Honesty is the best policy and one can hope for frank discussions about how to solve California’s housing-cost puzzle.
So I’m intrigued by how opponents of statewide Proposition 10 — the ballot measure that would allow (not mandate) more cities to enact rent control — are framing their objections.
I know economic theory strongly suggests rent control does not work well for certain tenants and most landlords. Price limits can restrict the motivation for most property owners to maintain or boost supply.
Assuming growing demand for rentals — or in California’s case, a pre-existing shortage — giving landlords any disincentive to grow their apartment stock could actually raise rents overall. It’s Econ 101, as rent control opponents like to argue.
Or, as numerous attack ads say, Prop. 10 is the “anti-homeowner” initiative.
Basically, rent control opponents — led by real estate industry powerhouses — are appealing to property owners’ self-interest by reminding them what the loss of rent-pricing power might broadly mean. Real estate’s overall investment charm could be dulled. That may eventually lead to falling values for California rental units.
It could even hammer the value of homeownership properties.
I fully understand a property owner’s motivation to seek profits. And let’s assume the No-on-10 folks are right. It’s bad for real estate investments.
Then many property owners must ponder the economics of an alternative tactic for affordable housing proposed by many rent-control opponents: massive construction.
Increased supply of housing would give house hunters more options, taking away their urge to “buy now or forever be priced out.” Meanwhile, added competition for tenants should force landlords to cut rents.
Remember good ol’ Econ 101? It’s not suspended for non-rent-control “fixes” to the states’ housing imbalances.
Boosting supply in any market lowers pricing. You know, it makes things more “affordable.” Cutting any investment’s cash flow and/or trimming the number of motivated buyers can dull the luster of any asset to current and prospective owners.
Just like rent control may financially injure many property owners, the California dream of significantly greater housing supply is particularly unfriendly to owners, too.
If there were more options for house hunters and renters, economic forces should translate to home sellers and landlords losing their pricing control. Yes, California could become a buyer’s (renter’s) market!
That doesn’t mean property owners can’t see the societal value to more affordable housing and the economic stability it can provide. Some landlords or homeowners might willingly trade lower values — or minimized appreciation — for a greater good. (I can hope, no?)
I am not endorsing rent control. Nor am I saying more housing construction won’t increase “affordability of California housing. But since we are all talking honestly about housing challenges in this election season, let’s be frank about what most affordable housing efforts are. And I don’t mean just rent control.
“Affordability” proposals are anti-homeowner and anti-landlord.
That’s why, for all their pro-housing development bluster, homebuilders and apartment owners — and the financial forces that back their efforts — are by no means rushing every possible project to market. A swamped market is bad for their businesses.
Because, Econ 101 tells you, you cannot lower the cost of housing without cutting the price of housing.
Source: Orange County Register