Proposition 10: Rent Control in California

Proposition 10 on the California ballot would empower local governments around the Golden State to institute more and stricter rent control. Rent control laws infringe on landlords’ rights of property and contract; as critics point out, they also have a long history of making housing shortages worse, discouraging both the construction of new rental units and maintenance of the old while making it harder for newcomers to find a place to live. 

Though once favored in voter surveys, Proposition 10 has sagged lately, well behind in one poll and ahead in a second by only 41-38 with 21 percent undecided.  But advocates of liberty (and all who prize the lessons of Economics 101) shouldn’t get complacent.  Aside from the imponderables of turnout and momentum – first-time voters still lean toward the proposition, which has been endorsed by Bernie Sanders and the DSA – even a defeat for 10 could still leave the door open to future legislation in Sacramento working some of the same changes. Gubernatorial front-runner Gavin Newsom, for example, declares himself a supporter of rent control in principle and might preside over the passage using the conventional legislative process of what could get billed as a compromise measure with supposedly less radical provisions. 

It’s true that many California localities, the Bay Area especially, are experiencing skyrocketing housing costs. That has a lot to do with intense demand to live and work in places like Silicon Valley and San Francisco, and even more to do with the tight regulatory lid on new residential construction that artificially suppresses the supply of dwellings in the state generally and especially in desirable communities and near the coast. By shifting the blame for the resulting situation to owners of existing rental units, rent control would make it even less likely that Bay Area and coastal governments will take the one measure that would be effective against spiraling housing costs, namely legalizing much more new construction. 

As a classic instance of an infringement on economic liberty that often results in dire practical consequences over the long term, rent control has been a subject of interest to Cato from the institute’s earliest years and ever since then, in output ranging from multiple legal briefs, through a classroom treatment (at Libertarianism.org, by Howard Baetjer), to Ryan Bourne’s recent piece on Jeremy Corbyn’s plans to reimpose rent control in Britain.  Two papers from recent years:  

* “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco” (Research Briefs in Economic Policy no. 109, April), by Rebecca Diamond, Timothy McQuade, and Franklin Qian of Stanford University. To quote the summary in Cato Policy Report this summer, the authors “study the effects of a 1994 San Francisco ballot initiative that provided rent control for small multifamily housing built before 1980. They find that any benefits to tenants of rent-controlled properties were counterbalanced by landlords reducing the supply of housing in response to the law.”

* “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts” (Research Briefs in Economic Policy no. 9, 2014), by David H. Autor, Christopher J. Palmer, and Parag A. Pathak (“Our bottom line estimate is that the end of rent control added $2 billion to the value of the Cambridge residential housing stock over the ensuing decade following rent-control removal.”)

By the way, the chief group pushing Proposition 10 has been a Los Angeles-based nonprofit called the AIDS Healthcare Foundation. If you wonder what the rent control issue has to do with AIDS or healthcare, let that serve as a reminder to be extra-careful with your charitable giving, no matter how commendable or uncontroversial a group’s name or mission may sound.