Santa Cruz, California voters will decide in November whether to approve a ballot measure that would amend the city’s charter to create new government regulations restricting apartment prices and leasing terms.
Ballot Measure M, officially known as the Santa Cruz Rent Control and Tenant Protection Act, would set require any rent increases enacted after October 2017 to be reversed, and future rent increases to be capped.
“For tenancies that commenced on or before October 19, 2017, the base rent shall be the rent in effect on October 19, 2017,” Ballot Measure M states. “For tenancies that commenced after October 19, 2017, the base Rent shall be the amount of Rent actually paid by the Tenant for the initial term of the tenancy.”
The measure would also increase the costs paid by apartment owners to former tenants evicted for lease violations, requiring landlords provide “at least six times the then current fair market rent as relocation assistance to affected tenant households .”
Measure M would also create a government commission with the power to set additional housing policies for the city without oversight from city council members or the city’s mayor.
Mo’ Regulations, Mo’ Problems
Gerald Mildner, an associate professor of real estate finance at Portland State University and academic director of the university’s Center for Real Estate, says rent controls cause rental housing to deteriorate.
“It creates unintended consequences, both in terms of the maintenance of the units and in terms of the production of new units, and then ultimately the efficiency for how the housing market allocates units,” Mildner said. “We know that if you hold prices below market levels, you’ll have an excess of demand over supply.”
Kerry Jackson, a fellow at the Center for California Reform at the Pacific Research Institute, says price ceilings on rental housing cause the very problem policymakers say they want to solve.
“Rent-control laws are supposed to make housing more affordable, but they actually have the opposite effect,” Jackson said. “They cause housing shortages, which increases housing costs.”
Shutting the Door
Mildner says Measure M will only benefit people who already have apartments.
“A lot of people will want those units, but the person who was in there last year gets access to the unit today, if they want it,” Mildner said. “Whatever benefits that accrue, their benefits would accrue only to the tenants that are in place in advance of the legislation. Those benefits tend to erode as life circumstances change.”
Jackson says the resulting shortage cannot be solved with subsidies or other forms of government interference.
“Subsidies could encourage home building, but they won’t help the problem,” Jackson said. “In fact, they will likely make it worse because subsidies would encourage owners to increase their rents. We’ve seen how college tuitions have increased as government became more and more involved in subsidizing tuition costs.”
Leviathan’s Feedback Loop
Government control often results in a demand for more government control, instead of actually solving the problem at hand, Mildner says.
“It usually forces cities to come up with a regulatory regime where all of those things described—like the temperature setting, the number of hours of doorman service, frequency of garbage pickup—all become standards future landlords have to accept,” Mildner said. “That creates kind of a whole bureaucratic framework for determining housing quality.”
‘Leads to Quality Deterioration’
Mildner says rent-control policies generally encourage landlords to deliver lower-quality service for tenants.
“In terms of the longer range, if there’s a vacancy in a rent-controlled unit and rents in the future are held below-market, landlords will have lots of tenants applying for those units,” Mildner said. “They’re also unlikely to do small things to maintenance if you got excess demand. Why bother painting the building, maintaining the number of hours of doorman service, or reducing the heat or air-conditioning expenditures on the building? These are all kinds of small and subtle ways that rent control leads to quality deterioration.”