Economist Chris Thornberg recently told Monterey Bay locals that rent control does benefit some tenants—just not the low-income ones.
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Rent Control Turns in More Than 10,000 Signatures

Economists hate it, landlords are nervous, but rent control has momentum

Economist Chris Thornberg recently told Monterey Bay locals that rent control does benefit some tenants—just not the low-income ones. PHOTO: PABLO CASTRO Photogragraphy

There was cause for celebration when rent control supporters approached 10,000 signatures for their proposed November ballot initiative.

They gathered on Sunday, May 6 at the Resource Center for Nonviolence—the same place they had announced their campaign four months earlier—to rejoice over a potluck-style buffet of quinoa, potato salad, chicken, and treats from Beckmann’s Bakery.

“It’s amazing. So many people have stepped up to support this and make it grow,” said Josh Brahinsky, a leader of Movement for Housing Justice, which started the campaign. “It’s like a snowball. We’re gathering more signatures this week than last week. Every week, it gets faster and faster. More people get involved.”

They had reached their goal of 8,000 signatures one week earlier, pushing them to set a new goal of 9,000 signatures, which they had more than exceeded on the day of their party. By the time they turned them in on Wednesday, May 9, they had accumulated more than 10,700 signatures.

Meanwhile, however, organizers were hearing from nervous landlords who said they were sympathetic to renters, but concerned about portions of the measure’s more extreme language. That made Brahinsky and his fellow organizers contemplate a possible last-minute compromise on issues around relocation fees, subletting and the rent board’s pay.

“We’re not worried about it passing,” Brahinsky explained to GT at the celebration, “but we would love to do this in a way that didn’t divide the community so intensely.”

Brahinsky said organizers made a proposal to the Santa Cruz City Council suggesting they revisit the measure’s wording, and Brahinsky expressed interest in looking at either reducing relocation fees or eliminating them for landlords who own fewer properties—“things that for us are not the big story,” Brahinsky said, “but things that are creating a great deal of anxiety among people. We’d be happy to do those changes if they would help us do it.”

In order to get changes like those, though, the Santa Cruz City Council would have needed to put a plan in motion two days later, on Tuesday, May 8, for placing a different version of the rent control measure on the November ballot. Brahinsky said he was telling organizers they should call the city the following day, pushing for a compromise.

But no compromise ever happened. “My understanding is the movement for housing was having second thoughts about their own initiative and they made a last-minute bid to rewrite it, but it wasn’t possible,” says Mayor David Terrazas, who dislikes rent control, in part because it has been shown to decrease the supply of rental housing.

Brahinsky says the group was dialoguing with a couple of landlords, but that once discussions got a little more serious, many of them backed away and confessed they didn’t like rent control much anyway.

 

Pushback and Predictions

The push for rent control faces intense opposition, and not just from landlords with a financial interest. At a more academic level, rent-control measures have consistently faced nothing but disdain from economists—even liberal ones like the New York Times’ Paul Krugman, who famously dismantled the concept in 2000, arguing that rent control’s disastrous effect on the supply and quality of housing was “among the best-understood issues in all of economics.”

Locals got a look at the high-level opposition to rent control up close on May 3 at the Monterey Bay Economic Partnership’s Regional Economic Summit, where featured speaker Dr. Chris Thornberg—a founding partner of the L.A.-based Beacon Economics LLC who was touted by MBEP as “one of the nation’s leading economists”—tore into it mercilessly.

Thornberg was there to speak on the state of the economy in the Monterey Bay, which he declared to be robust overall thanks to nearly record low unemployment, rising wages and continuing job growth. However, he pointed to two areas that he predicted will increasingly affect the economies of Santa Cruz and Monterey counties: an escalating labor shortage and a lack of housing. On the latter issue, Thornberg singled out rent control as a misguided solution that is destined to backfire.

“Because labor markets are tight, wages are getting better. Wages are growing faster in California than anywhere in the country right now because of this labor shortage we have. And the result of that is that the share of rent-burdened households [households paying 30 percent or more of their income in rent] has been falling, not rising, in California. It’s actually getting better out there, because wages are rising faster than rents … which brings me of course to the broader question of rent control,” said Thornberg. “You’ve got to understand, there’s a big downside to rent control. And that is that it’s horrible for the people you’re trying to help.”

Thornberg said that rent control fails to create affordability for the low-income families that it should be protecting. “That’s the dirty little secret,” he said. “Go to places that have very ferocious rent control, and what you find is that rent control benefits largely middle-income families who maybe could buy a house or live in a nicer apartment, but ‘why would I when I have this great rent?’ You see this time after time. We went and looked at Berkeley. Berkeley put in very rigid controls on rental prices in their city. And what happened is low-income people were forced to move out, and now you have a bunch of middle-income families enjoying this wonderful protection of rent control in Berkeley, and you’ve hurt the poor people you’re trying to help. In the end, it doesn’t work. It’s as simple as that.”

Two assistant professors of economics at Stanford came to the same conclusion last September when they released a report titled “The Effects of Rent Control Expansion on Tenants, Landlords and Inequality: Evidence from San Francisco.” It found that San Francisco’s 1994 rent control initiative contributed to a 20 percent reduction in housing normally made available by tenants who move from one rental to another, and a 15 percent reduction in available housing offered by landlords, asserting that “this led to a citywide rent increase of 7 percent and caused $5 billion of welfare losses to all renters.” Weighing this against the money they estimated to be saved by tenants under rent control (a staggering $3,100 to $5,900 per person per year), they concluded that “substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords.”

 

Legal Loopholes

However, rent control supporters criticized the study’s findings. Veteran journalist Tim Redmond of 48hills.org wrote that most of the problems the study found actually come not from rent control itself but from loopholes landlords found in San Francisco’s 1994 initiative law. The only way to keep the strides in affordability that the study documented, while eliminating the losses to renters, he argued, is to target the loopholes while continuing to support rent control itself.

Closing such loopholes means more than passing minor tweaks and modifications. Those rules are what lets any given landlord move into one of his or her units or to change the setup into an owner-occupied condominium.

Meanwhile, there has also been an effort to close a much bigger loophole, the Costa-Hawkins Rental Housing Act, which prevents rent control from limiting rates of California apartments built after 1995. The idea met resistance in the state legislature, but grassroots organizers say they have enough signatures for a ballot measure. And if the local and statewide measures both pass, rent control would place rent restrictions locally on all types of housing, potentially causing ripple effects through the area’s economy. Affordable housing advocate Sibley Simon, who’s against the local measure, says the changes would lead to a steep drop in the amount of new housing construction and that the initiative’s wording would create serious trouble for tenants. In all, Simon tells GT, via email, that the measure would be “a disaster for housing affordability in the future of Santa Cruz.”

But Brahinsky, from Movement for Housing Justice, sees a broad support for the Santa Cruz measure. He’s amazed by how much momentum the campaign has picked up toward the end of the petitioning window. That was in spite of organizers’ rate slowing down from 14 signatures per hour to six—partly because so many people had already signed.

“The number of canvassers just increased so much in comparison,” he says. “The first week, we got about 600 signatures. The last week, we got about 1,600. We just kept speeding up. If I could convey that to the world, it would be that people just keep saying this matters so much.”

News Editor at |

Jacob, the news editor at Good Times, won the 2014 award for best local government coverage from the California Newspaper Publishers Association. A longtime basketball and football fanatic, Jacob has evolved into a shameless fair weather fan and band wagoner for hot West Coast sports teams. He also enjoys arguing with others about where to find the best burrito in town.

3 Comments

3 Comments

  1. Chelsea Wagner

    May 19, 2018 at 7:09 am

    It is nice to read an article that speaks of the truth. Certainly a restriction on rental increases that still allows for incentive to continue to provide housing and build more units would work. But the language in the BI and the allowed rental increase rate completely discourages both. Not to mention the cost to fund another government entity and the fear of loosing control of ones own property. This is clearly a disaster in the making.

    The root cause being corporate landlords jacking up their rents 20% a year which even myself as a apartment owner find offensive. But paying tenets to move and giving them extended warning on top of that removes a lot of incentive to provide rentals. Expressly for handicap and elderly. Only a fool would come into a rental market with that in place. So over time rentals will depart and new ones will not arrive.

    It is sad times for Santa Cruz. On the other hand we will become a town of College kids and hipsters.

  2. Michael Cox

    May 16, 2018 at 3:58 pm

    Thank you for the article. The nature of nature is competition. Rapacious and cold speculation loves a shortage, worships at the shrine of monopoly, and reviles free-market competition. Speculators LOVE the policies of government and activists that create artificial shortages. Break the shortage, chase away the rapacious speculators.

    Current public policy ensures a severe shortage of housing for the people that can least afford housing. Despite good intentions to add regulatory incentives, such as density bonuses, the reality is the market cannot do it. High-density affordable rental housing does not generate a reasonable return because of the incredible regulatory maze, burden, and growing uncertainty and risks. Rent and eviction control simply adds more disincentive to the mix. The bottom half suffers even more.

    Rent and eviction control does benefit lucky-duckies that lock down one of the minority of rent controlled units, and/or might ordinarily be asked to leave the rental property due to disturbing the peace and other correctible infractions. It appears the Rent Board will decide what the owners pay, what benefits accrue to the master tenant, and what the neighbors can or cannot have in terms of security and peace. People are no longer free to work it out. The initiative is clear. Tenants and the Rent Board have control, not neighborhoods and owners. If the activists succeed in repealing the State Costa-Hawkins act (rent control can’t apply to certain homes and places built after February 1, 1995) and the Ellis act, God help us.

    In urban areas with strong rent and eviction control, the outcome will be three fold. First, at each turnover, people with higher incomes and better credit scores will get the units. Lower-income people will be shut out. Why would a property owner rent to people of lesser means, all other factors being equal, if that person can be a renter in the unit for life and seems like some degree of a risk of not being able to pay rent and/or take care of the place? Second, poverty will be driven into increasingly compact areas of largely rent and eviction-controlled multi-family units that few people desire. Third, fixers will start burning out troubled units. If government orders a relocation fee in the event of a fire, something NYC stupidly did in the early 1970s, the burnings will go from a few per week to dozens per day. People fleeing the chaos will drive up migration to, and prices for, real estate in more isolated and insulated communities like Santa Cruz.

    One can only pray for an eventual Supreme Court decision to put an end to the misguided politics born of the divisive “anything goes” initiative process in California. As long as dozens of renters and buyers are lining up for the limited numbers of units on market, nothing is going to fix this train wreck, least of all rent and eviction control.

    It’s the supply, silly.

  3. Paul

    May 16, 2018 at 3:06 pm

    Jacob, your articles are always well done. Your rail trail articles were excellent and this continues your good work.

    On this subject we all have opinions, and I don’t live in the City Limits so I am not going to be affected by the SC rent control. But I am affected as many others I have talked with. I am a empty nester with a 4 bedroom 3 bath house. My wife and I have been doing work on our house to split it into a two unit duplex. We have stopped all work on our project until we see if this will affect the rest of SC county. We are a future rental already taken off the market, and we won’t be the last. This is a really bad idea for renters. It will shrink supplies and drive up costs for Landlords which will be have negative effects for anyone renting. I have four sons living in the area, and this will not help them as renters.

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