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Last updateWed, 27 Sep 2017 1pm

One way or another, two words are likely to dominate the complicated politics of California’s housing crisis in 2018: rent control.

On Thursday, Jan. 11, state lawmakers are slated to hear a proposal from Assemblyman Richard Bloom, a Democrat from Santa Monica, that would allow cities to dramatically restrict what landlords can charge tenants year over year.

The bill couldn’t even get a hearing last year amid intense opposition from landlords. But looming over legislators’ heads this time around is a potential ballot initiative supported by tenants’ rights groups that would do much of the same. If the bill stalls, there’s a good chance you’ll see the rent-control question on your November ballot.

What should an average Californian know about a rent control debate poised to gobble up so much political oxygen? Here are five key points:

1. Under current state law, a wide swath of California’s housing stock can’t be placed under rent control.

Rent-control or rent-stabilization policies come in different shapes and sizes, depending on the city in which you may find them. Some place a hard cap on how much a landlord can raise rents year over year, while others may be indexed to inflation. Currently, 15 California cities have some form of rent control on the books, including major population centers like San Francisco, Los Angeles and Oakland—and one Coachella Valley city, Palm Springs.

But current state law prohibits any locality in California from imposing rent control on properties built after 1995. That’s the year the state passed the Costa-Hawkins Act, which also prohibited cities that already had rent control laws on their books from updating them for new properties. Thus in Los Angeles. rent control only applies to buildings constructed before 1978, and in San Francisco, rent control only applies to buildings built before 1980. Palm Springs’ ordinance only covers properties built before April 1979, among other exclusions.

A bit of background: After some cities responded to tenants’ concerns about rising rents in the 1970s and 80s by adopting rent-control ordinances, real estate interests first tried to stop them in the courts. Unsuccessful there, they focused on the Legislature. Bills to pre-empt local rent control would routinely pass the Assembly and then die in the Senate, held up by then-Senate President Pro Tem David Roberti, a West Hollywood Democrat. The year after he was termed out of office, Costa-Hawkins passed by a one-vote margin.

Both Bloom’s bill (as it is currently written) and the initiative would fully repeal Costa-Hawkins, massively expanding the number of properties on which cities could impose rent control. That includes single-family homes, which Costa-Hawkins also excluded from rent control protections. (Palm Springs’ ordinance currently excludes “buildings consisting of four units or less containing one unit occupied by the owner as his/her primary residence.”)

2. Most economists—left- or right-leaning—think rent control is bad.

Economists have a hard time agreeing on most things, but regardless of partisan leaning, most economists say rent control is not great policy. Even prominent progressives like Paul Krugman have expressed opposition.

Rent control is quite literally the textbook example of a “price ceiling,” and undergrad economics textbooks will often feature problem sets with questions about what’s wrong with rent control. The classic microeconomic downsides include killing the incentive to build more housing, causing landlords to neglect maintenance and repair, and inflated prices for non-rent-controlled units. A poll of ideologically diverse economists found that only 2 percent agreed with the statement that rent control had a positive impact on housing affordability in cities like New York and San Francisco.

3. Scholars in other fields are generally bigger fans. And if you took away rent control, the results could be disastrous for affordability.

Many urban planners and other scholars studying gentrification and displacement cite rent control as an effective policy to keep long-time residents in the communities in which they live and work. And because rent control has become so deeply embedded in the housing markets of some cities, taking it away—no matter how economically inefficient it may be—could spell disaster for current residents.

The Bay Area Council Economic Institute—a business-aligned policy think tank—ran a simulation of 20 policy changes that could improve or worsen housing affordability in San Francisco. The policy that would make things worst? Getting rid of rent control, which they found would plunge 16,000 households into an unaffordable housing situation.

4. One of the best studies of rent control shows that it primarily benefits older households—at the expense of households without rent control.

There actually aren’t a ton of empirical studies looking at how rent control plays out in practice. But a groundbreaking Stanford University study released last year on San Francisco’s rent-control experience has shed new light on who wins and loses from the policy.

Looking at a roughly 20-year span of proprietary rental and migration data, the study authors found that rent-controlled tenants age 40 or older saw average savings of nearly $120,000 from rent control; by contrast, younger rent-controlled tenants only saved an average of $40,000.

That’s because younger households were more likely to move out of rent-controlled apartments because of various life milestones—a new job, a new family, buying a house in the suburbs, etc.

5. The study also found that rent control paradoxically fueled gentrification, as landlords converted units to condos.

The Stanford study found that rent controlled buildings were 10 percent more likely to be converted to a condominium or some other type of non-rental property, as landlords searched for ways to evade the law. Those units being drawn off the market partly drove up rental prices for tenants searching for apartments in San Francisco. In this sense, the study authors argue, rent control paradoxically contributed to the well-publicized gentrification the city has experienced over the past few decades.

While the study also found that rent-controlled tenants were more likely to stay in the city than tenants without rent control, the gap may not be as wide as you think. After 10 years, about 11 percent of tenants without rent control were living at the same San Francisco address. Tenants with rent control? Just 13 percent stayed put.

The rent control bill will be heard by the Assembly Housing and Community Development Committee on Thursday, Jan. 11 at 9 a.m., and will include a public comment period. You can watch the hearing—which should be pretty lively as far as legislative hearings go—here.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. For more of Matt Levin’s housing coverage, check out the CALmatters podcast “Gimme Shelter.” Jimmy Boegle contributed to this version of this article.

Published in Local Issues

California leads the nation once again in a statistic no state wants to boast about.

When the cost of living is factored in, the Golden State has the highest poverty rate in the country. More than 20 percent of its residents struggle to make ends meet, according to recently released Census figures. That’s nearly 8 million people.

Unfortunately for Californians, this year’s poverty numbers are not an aberration. The Census began releasing state-by-state results for its “supplemental poverty measure” in 2011, in an attempt to improve upon the outdated and heavily criticized official poverty statistics.

In the less sophisticated “official” measure, a family of four in San Francisco or Los Angeles or San Diego faces exactly the same poverty threshold—$24,339 annually—as a family in rural Mississippi. That’s despite the fact that you can rent a three-bedroom, two-bathroom, 1,200-square-foot house in Horn Lake, Miss., for the same price ($850 per month) as half a living room in the Bay Area.

California has been the poorest state in the nation under the vastly more sophisticated “supplemental” poverty measure since the alternative statistic was created. (Mississippi is poorest under the old measure.) It’s not even really that close: Florida has the second-highest rate, at 18.7 percent.

The supplemental poverty measure is calculated using a three-year moving average, so year-over-year changes can’t swing a state’s poverty rate one way or another all that much. The Census uses data dating to 2011 to calculate the cost of living, so even the improved poverty rate could be underestimating how big of a drain housing has been on California’s poor. The biggest jumps in housing costs—like those we’ve seen in Sacramento and other mid-size California cities in recent years—typically apply to a relatively small percentage of renters finding new apartments. But ask any California renter whether they’d rather be paying 2011 rents or 2017 rents, and they’ll ask you for the keys to the DeLorean as soon as possible.

What, exactly, is the role of housing in California’s poverty problem? There are a couple ways to answer that question, none perfectly satisfactory.

One method: What would poverty look like if everyone in California had cheaper rents?

Researchers at the Public Policy Institute of California, which has developed its own California-specific alternative poverty measure, tried to simulate an answer to that question. Researchers there ran a model of the state’s poverty rate with every Californian bearing a cost of living similar to that in Fresno County, where a family of four making about $25,000 a year would not be considered poor. 

The result? The overall poverty rate would drop dramatically (from about 21 percent to 14 percent), with nearly 2.4 million Californians lifted above the poverty line. The effect is most pronounced among children, who are disproportionately likely to live in higher-cost regions of the state. The child poverty rate drops nearly 8 percentage points—about 717,000 kids—once the cost of living is lowered.

Relocating every poor family in the state to Fresno is, well, not a practical policy consideration. And housing subsidies for low-income families currently make only a small dent in the poverty rate, at least compared to some other safety-net programs. (Advocates for the poor argue that’s a great reason to dramatically expand housing subsidies.)

A group of researchers at Columbia University re-created the Census supplemental poverty measure for all states with data stretching back to the late 1960s. Under this measure, California started looking considerably different from the rest of the United States in the early 1980s.

But notably, while California’s supplemental poverty rate has remained significantly above the national average in recent years primarily because of housing costs, in absolute terms, the state is actually in better shape than it was in the early 1990s, when more than one in four Californians lived below the poverty line—and the recession of the early 1990s paled in comparison to the Great Recession of the late 2000s.

That’s partly because of the significant expansion of federal and state povertyprograms to California families in the past three decades. In 1991, researchers estimate, such programs reduced California poverty by about four percentage points. In 2014, those same programs (and new ones) cut hardship by twice as much.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues

People in half of California’s households struggle to afford the roof over their heads. Home ownership—once a staple of the California dream—is at its lowest rate since World War II. Nearly 70 percent of poor Californians see the majority of their paychecks go immediately toward escalating rents.

As of this writing, state lawmakers are debating a long-delayed housing package.Here’s what you need to know about one of California’s most vexing issues.

Just how hard is it to buy a home in California?

Hard. Really hard—both compared to how hard it is in other states, and how hard it was for previous generations of Californians to buy homes.

While it’s always been more expensive to be a homeowner in California, the gap between us and the rest of the country has grown into a chasm. The median California home is now priced 2 1/2 times higher than the median national home. As of 2015, the typical California home costs $437,000, easily beating the likes of Massachusetts or New York. Only Hawaii had more expensive houses.

Despite relatively low mortgage rates, exploding housing prices have caused California’s homeownership rate to dip significantly. Just more than half of California households own their homes—the third-lowest rate in the country, and the lowest rate in the state since World War II.

It’s not just housing prices that are affecting homeownership rates. Studies have found that student debt, rising income inequality and changing housing preferences among younger Californians are also at play.

Rents didn’t dip during the recession—and now are soaring

Rental costs across the state are some of the highest in the country. While listed housing prices dipped dramatically in the wake of the Great Recession, rents in California remained relatively stable before soaring in recent years in hot markets.

Across the state, the median rental price for a two-bedroom apartment is about $2,400, the third-highest in the country. But statewide figures water down how absurd the situation is getting in urban coastal markets, where the vast majority of Californians live. The median rent for a two-bedroom apartment in San Francisco reached more than $4,000 this year.

“It may cost more to live here, but they pay you more”

That’s somewhat true—median earnings for Californians are higher than the national average, and are significantly higher in regions, like the Bay Area, with tremendously pricey costs of living.

But on average, income over the past two decades has not kept pace with escalating rents.

The problem here is not just housing. Income inequality and wage stagnation in California also hinder low- and moderate-income households’ ability to pay for a home.

But in certain markets, even extremely high incomes aren’t enough to blunt the cost of housing. In San Jose, where the current median income is nearly $100,000, renters can still expect to pay 40 percent of their monthly income on rent, according to an analysis by real estate data firm Zillow.

Cities are being gentrified—as is the entire state

It’s difficult to measure things like “gentrification” and “displacement”—when the arrival of higher-income, higher-educated residents in a community results in the expulsion of longtime lower-income residents. But there’s little question change is happening rapidly across many California cities.

Researchers at UC Berkeley found that more than half of low-income households in the Bay Area are at risk of, or already experiencing, gentrification. It’s not just lower-income communities bleeding households; higher-income neighborhoods are losing their lower-income members as well. And in places like the Boyle Heights neighborhood of Los Angeles, gentrification protests have exposed escalating tensions between longtime Latino residents and new, predominantly white arrivals.

Where are these low-income people going? Increasingly, out of state.

From 2000 to 2015, the state lost nearly 800,000 residents with incomes near or below the poverty line. Nearly three-quarters of those who left California since 2007 made less than $50,000 annually.

The leading destination for California’s poor? Texas.

Rising rents are causing more homelessness

Housing costs are just one factor in the complex tangle of reasons people become homeless. California actually has fewer people experiencing homelessness now than it did a decade ago. But there’s little question rising rents are linked to more Californians living in cars and shelters, and on the streets—especially in the greater L.A. area.

While the vast majority of states saw a dip in their homeless population between 2015 and 2016, California saw an increase of about 2,400 people, according to statistics compiled by the U.S. Department of Housing and Urban Development. California accounts for about 12 percent of the nation’s population—but more than 20 percent of the nation’s homeless live here.

Recent numbers from Los Angeles County, where the number of people experiencing homelessness grew 30 percent over the past two years, have prompted cries for more eviction protections and rent control. Zillow recently estimated that a 5 percent increase in rent would result in an additional 2,000 homeless Los Angelinos. In 2016, rents grew an average of 4 percent there.

Millennials, Mom and Dad, and avocado toast

Nearly a decade removed from the depths of the Great Recession, 38 percent of California’s 18- to 34-year-olds still live with their parents, according to U.S. Census data. That’s roughly 3.6 million people—more than the entire population of Chicago.

Again, housing costs are not the only thing keeping junior from moving out. Student debt, disappearing labor markets and delaying marriage are also contributing to the trend

It’s a statewide problem

The extremes of the state’s housing crisis are concentrated in the Bay Area and greater Los Angeles, but the challenge is truly statewide. A widely cited report by the consulting firm McKinsey Global Institute found that in every metropolitan area in the state—from Fresno to Palmdale to Salinas—at least 30 percent of residents could not afford local rents.

The intense pressures of housing costs in coastal urban centers are spilling into inland cities—like those in the Coachella Valley. While San Diego, San Francisco and L.A. top the list of toughest rental markets in the country, cities like Sacramento and Riverside recently have experienced the largest year-over-year increases.

The housing crisis has major repercussions for the economy

Big business is also feeling the pinch of California’s housing crisis.

The McKinsey Global Institute found that housing shortages cost the economy between $143 billion and $233 billion annually—not taking into account second-order costs to health, education and the environment. Much of that is due to households spending too much of their incomes on the rent or mortgage and not enough on consumer goods.

Even the attractive salaries and lavish perks of Silicon Valley don’t make up for the local housing market, as young tech talent flees to the relatively inexpensive climes of Austin or Portland. Nearly 60 percent of Los Angeles companies in a recent University of Southern California survey said the region’s high cost of living was affecting employee retention.

It won’t be getting better anytime soon

The state estimates that it needs to build 180,000 homes annually just to keep up with projected population growth, and keep prices from escalating further out of control.

Unfortunately, for the past 10 years, the state has averaged less than half of that. In no year during that span did California crack the 100,000 barrier.

There’s fierce debate over how long it takes low-income residents to benefit from the construction of new market-rate housing; a renter on the wait list for housing vouchers won’t take much comfort in the luxury condos being built in downtown Oakland or Los Angeles. While California faces an affordable housing gap at nearly all but the highest income levels, the low-income housing shortage is most severe.

According to the nonpartisan Legislative Analyst’s Office, helping just the 1.7 million poorest Californians afford homes would cost $15 to $30 billion a year. The Los Angeles Times estimated that the three marquee bills being considered by lawmakers would provide less than 25 percent of that total.

This is an excerpt of the project “Californians: Here’s Why Your Housing Costs Are So high.” For the full report, go to calmatters.org. CALmatters is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues