The year was 1978. A small group of prominent apartment builders and owners established the National Multifamily Housing Council for a singular purpose: Fight rent control. Here we are 40 years later, and, sadly, another round of the debate has begun.
In response to rising housing affordability challenges, renters and activist groups coast to coast are mobilizing in the name of housing justice. They are pushing hard for more rent regulations in places as diverse as California, Colorado, Illinois, Massachusetts, Oregon, Rhode Island and Washington.
We know how deleterious rent control can be. It can actually do more harm than good. Not only does it fail to address many of the underlying issues like supply constraints, rising development costs and stagnant wages, but they ultimately undermine local and state economies. However, when passion and deep pockets find a raw nerve, a clash is inevitable. And make no mistake. This round will be epic.
A Brief History Lesson
Today’s debate over rental control has deep roots in the early 1970s. It was an era marked by social and political turbulence and economic strife as inflation swelled out of control. In response, government intervention and fiscal engineering attempted to counter or offset some of the volatility stressing Americans’ wallets. We saw things like wage controls and price controls and, eventually, rent controls in many areas of the country.
Rent control hit a fever pitch by mid-decade. The industry responded, forming NMHC and launching a systematic attack on rent control restrictions, which had stymied rental housing development in 35 states by then. But California was ground zero for the debate.
However, what few realize is that there was something else going on in California during that time that not only helped set the stage for more aggressive rent control measures but also offers a glimpse of what could happen in the future if many of today’s rent control initiatives are left unchecked.
In 1978, an anti-tax activist named Howard Jarvis began drumming up support for Proposition 13, which essentially capped property taxes. Like a Pied Piper for California, he promised homeowners and prospective buyers a rosy future, if they would help him get Prop 13 passed. It was an easy sell to the millions of homeowners who had been experiencing large annual increases in their property taxes.
There were warnings about the fiscal consequences that would invariably flow from such legislation, but the populist, anti-tax tsunami swept the proposition to a resounding victory. Since then, this short-sighted policy has been at the heart of California’s unending fiscal struggles.
Fast Forward to the Future
Today, there's a new Pied Piper in California, and his name is Michael Weinstein. Well known and well heeled, Weinstein is an activist by trade. He’s been busy of late collecting signatures across the state to underpin a ballot initiative for the fall of 2018 that would pave the way for local governments to propose aggressive rent control measures in their jurisdictions.
Weinstein’s initiative specifically aims to repeal the Costa-Hawkins Rental Housing Act, which established a statewide ban on rent control for buildings built after 1995. At the time of the law’s passage, NMHC had been very involved in the fight to roll back rent control in the state.
Just as Jarvis peddled his myth about the benefits of lower property tax burdens, Weinstein is fabricating a fiction where rent control will somehow stabilize the rental housing market writ large in California. While a lucky few could benefit from his proposal, it also would be an unmitigated disaster for the state's housing markets and economy.
For decades now, economists and academicians of all political persuasions have debunked the meretricious allure of rent control. And it’s a relatively simple truth: Rent control does nothing to promote the production of rental housing. And when there’s strong demand and no mechanism for increasing supply, it raises housing costs and hurts affordability overall.
Facing the Opposition
Given the research out there, it would seem that our industry’s counter argument should be as simple as Econ 101. On the other side of the ledger from growing demand for rental living, the combination of a clear lack of supply, onerous regulations and punitive entitlement processes that restrict production, and stagnant wages have conspired to push rents higher and higher.
But Weinstein’s message resonates strongly with people who have experienced seven or eight years of rent increases that have outpaced their paycheck growth. Our counter argument, by its nature, is more complicated than Weinstein’s siren song, but we must deliver it forcefully if we are to carry the day.
This is how we find ourselves once again at an existential moment in our industry's history. And it's likely to be all-hands-on-deck for a bloody, expensive and, ultimately, senseless fight that should never have gone this far.
The total cost of the Weinstein initiative has the potential to reach $100 million or more. And similar fights, albeit on smaller scales, continue to crop up in other markets. That’s a lot of money earmarked for political and legal battles that could be used to support actual solutions, i.e., initiatives and programs that result in the real production of much-needed housing units. For example, a $100 million equity fund dedicated to affordable housing could make a measurable difference.
So, while we need to continue to vigorously oppose the resurgence of rent control measures, we also need to focus on finding solutions. Given the scale and social and economic impact of the problem, as well as the costs associated with fixing it, these solutions are undoubtedly going to require public-private partnership.
Local, state and federal governments, the housing industry at large and the broader business community are all going to have to engage to develop creative solutions to this affordability issue. Without that cooperation and coordination, housing costs will continue to escalate, hurting our residents, our industry and the communities in which we work and live.