Soapbox

Rent control measure failed. Here’s how California can fix housing crisis

Supporters of Proposition 10, a ballot initiative to loosen California’s limits on local rent control laws, hold a rally in San Francisco on Oct. 2. Voters rejected it.
Supporters of Proposition 10, a ballot initiative to loosen California’s limits on local rent control laws, hold a rally in San Francisco on Oct. 2. Voters rejected it. The New York Times

Rents in many California cities are high and rising. Proposition 10 would have repealed the state law that restricts local rent control policies, but it failed.

Now what?

The proponents of Proposition 10 vow that they will bring the measure back for another vote. Given the overwhelming rejection by voters on Tuesday, that seems like a long shot. It also is unwise because rent control fails to address the root causes of California’s housing problem.

Rents are rising because the demand for housing is rising faster than supply. The demand is fueled partly by population growth, but fewer and later marriages also increase the total number of units that people want to rent. And as never-married singles and divorced people grow older, their increasing incomes also drive up rents.

Opinion

Also, high rents encourage people to double up in housing. More singles live with roommates, and more poor families live together.

Rising rents are the natural market response to an excess of demand over supply. While rent control benefits those lucky enough to secure below-market rents, it does not increase the number of units. Just the opposite — rent control decreases the financial incentives for developers to build more units. Rent control also decreases incentives to double up on housing, which increases the number of homeless people.

Harris-Larry USC Picture (1).jpg
Larry Harris

Here are three suggestions to actually lower rents.

1. Zoning regulations must allow greater density along corridors served by public transit. Current ordinances make suitable parcels rare and expensive, and thus raise development costs.

2. Zoning must allow more unrelated people to live together. We can house everyone only if more people live in each unit, on average.

3. Proposition 13 must be amended to encourage long-term homeowners to move to smaller houses and apartments when their children move out. Low property taxes encourage long-term homeowners to stay in larger homes than they need or want to maintain. Many homes that can accommodate large families are occupied by elderly couples, widows and widowers.

Proposition 5, which failed to pass on Tuesday, would have allowed homeowners to transfer their low tax assessments from one home to another, even if their new home is larger and more expensive. Allowing transfers to larger homes would have been counterproductive. A better version of Proposition 5 should be crafted and passed.

These three suggestions are all politically difficult. Nobody wants a large development in their neighborhood or more people next door. And changing Proposition 13 is complicated.

But we must build more housing and increase incentives to use existing housing more efficiently. Or we must accept high rents with more people living on the streets and more people moving to other states friendlier to growth.

Larry Harris, chief economist of the Securities and Exchange Commission between 2002 and 2004, holds the Fred V. Keenan Chair in Finance at the USC Marshall School of Business. He can be contacted at lharris@usc.edu.

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