For housing markets, the assumption is that developers are not going to be motivated to build rental units in rent- controlled environments. But that is not what has occurred in San Francisco, which is experiencing a residential construction boom, contra the dominant theory of rent control. Theories are useless without solid data. There has long been a lack of empirical information with which to test the efficacy of rent controls. Without the ability to produce meaningful datasets to buttress their opposing theories about rent control, the Prop 10 battle has become a war of zombie arguments – and voters are left at the mercy of their own prejudices. Let’s dig into the intuitive argument at the heart of the theory that rent control artificially constricts the rental housing market. It goes like this: In a rent-controlled market, people hoard cheap apartments, which freezes the rate of apartment turnover. In an unregulated market, renters are free to move up the housing ladder as their incomes increase, gradually paying higher rents for nicer places. Apartment hoarding blocks the next person from climbing the ladder. The resultant demand for uncontrolled units causes those rents to skyrocket. Developers are reluctant to build new housing in rent- controlled markets, fearing that they will not get a sufficient return on their investments due to rent caps. That is the argument of the anti-Prop 10 forces. The basic argument of the pro-Prop 10 campaign is that there is no such thing as an economic law of supply and demand and that
There is plenty of evidence that locking up nearly half the city's overall housing stock with rent controls has, indeed, increased demand for non-rent- controlled housing. THE TIPPING POINT In 1979 and 1994, voters approved San Francisco’s rent-control ordinances. The regulations allow landlords to raise apartment rents based upon a cost-of-living adjustment. The rent can be increased to cover capital improvements, repairs, and maintenance costs. Rents may be reset to market rates when a unit is vacated. It is, in fact, hard to lose money under this system of rent controls – it is designed to preserve a normal rate of profit for landlords. The controls do not apply to apartments constructed after 1979, which is about 40% of the rental housing stock. Nor do the controls apply to single-family homes, condominiums, and “mom and pop” buildings with four or fewer rental units. There is plenty of evidence that locking up nearly half the city’s overall housing stock with rent controls has, indeed, increased demand for non-rent-controlled housing. without rent controls, greedy landlords will keep on raising rents forever. Zombies unite! The history of rent control in San Francisco shows that both of those arguments are based on insufficient data and wishful thinking...
62 October 2018
Made with FlippingBook Online newsletter