The Flawed Logic of Rent Control: Why Los Angeles‘ New Policy Will Worsen Housing Affordability
Los Angeles,a city grappling with a severe housing crisis,recently doubled down on a policy demonstrably failing its residents: rent control. In November 2023,the City Council approved updates to the Rent Stabilization Ordinance (RSO) that,despite intentions to alleviate affordability concerns,are poised to exacerbate the problem. this isn’t a novel situation; decades of rent control have coincided with a worsening housing affordability landscape in the city. The new regulations, capping annual rent increases at 4% and eliminating a 2% utility pass-through for landlords, represent a misguided attempt to address a complex issue with a simplistic, and ultimately damaging, solution. But why does this happen, and what can be done instead?
The Economics of Artificial Constraints
The core issue with rent control isn’t malice; itS a fundamental misunderstanding of basic economic principles. As any introductory economics course will teach, artificially suppressing prices – in this case, rental rates – discourages supply. When landlords are limited in their ability to generate revenue, the incentive to invest in rental properties diminishes, and existing landlords might potentially be less inclined to maintain or improve their units. This leads to a shrinking rental housing stock, ironically driving up prices for the remaining available units.
this isn’t just theoretical. A 2018 study by the National Bureau of Economic Research (NBER) analyzing san Francisco’s rent control policies found a meaningful reduction in the supply of rental housing, coupled with increased prices for non-controlled units. The study highlighted how rent control leads to “mismatch” – tenants staying in units longer than they otherwise would, hindering turnover and limiting access for those seeking housing. This is further supported by the work of Swedish economist Assar Lindbeck, who famously stated that rent control is “the most efficient technique presently known to destroy a city – except for bombing.” While a stark statement, it underscores the long-term detrimental effects of such policies.
The situation in Los Angeles is particularly concerning given the existing housing shortage. According to the California Housing Development Foundation, California needs 1.7 million additional housing units by 2030 to meet demand. Restricting rental income through tighter controls will only further impede the construction of new housing and the maintenance of existing properties. The proposed changes, while framed as a solution to “extraordinary rent increases” (as stated by Councilmember Nithya raman), ignore the root cause: a lack of sufficient housing supply.
Furthermore, the elimination of the 2% utility pass-through adds another layer of disincentive for landlords. Rising utility costs are a reality, and forcing landlords to absorb these expenses will likely lead to deferred maintenance and a decline in the quality of rental housing. This impacts tenants directly, creating a cycle of deterioration and further exacerbating the housing crisis. Consider also the impact on smaller landlords, who may rely on rental income as a primary source of revenue and lack the financial cushion to absorb increased costs.
Beyond Rent Control: Solutions for Affordable Housing
The path to affordable housing isn’t through more control; it’s through increased supply. Los Angeles, and other California cities like pasadena, need to embrace policies that encourage housing development. This includes:
- Legalizing More Housing: Zoning reforms that allow for increased density and a wider variety of housing types (e.g., duplexes, triplexes, townhouses) are crucial.
- Reducing Barriers to Entry: Streamlining the permitting process and reducing bureaucratic hurdles for developers can significantly lower construction costs and accelerate housing production.
- Abolishing Counterproductive Policies: Repealing rent control and measures like Measure ULA (which imposes a tax on property transactions to fund affordable housing, but also discourages investment) is essential.
- Incentivizing Development: Offering tax breaks or other incentives to developers who build affordable housing units can further stimulate supply.
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