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Why The Free Market Is No Longer Free

Rent Control in the Bay Area

The San Francisco Bay Area is in a state of emergency where teachers, janitors, and engineers are living in RVs or commuting hours to get to their jobs. Unchecked rent increases and unjust evictions are putting people into the streets. California has 115,000 homeless residents at last count, and the root cause is not just lack of mental health services, but rising rents. Skyrocketing rents are described as unfortunate but unfixable in the near-term, with claims that the only solution is supply side.

That just is not true.

Five California cities are considering rent control, a proven strategy that we can implement immediately to stem displacement as we pursue solutions to expand the supply of affordable homes. Other cities such as Oakland are trying to strengthen it. Santa Rosa City Council has just approved a rent-control ordinance. San Diego and Long Beach are considering putting rent stabilization on the ballot.

However, many well-funded opponents falsely position rent control as an either/or proposition, of choosing development of new housing over protection of existing residents. This is a false choice. Rent control is effective at keeping people in their homes. The question of supply is a separate debate.

Simple supply-and-demand does not fully explain the crisis. A focus on “just build” ignores our recent history. In California, where we had a construction boom in the 2000s, banks gave sub-prime mortgages to people of color and working-class communities then later foreclosed on those homes. We had a fire sale to banks and investment companies, rather than cities investing in infrastructure for affordable homes. Now most owners of single-family home rentals in California are not mom-and-pop landlords, but instead corporations such as Blackstone-Invitation Homes, Colony Financial, and Waypoint Homes.

This transfer of wealth from homeowners and small landlords to big corporations comes after decades of federal divestment from affordable housing. Section 8 vouchers replaced public housing, pushing public subsidies into the private market. These subsidies have been slashed by millions over the years, and now Section 8 can barely keep up with market rents. Landlords regularly discriminate, and the housing subsidies program has largely been a failure at giving low-income tenants greater choice of where to live.

As the government gets out of the housing business, corporations have stepped in. The main architect pushing market-rate supply as the solution to the housing crisis is the California Apartment Association, which regularly mischaracterizes rent control because its members have a profit motive to undermine tenant protections and conduct their business without regulations on rents and evictions.

However, a supply-only solution is unproven and simply adds to the coffers of corporate landlords, without addressing displacement. Supply-side solution promoted by landlords actually increases the cost of rental housing by taking out affordable housing units. In Rethinking Rental Housing, Richard Appelbaum and I used a study of 140 semi isolated rental housing markets and found that vacancy rates at 10%, 5%, or even 2% are not going to reduce rents.

In fact, rents start falling only when you hit 15% vacancy rate like Houston did during the oil collapse in the mid-1980s and the rent reduction was meager at best by approximately $37. At that time, Houston was the epitome of free-market no zoning, historic preservation laws, lax environmental regulations, and little code enforcement.

Cities with highest construction rates is not linked to lower vacancy rate, but instead with causing dramatic rent increases. Preserving large stock of older homes that are often smaller, funkier, and lack modern amenities is what keeps rents affordable. Another factor for lower rents is not only preserving older homes, but also keeping mom-and-pop landlords who convert garages, attics, and even basements to affordable housing and rent them out well below market rents.

Yet, the biggest factor in raising rents in our studies is income. There is a perfect correlation between cities with wealth and high rents. What is also disturbing and unknown to most is the corporate takeover of rental housing. As the US Census shows, there has been a steady concentration of rental housing by increasingly fewer interests. Rethinking Rental Housing also showed that “landlord management companies” are involved in price fixing.

Cities are bleeding out the people who currently live in them and who contribute to the culture, art, music, and vibrancy that have drawn business and jobs those areas. We need solutions right now to keep people in their homes. Rent control and just-cause policies are the best ways to stem the tide of displacement that is ripping apart the social fabric of the Bay Area.

Rent control will slow evictions that threaten to unravel our society. The price of eviction is paid in the health of tenants, disproportionately black and brown families with children who are regularly uprooted from their homes. Last month, the Alameda County Public Health Department declared the high cost of housing to be a public health crisis. Stabilizing rents will provide a window to plan, build affordable homes, and reinvest in public infrastructure.

The crisis has deepened as the federal government has deregulated housing. No new public housing is being built, and Congress is phasing out Section 8 and HOPE VI. As more people call for investment in public infrastructure, housing should not be forgotten, and we can learn from past mistakes. Inclusionary zoning is an effective way for developers and communities both to meet some needs, but this is not a complete way to catch up on the lack of affordable housing supply.

Rent control is just part of the solution to the housing crisis, but we will never solve the crisis without it. Without rent control, we will lose tenants from what used to be affordable homes much faster than we can build affordable housing or wait for the false promise of “filtering” to prove its theory of trickle-down affordability. Although no one who advocates for rent control believes it to be a silver bullet to the housing crisis, it is a lifeline for our communities. The most vulnerable populations: seniors, disabled people on fixed incomes, young people, and communities of color benefit from rent control because they are the most affected by rent gouging and evictions by speculators. Those who do not support rent control and support only adding market-rate supply do not value those that already live here and the most vulnerable among us.

Rent control is not about putting landlords out of business. It is about fairness. It is about allowing landlords a reasonable return, but giving tenants peace of mind, knowing that they can budget for reasonable rent increases every year and that they will not be evicted without reason. Rent control is about tenants having enough money to spend to keep local economies afloat, rather than landlords reaping all the profits.

Why should voters vote yes for rent control? Because it is the right thing to do.

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John Gilderbloom

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