Affordable housing has become a common problem in the Sacramento area. After enduring several years of economic hardship and thousands losing their homes, many of these former homeowners are also being priced out of the rental market. Now there is talk in Sacramento of imposing rent control on single family housing. It seems like anytime the consumer has to pay more for something, there’s someone who proposes regulation to solve the problem as they see it. But the question needs to be asked, “Are high rents the problem or the symptom of a bigger problem”?
Historical Rents in Sacramento
For years, rents in Sacramento remained relatively flat averaging roughly $1 per square foot of house. This number didn’t go up or down much until the Great Recession. In the early days of the recession, some people who lost their jobs moved in with family members This decreased the number of renters in the market. As they did, the percentage of vacant and abandoned homes also rose.
In the Sacramento region, rental vacancy rates rose from 5.59% in 2008 to 8.02% in 2009. Not surprisingly, average rents for Sacramento fell from $1,202 in 2008 to $1,086 in 2011, an 11.6% drop in rent prices. Compare that with today’s average rents of $1,445 which is a 20% increase over the high in 2008 seven years later. However, today vacancy rates are at an all time low of 3.6%. If rental prices were the problem, then vacancy rates should be higher, just as they were during the recession. What the data really seems to indicate is that we have housing availability problem.
Proposition 10 – repeal of Costa Hawkins
Now consumer advocacy groups have put Proposition 10 on the November ballot to allow municipalities to impose rent controls on single family housing. Of the voters polled, nearly 60% support rent control. Currently, most states do not allow rent controls except in the case of multi family units such as apartments. The goal of the proposition is to eliminate the Costa-Hawkins Rental Housing Act passed by the Legislature in in 1995. This legislation provided that:
Cities and municipalities could not impose rent controls on single family housing, condominiums and apartments first occupied after February 1, 1995.
Landlords have a right to increase rents when a tenant moves out also referred to as “strict rent control”.
Does rent control solve our problem?
Advocates on both sides of the issue are pretty vehement in their positions. We definitely need more affordable housing, but is rent control the right solution? It may help to look at a study released in May 2018 by Dr. Lisa Sturtevant, several problems are created as a side effect of rent control. Her study asked several key questions about rent control:
Targeting Housing Benefits:
How well do rent control policies assist the individuals and families most in need of affordable housing?
Allocation of Existing Housing Units:
Do rent control policies lengthen tenancy duration? Do they create a mismatch between units and households?
Maintenance and Building Quality:
Does rent control lead to a decline in building maintenance and lower building quality?
Does rent control reduce the overall supply of rental housing?
Are rents of controlled units lower than market-rate rents? Does a shortage in housing supply caused by rent control lead to higher rents in the uncontrolled market?
Do rent control policies lead to lower levels of property tax revenue collected by the municipality? How substantial are administrative costs associated with rent control laws?
Does rent control increase homelessness as a result of reduced housing supply?
The researcher’s conclusion
Dr. Sturtevant research concludes that:
- Rent control and rent stabilization policies do a poor job at targeting benefits . While some low-income families do benefit from rent control, so, too, do higher-income households. There are more efficient and effective ways to provide assistance to lower-income individuals and families who have trouble finding housing they can afford.
- Residents of rent-controlled units move less often than do residents of uncontrolled housing units, which can mean that rent control causes renters to continue to live in units that are too small, too large or not in the right locations to best meet their housing needs.
- Rent-controlled buildings potentially can suffer from deterioration or lack of investment, but the risk is minimized when there are effective local requirements and/or incentives for building maintenance and improvements.
- Rent control and rent stabilization laws lead to a reduction in the available supply of rental housing in a community, particularly through the conversion to ownership of controlled buildings
- Rent control policies can hold rents of controlled units at lower levels but not under all circumstances.
- Rent control policies generally lead to higher rents in the uncontrolled market, with rents sometimes substantially higher than would be expected without rent control.
- There are significant fiscal costs associated with implementing a rent control program.