Santa Monica, California Commissioners Recommend Subsidy Expansion

Published July 11, 2018

The Santa Monica, California Rent Control Board will ask the City Council to approve a large expansion of a rent subsidy program for the elderly.

Control Board commissioners voted on June 14 to approve a resolution asking the City Council to increase annual funding for the Preserving Our Diversity housing subsidy program from $200,000  to $2,000,000.

The City of Santa Monica launched the program in 2017, subsidizing housing for selected low-income older residents already living in apartments or homes with government-regulated price ceilings.

Many Taxed, Few Benefit

Adam Summers, a research fellow at the Independent Institute, says housing subsidies increase the cost of apartments for most people so a chosen few may pay less.

“Rent subsidies, such as those the city of Santa Monica is experimenting with for senior citizens, may make housing more affordable for a small number of people, but there will never be enough subsidies to go around,” Summers said. “They will make housing less affordable for the many others who have to pay for the subsidies through taxes and higher housing costs. These higher housing costs are passed on by developers when they are forced to pay affordable-housing fees or must make up for the below-market-rate units they are required to include in their developments.”

Subsidies and Shortages

Sanford Ikeda, a professor of economics at Purchase College–State University of New York, says rent subsidies can cause the very problem lawmakers intend to solve.

“A rent subsidy would tend to increase the demand for rental housing, other things equal,” Ikeda said. “If you’re not one of those getting the subsidy, your rent will be higher than it otherwise would have been. The result is usually a shortage of housing for people who try to find housing at the cheaper rent but can’t find any. A disproportionate number of those tend to be people with low incomes and not much political clout.”

Suggests Regulatory Reduction

Summers says lawmakers can reduce the cost of housing by removing the regulations that are reducing the supply of housing, which drives up prices.

“To truly address the problem of housing affordability, you need to get to the root cause: the restriction of housing supply caused by various government interventions,” Summers said. “In Santa Monica, like many other coastal California cities, housing supply has been limited through zoning restrictions, from limitations on where and what kind of housing can be built to restrictions on building height; policies like rent control, high development fees, and affordable housing mandates that significantly reduce developers’ and landlords’ profits, which discourages them from offering more housing; an oftentimes lengthy and costly planning process; and an atmosphere of NIMBYism, where ‘not in my backyard’ types are able to exert enough political pressure to scuttle development.”

Rebuilding the Supply

Ikeda says lawmakers can promote housing affordability by reducing government regulation and encouraging developers to build more living spaces.

“Free-market solutions on the supply side include liberalizing zoning restrictions to allow for more housing units on a given plot of land, liberalizing minimum-lot size and minimum-parking regulations so that builders can build what people actually want to be built, and generally removing privileges from those who live in a particular area so they can’t use the law so easily as they do now to exclude people from living in their neighborhoods,” Ikeda said.

“Any of those approaches would tend to lower the cost of construction, increase the supply of housing, and lower rents,” Ikeda said.