Re-regulating Markets is No Solution to State Housing Crisis

house-constructionBy almost all accounts, economists, academicians, social scientists, policy makers and industry experts agree that at the root of California’s housing problems is a profound lack of supply.  Accordingly, what’s needed as a solution, these notables say, are more incentives for the private development sector to do what it does best:  build.

However, judging from the bills coming out of the state Legislature, lawmakers – all of whom have well-advertised bills to “solve” the state’s housing crunch – don’t seem to have a clue, particularly in the state Assembly.  They want more control, more power, more government.

Take AB 1506 (Bloom), for example.  Before it was withdrawn for lack of support, AB 1506 would have ushered in to California a well-documented policy scam:  rent control.  Rent control has failed everywhere it’s been tried.  It persists, in communities like Manhattan and Los Angeles where it’s been around long enough to become normal but where the mismatch between incomes and rent is profound. 

What rent control has done is to artificially hold housing prices down.  But, what it has also done is to discourage investment in housing by limiting what an individual can earn on his or her investment.  Moreover, by limiting the income one can recoup from renters, rent control has led to more and more properties falling into disrepair as maintenance and other property improvements are further deferred.

Another Assembly offering, AB 1521 (Bloom), actually passed the lower house.  AB 1521 would give an individual the first right of refusal to purchase a rental property thereby limiting the price and extinguishing market forces.  More government control.

The Assembly also said yes to AB 1505 (Bloom), which for the first time in California, says that market-rate housing can’t be built in the state until an “affordable housing” component is provided.  This requirement means a newly built market-rate home or apartment must be severely discounted to prices or rents well below the market, regardless of what it cost to build – leading to higher-priced housing overall, as builders try to make up the difference.

Meanwhile, the state Senate believes it has the problem licked – boasting in a recent press release:  “Senate Passes Package of Bills to Address California Housing Crisis”.  The Senate package contains lots of legislation – mostly toothless tigers.  But, a centerpiece of that reform package contains SB 277 (Bradford) – the Senate mirror to AB 1505.  It, like its Assembly twin, means local governments can demand deep discounts before new housing is approved.

(Imagine being a homeowner and being told by government that you have to lower your price before you can sell your house.  Yet, that’s essentially what both AB 1505 and SB 277 do.)

But, the latest re-regulation initiative may be coming from the local level of government.  Los Angeles County supervisor Sheila Kuehl – no friend of housing during her 14 years in the state Legislature – recently admonished her colleagues, on the Board and elsewhere, and called for more governmental regulation of housing:

“I want to challenge my colleagues at all levels of government to squarely face the realities of our housing market” Kuehl said.  “For far too long policymakers nationally, in the state, and locally have prioritized real estate profit over a healthy housing market.  Weak housing and rent control regulation combined with shortsighted land use planning has turned L.A. County into the most unaffordable place to live in the entire country.”

In the past, Kuehl has called for county-wide rent control, even though the ordinances in the Cities of Los Angeles, Santa Monica and West Hollywood have helped bring about the current housing shortage plaguing the region.

California already has the most substantial housing regulations in the nation.  If you want to build here, prepare for five to seven years – and several thousands of dollars per unit – being added to your plans before they are approved.  If you want to rent out your property, the government’s going to tell you what pets to admit and for whom, whether or not your tenants can smoke, when a tenant can vacate the apartment, whether or not your property is a nuisance and what will remedy the situation, what pesticides you can use both inside and outside rental units and, in some jurisdictions, what rents you can charge.  And, that’s just for starters.  More government, more control.

Rome is burning – and what your state and local lawmakers are proposing to put the fire out is more of the same.

onsultant specializing in housing issues.

This piece was originally published by Fox and Hounds Daily

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