Item J-1, on tonight’s City Council meeting (ESTABLISH a 45-day moratorium on rent increases in the City of Richmond to allow time for the discussion and development of tenant protection policies that can be implemented to prevent displacement - Vice Mayor Jael Myrick (620-6636).) is not likely to pass because it probably will not garner the six votes required (California Government Code § 65858 requires a vote of four-fifths of the City Council, which would be six votes).
It will, however, result in hours of passionate debate and dashing of expectations for those who believe it will be their salvation. Rent control is a populist and overly simplistic solution for a complex problem. It produces a few winners and a lot of losers.
It remains popular with advocates despite clear evidence of failure in cities like San Francisco, Berkeley and Oakland.
The unfortunate and unintended consequence of the item on tonight’s agenda is that it has sent the landlord community into a panic and caused many landlords to implement preemptive rent increases that otherwise would not have occurred.
Rent control is bad public policy is riddled with unintended consequences. The economy is like a toy balloon. As long as it has air in it, if you constrict it one place, it will expand in another place to make up the difference. Or you can prick it and watch it deflate. This is what happens in a rent controlled housing market.
Good solutions are typically win-win, or have multiple winners. Rent control has only one winner, the lucky tenant who is able to remain in a rent-controlled unit indefinitely. But it has many losers, including the landlord who becomes the subsidizer of below-market rentals, the city (including its residents and businesses), which suffer from lower property tax revenue, and the community that suffers from the blight of poorly maintained properties. Rent control also discourages new development and new investment in housing, which results in minimal expansion of the housing stock, including affordable housing.
When Richmond progressives pursued eminent domain as a solution for underwater mortgages, it was an appropriate and elegant solution because it targeted the big banks that were responsible for the recession. There were many potential winners. Rent control, instead, targets just one entity -- landlords, who did not cause either a red hot economy or a housing shortage. Why it is okay to saddle one entity with the responsibility of subsidizing low rents when many parties (maybe all of us) are responsible for a growing economy and a housing shortage is simply unfair and inequitable.
Because rent control cannot, by state law, apply when a unit is vacated, either voluntarily or involuntarily, every time a tenant leaves, the landlord will be motivated to raise the rent as high as the market will allow to make up for losses on rent controlled units. The difference between rates in rent-controlled units and non-rent controlled units (including recently vacated units) will tend to grow, creating a two-tier rental market.
Where each person fits in the tiers will be determined solely by luck, not by need. It’s like a lottery – a few winners and mostly losers.
In 2014 alone, there were 2,406 evictions in Richmond, mostly for failure to pay rent. Even under a “just cause” ordinance, there is no protection for evictions based on failure to pay rent. It is not difficult to imagine that two or three times that many vacations occurred as unchallenged evictions and voluntary relocations. These statistics indicate many renters are highly transient, resulting in a high turnover and frequent resetting of rent amounts despite rent control. Although their need may vary widely, those who stay put benefit, and newcomers take the hit.
Another phenomenon that results from rent control and just cause is a landlord’s tendency to be more selective in choosing renters. If you, as a landlord, know that you could be stuck with either a problem tenant or below market rent indefinitely, you want the least risky tenant you can find – someone without a spotty employment record and someone likely to lead a quiet existence who will keep the premises spotless. First to be turned down will be young people, people making low wages, people without a record of steady employment and people coming out of incarceration. Landlords will also be partial to tenants who are likely to move on after a reasonable period rather than those who will remain indefinitely. All of this is happening in cities like San Francisco with a long history of rent control. Of course, landlords cannot discriminate based on protected classes, but they can, arguably, choose tenants based on better references or a more stable job history.
I have already demonstrated in Richmond's Rent Control Advocates and Opponents Face Off Over Gentrification, April 17, 2015, that rent control can apply to only a fraction of the total number of rental units, and as those are vacated, the number of rent controlled units with an original baseline of below-market rents will diminish. All other units will most likely experience rent increases that exceed what would happen without rent control because demand will rise while supply stays stagnant.