COMMENTARY: Los Angeles tries to ‘fix’ rent control

Los Angeles is one of more than a dozen California cities with rent-control laws and, by no coincidence, is one of the most unaffordable places to live. The City Council recently approved a proposal that gives owners more leeway to raise rents. It’s by no means a bold plan. It nibbles around the edges and won’t increase supply in any perceptible way.

In updating the municipal Rent Stabilization Ordinance, the city will allow owners to increase rent by 4 percent yearly on housing regulated by the law, a single percentage point higher than the previous ceiling, which expires at the end of next June. The formula was based on the consumer price index. In the past, owners have been allowed to raise rent by 100 percent of the CPI, but now can increase it by 90 percent of CPI.

Another change will block owners from increasing rents by 1 percent when they provide gas or electricity. Those that furnished both had been able to increase rent by 2 percent.

There were no rent increases during the pandemic. For tenant advocates, that wasn’t enough. They demanded reform favorable to renters. A year ago, Keep LA Housed wrote a letter to the City Council, demanding “a formula that sets the annual allowable rent increase at 60 percent of the change in the consumer price index, or 3 percent, whichever is lower, with no utility pass-through and no exemptions for small landlords.”

Apparently, tenant advocates aren’t aware that property owners are not charities. From the small family-owned operations that have as few as one unit, to the corporations that commit considerable portions of their capital to housing, owners need to make a reasonable profit on their holdings.

Housing in Los Angeles is expensive, not because of property owners’ greed but because the supply cannot keep up with demand. There is a solution. Citing the Reason Foundation’s report regarding the success of repealing rent control in Argentina, economist Alex Tabarrok noted “that the biggest recent experiment we have in rent control is that removing rent control increased supply and REDUCED prices.”

Numerous other works show that Tabarrok’s claim is on the mark. And “nearly all economists agree, based on volumes of research, that rent control does more harm than good,” according to the Freakonomics team.

So how does rent control do harm? For one, it creates shortages.

In some instances, apartments are left unoccupied rather than rented under government-imposed limits. In others, rental units are repackaged and sold as condominiums. Then there are the units that are never produced because rent control removes the incentive to build. If developers are unable to make a profit and if rent stabilization boards have more power than property owners, capital will move to other opportunities.

The market is further skewed by making rent affordable only for the lucky recipients whose homes fall under the protection of rent control laws, says Stanford economist John H. Cochrane. This means that some people remain in housing they would prefer to leave, making it unavailable to others searching for homes. Tenants won’t move from rent-controlled homes because their arrangements are too advantageous. Those locked out are often “young, the mobile, the ambitious, immigrants and people without a lot of cash,” Cochrane said.

“If you want to move from Fresno to take a job in San Francisco” — or Los Angeles — “and you don’t have millions lying around to buy, you need rentals. Rent control means they are not available. Income inequality, opportunity, equity, all get worse.”

Rent control also promotes blight. When owners are unable to increase rent, they have fewer resources and incentives to make repairs and improvements.

Not all rental units in Los Angeles are subject to controls — 624,000 units are — and a 30-year-old state law limits local authority to regulate rent.

There are no guarantees that lawmakers will respect settled boundaries, particularly in a state where government at all levels actively meddles in private and business affairs.

Rather than “reform” rent control — in other words, try to correct a past mistake with a compounded error — it should be ditched entirely. Listen to the economists.

Kerry Jackson is the William Clement fellow in California Reform at the Pacific Research Institute and co-author of “The California Left Coast Survivor’s Guide.” He wrote this for InsideSources.com.