city of Santa Cruz published a legal notice in the Sentinel in early February of this year and are gathering signatures to qualify an initiative for the November ballot.
With some of the highest rents in the state, why would legislators deny Assemblyman Richard Blooms Bill? Would Santa Cruz benefit from rent control? The answer to these questions boils down to basic economic principles.
At face value, rent control keeps rent low for tenants who are struggling to find affordable housing in a high-priced market like Santa Cruz. It would shift the power from the landlord to the tenant. However a majority of economists, on both sides of the political spectrum, agree that rent control will likely decrease the quality and supply of rental housing, while incentivising people to stay in their houses longer than they would have otherwise. Even worse, it may also result in more affluent individuals dominating the rental market. In an already tight market, this would exacerbate the supply-issue in Santa Cruz and the Bay Area, and result in lower-quality housing overall. You can find these points further explained here.
Some may say this is just theory, but numerous studies have been conducted on the long-term effects of rent control, and they come to similar conclusions: Rent control has a negative effect on the city’s rental market, and at times, it can hurt the very people it’s designed to help. A recent study (2017) conducted by two Stanford Economists sheds light on what happens in practice. The researchers found that rent controlled tenants in San Francisco were more likely to stay in their current homes, even when it did not make sense for them to do so, and the loss of housing may have driven up rents elsewhere in the city. They found that “six percent decrease in housing supply led to seven percent increase in rental prices. These caused an aggregate welfare loss to renters of $5 Billion”. Additionally, “landlords treated by rent control reduced rental housing supply by 15%”. So while some benefited from lower rents other suffered and the long term affect for the rental market was negative.
Record high rents in Santa Cruz is a serious issue that needs to be addressed. As recounted in this Sentinel Article, families, students, and individuals are suffering from what is officially a full blow housing crisis in our county. Rent control may provide temporary relief, but to address this issue in an effective and forward-thinking way, local government would be wise to increase incentives for and remove regulations that inhibit rental housing construction. Unfortunately, rent control would do the opposite.