Opening the Door for Rent Control

Introduction

Introduction 

California’s housing affordability crisis is harming communities across the state, stripping people of their incomes, disconnecting families from each other, restricting opportunities, forcing people into homelessness, and generating new patterns of segregation and stratification. Housing insecurity, unmanageable rent increases, and the threat of displacement carry deep consequences, since having a home is about more than just having shelter. Home is a locus of opportunity—it shapes the access people have to good schools and jobs, clean air, safe neighborhoods, and upward mobility. In other words, a stable, secure home is essential to human health and well-being.

The impacts of the housing crisis in California are intensifying racial and economic inequality. A decade after the Great Recession, many of those who lost their homes to foreclosures are still not able to again become homeowners. The high cost of rent forces Californians to pay for housing with income they could otherwise put toward education, retirement, investments, and other productive uses that increase economic opportunity. It compounds the difficulty in becoming a homeowner by making it more challenging to save resources for a down payment on a home. Bottom line: the crisis does not just harm the people overburdened by housing costs, it is harmful to the very fabric and well-being of the larger communities.

The housing crisis stands in stark contrast to Californians' widely-held inclusive values and broad support for equitable policy. In a recent survey of Californians’ views, two-thirds of residents agreed with the statement, “We are all in this together. If some people are in poverty or struggling, we need to work together to alleviate the problem and help each other.”1

Yet the housing affordability crisis is putting these values to the test. Housing costs are largely responsible for California having the highest poverty rate in the nation when factoring in the cost of living. One out of five Californians are in poverty.2 Many Californians faced with unaffordable rents have to move involuntarily, pushed to the fringes of our communities if they are even able to stay in California at all.

In a deeper sense, this crisis is about who belongs— who has the ability and right to stay in their community. It is also about the consequences of othering—what Californians as a whole stand to lose if we turn our backs, displace, and exclude certain members of our society—for how we live everyday. The crisis threatens our collective ability to thrive, our progress, and vision for a fair society—the very core of what makes California what it is. It raises the question of how we can create true belonging—structural inclusion where institutions and policies meet and are responsive to people's needs. 

In a recent survey of Californians’ views, two-thirds of residents agreed with the statement, “We are all in this together. If some people are in poverty or struggling, we need to work together to alleviate the problem and help each other.”

This chart compares which answer is preferred between these two statements: "We are all in this together. If some people are in poverty or struggling, we need to work together to alleviate the problem and help each other" and "It's unfortunate but understandable that some people in our society are in poverty and sturggling, but inequality is inevitable."

When California residents were asked in the statewide survey, “How important is it that Californians work together across racial groups to create fair and equitable public policy for everyone?,” 66 percent responded “very important.” 

This chart showcases how important that Californians work together across racial groups to create fair and equitable public policy for everyone.

This research brief seeks to describe the housing challenges California faces, the particular burden on renters, and the role of rent control policies in providing a necessary part of the solution. In Part I of the report, we analyze rental housing prices, populations affected, and the effects on homelessness, health, the environment, and the economy. Five findings stand out: 

  • California has reached a tipping point where policies and the private market are failing to meet the needs of the majority of renters. A majority of California renters (54 percent) are overburdened by housing costs, meaning that they spend 30 percent or more of their income on housing.3 This translates to over 9.5 million Californians living in cost-burdened renter households.4 Amid rising rents and stagnating wages, over 23 million jobs (73 percent of all jobs in California) do not provide enough compensation for workers to afford the current fair market rent (Figure 3).5 Low-income renters bear the greatest burdens. In order for a minimum wage worker in California to afford a two-bedroom apartment at fair market rent, they would need to work 119 hours per week—the equivalent to three full-time jobs—putting affordable housing simply out of reach.6
  • The housing crisis also harms Californians’ physical and mental health. Research shows that when families are faced with housing insecurity or displacement, they are often forced to make tradeoffs between meeting their basic needs, severely affecting physical and mental health.7 Their only option may be to accept poorly maintained housing that exposes them to a range of safety hazards, including pests and mold that can cause asthma, lead and other harmful toxins, as well as dangerous appliances and fixtures that can cause physical injury.8 Unhealthy conditions, combined with disconnection from one’s community, social networks, and sources of support, can result in stress and emotional trauma. Compared to those with stable housing, people experiencing housing insecurity are nearly three times more likely to be under frequent mental distress.9
  • Rising rents have pushed many residents into homelessness. California now has the largest number of people experiencing homelessness among all 50 states. On a given night, over 134,000 people experience homelessness in California.10 This number increased by nearly 14 percent—over 16,000 more individuals—between 2016 and 2017 alone, and trends indicate a clear relationship between increases in rent and the growing number of people experiencing homelessness.11 A recent study estimates that in Los Angeles, a 5 percent increase in rent would lead to roughly 2,000 additional people experiencing homelessness.12
  • Stabilizing rents would have broader benefits to the state’s economy, environment, and public services. Teachers, health service providers, service workers, and others are being priced out of the places where they provide services. This increases traffic, creating a ripple effect on other residents and exacerbating greenhouse gas emissions. Workers without stable housing and/or health conditions struggle to find and keep their jobs, and job losses can lead to a downward spiral into poverty.13 If all California renters paid only what they could afford on housing, they would have $24 billion more each year to spend in the economy.14
  • Seniors, Latinos, African Americans, low-wage workers, and families with children face the most severe burdens from the housing crisis. Rapidly increasing rents are displacing residents to areas with fewer quality jobs, well-performing schools, and other resources—reproducing racial segregation, particularly in suburban areas far from urban job centers.15 According to a Federal Reserve study, “Low income renters with children pay a median of three-fifths of their monthly income on rent, leaving under $450 in residual income” to cover their remaining living expenses.16

Part II of this research brief focuses on the rationale for rent control policy and its role in a broader set of strategies to address the housing affordability crisis. We examine the need for policy specific to protecting existing renters in the state, the inability of the current market and government policies to resolve the crisis, and the function of rent control policies. 

  • Government actions improve neighborhoods, resulting in housing price increases, and the public has a responsibility to limit the passing on of these costs to tenants. When public schools,17 air quality,18 neighborhood safety,19 or public infrastructure like parks20 improve in a neighborhood, the prices of homes and rents in that neighborhood tend to rise. Yet these improvements are largely a result of public action, such as increased public funding, new regulations, and smart planning. In other words, government action is responsible for a portion of increased property values, no matter what property owners do. Limiting how these costs are passed on to tenants can reduce the burden on tenants. 
  • Government has a legitimate role in rebalancing broken housing markets to advance public wellbeing. The rental housing market in California is broken; windfall profits are being made in large part due to forces that have nothing to do with the investments or actions of property owners. When the housing market is as dysfunctional as it is in many parts of California, tenants are effectively subsidizing landlords with rent payments above what a fully competitive market would allow landlords to charge. In various other areas of life, the state has intervened to limit profits to what would be charged in a fully competitive market while still ensuring a fair return on investment. The US Supreme Court and California courts have consistently ruled that owners of rent-regulated properties have a constitutional right to a fair return on investment, so no rent control policy will eliminate the right of a landlord to turn a reasonable profit.21
  • California can protect cost-burdened renters from exorbitant rent increases and displacement while also increasing the needed supply of housing, provided that we take a comprehensive approach that includes rent control among multiple policy mechanisms and investments.
  • Rent control has several unique, essential benefits related to current housing challenges facing California. The policy can stabilize rents for existing tenants, improve affordability for tenants in the future, and preserve the existing affordability of housing that may otherwise become unaffordable. 
  • è Rent control is a cost effective policy with immediate effects: Where most other programs require tremendous financial resources and take a great deal of time, renter protections can be established as a matter of law and the administration of rent control is typically paid for through modest per-unit fees. 
  • The disadvantages of rent control policies do not outweigh its benefits. Claims that rent control has negative effects on development of new housing are generally not supported by research, but if there are some modest effects in that direction, they should be mitigated by other policy and investment mechanisms.22 The urgent need for stabilizing rents for tenants in the state makes this a policy priority. 
  • Housing production and tenant protections are needed, but only rent control will provide a near-term solution for renters. The magnitude of California’s housing shortage indicates just how long-term any effort to resolve the crisis must be. The state currently has an affordable housing gap of 1.5 million homes for extremely low- and very low-income households,23 and overall, it needs to build 3.5 million new homes by 2025 to accommodate current demand, pent-up or latent demand, and projected population growth.24 Thus, rent control can provide a timely solution that the market will not.

Amid California’s housing affordability crisis, our policy debates over solutions have become myopic when it comes to the needs of renters. Narrow debates have limited government’s ability to meet the needs of those who are hardest hit by the crisis. Too often, rent control policies are dismissed out of hand without considering the full range of their benefits. The key policy question is, can we protect overburdened renters from exorbitant rents and displacement while also increasing the needed supply of housing? We believe the answer is “yes.”

Government’s responsibility is to protect the public interest, and it has a rightful role in rebalancing the dysfunctional housing market to restore fairness between renters and property owners. We must let government fulfill its duty by removing state restrictions that hinder jurisdictions from designing and implementing rent control that works.

  • 1. Haas Institute for a Fair and Inclusive Society and Latino Decisions (December 2017) “California Survey on Othering and Belonging.” Statewide survey of California adults, n=2440.
  • 2. Anderson, Alissa and Sara Kimberlin (2017) “New Census Figures Show that 1 in 5 Californians Struggle to Get By.” California Budget and Policy Center. Accessed at https://calbudgetcenter.org/resources/new-census-figures-show-1-5-califo....
  • 3. US Census Bureau, 2016 American Community Survey One-Year Estimates, Table B25074.
  • 4. US Census Bureau, 2016 American Community Survey One-Year Estimates, Tables B25074 and B25070.
  • 5. California Employment Development Department (2018). Occupational Employment Statistics, 2017. Accessed at https://data.edd.ca.gov/Wages/Occupational-Employment-Statistics-OES-/pw....
  • 6. National Low Income Housing Coalition (2018), Out of Reach: The High Cost of Housing. Accessed at http://nlihc.org/sites/default/files/oor/OOR_2018.pdf. Note: This analysis is based upon $1,699 as the fair market rent for a two-bedroom apartment in California. NLIHC explains that fair market rent (FMR) is determined annually by the US Department of Housing and Urban Development: “For each FMR area, a base rent is typically set at the 40th percentile of adjusted standard quality two bedroom gross rents from the fiveyear American Community Survey… HUD finds that two-bedroom rental units are the most common and the most reliable to survey, so two-bedroom units are utilized as the primary FMR estimate.”
  • 7. Bay Area Regional Health Inequities Initiative (2017). Displacement Brief. Accessed at http://barhii.org/wp-content/uploads/2017/10/BARHII-Displacement-Brief.pdf.
  • 8. Ibid.
  • 9. Ibid.
  • 10. U.S. Department of Housing and Urban Development, Office of Community Planning and Development (December 2017). Annual Homeless Assessment Report (AHAR) to Congress, Accessed at https://www.hudexchange.info/resources/documents/2017-AHARPart-1.pdf. Note: HUD defines a sheltered homeless person as an individual residing an emergency shelter or transitional or supporting housing for homeless persons who originally came from the streets or emergency shelters. HUD considers a person to be unsheltered if they reside in a place not meant for human habitation, such as cars, parks, sidewalks, abandoned buildings, or on the street.
  • 11. Ibid.
  • 12. Glynn, Chris & Emily Fox (July 2017). “Dynamics of Homelessness in Urban America.” as cited by Chris Glynn & Melissa Allison (August 2017). “Rising Rents Mean Larger Homeless Population.” Zillow Research. Accessed at https://www.zillow.com/research/rentslarger-homeless-population-16124/.
  • 13. Center on Budget and Policy Priorities, National Low Income Housing Coalition, and National Alliance to End Homelessness (April 2017). “Proposal to Foster Economic Growth: Submitted to the U.S. Senate Committee on Banking, Housing and Urban Affairs.” Accessed at http://nlihc.org/sites/default/files/PolicyRecommendations_Senate-Bankin....
  • 14. PolicyLink (2017). “When Renters Rise, Cities Thrive.” California #RenterWeekofAction. Analysis from The National Equity Atlas. Source: 2015 American Community Survey Five-Year estimates microdata from the Integrated Public Use Microdata Series (IPUMS).
  • 15. Schildt, Chris (November 2017). Regional Resegregation: Reflections on Race, Class, and Power in Bay Area Suburbs. Urban Habitat. Accessed at http://urbanhabitat.org/sites/default/files/%20UH%20Discussion%20Paper%2....
  • 16. Larrimore, Jeff, and Jenny Schuetz (2017). "Assessing the Severity of Rent Burden on Low-Income Families," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, December 22, 2017, https://doi.org/10.17016/2380-7172.2111
  • 17. Haurina, Donald R. and David Brasington (1996). “School Quality and Real House Prices: Inter- and Intra-metropolitan Effects”. Journal of Housing Economics, 5(4), pp. 351- 368.
  • 18. Smith, V. Kerry and Ju-Chin Huang, "Can Markets Value Air Quality? A Meta-Analysis of Hedonic Property Value Models," Journal of Political Economy 103(1), pp. 209-227
  • 19. Pope D.G., Pope J.C. (2012). “Crime and property values: Evidence from the 1990s crime drop.” Regional Science and Urban Economics, 42 (1-2), pp. 177-188
  • 20. Heckert, Megan and Jeremy Mennis (2012). “The Economic Impact of Greening Urban Vacant Land: A Spatial Difference-In-Differences Analysis.” Environment and Planning A: Economy and Space, 44(12), pp. 3010-3027.
  • 21. Birkenfeld v. City of Berkeley , California Supreme Court, 17 Cal.3d 129 (1976). For a discussion of relevant legal cases, see Baar, Ken, Patrick Burns and Daniel Flaming (2016) City of San José ARO Research to Support 2016 Updates to the Rent Stabilization Regulations. April 16, 2016.
  • 22. Gilderbloom, John and Richard Appelbaum (1988) Rethinking Rental Housing. Temple University Press, pp 134 - 135; Gilderbloom, John I., and Lin Ye. 2007. “Thirty Years of Rent Control: A Survey of New Jersey Cities.” Journal of Urban Affairs, 29(2), pp. 207– 220.
  • 23. California Department of Housing and Community Development (February 2018). California’s Housing Future: Challenges and Opportunities. Accessed at http://www.hcd.ca.gov/policy-research/plans-reports/docs/SHA_Final_Combi....
  • 24. McKinsey Global Institute (2016). A tool kit to close California’s housing gap: 3.5 million homes by 2025. Accessed at https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/ Urbanization/Closing%20Californias%20housing%20gap/ClosingCalifornias-housing-gap-Full-report.ashx.