Rent control is a hot-button issue in California again

JOSEPH LIVED in a tent near the building where he had been a tenant for 11 years before he was evicted. “It’s been one bad thing after another,” he told an advocacy group. “Stay off the streets and you’ll live a lot longer.” Joseph was one of 134,000 homeless people in California who live in bus shelters, public parks or dry river beds. They are so many—the population of a small city—that homelessness, and the wider housing problems of which it is part, have become the hottest political topics in California.

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On November 6th four statewide ballot initiatives (or propositions) about housing will be put to voters. Potentially the most significant (Proposition 10) would allow local authorities to impose new rent controls. At the moment, a law passed in 1995 bans them from capping rents in apartments built after that year and exempts single-family houses and condominiums from all forms of rent control. Other propositions would authorise bonds to build new houses and allow some state revenues earmarked for mental-health services to be used for housing the homeless. Cities have their own ballot measures, such as Proposition C in San Francisco, which would increase corporate taxes on large companies headquartered there, with the money to be spent on the homeless.

This slew of measures reflects widespread alarm. As Manuel Pastor of the University of Southern California (USC) points out, housing-market interventions have often been slapped on during crises. The federal government, for example, imposed sweeping rent controls in 1942, fearing landlords would jack up rents to take advantage of the mass movement of people, threatening wartime production.

California needs roughly 180,000 new housing units a year, but since 2008 has built fewer than 100,000 annually. Rents are rising faster than incomes. Many renters are spending more than a third of their income on housing. Rent controls might seem to be a relatively painless solution. Supporters say they mean that people move house less often and that prices rise less sharply. They also argue that rent controls provide a widespread benefit, because moving frequently is bad for the education and health of children. And all without threatening anyone with direct tax rises.

But economists almost unanimously view rent controls as harmful and self-defeating. A recent study of San Francisco by Rebecca Diamond and others at Stanford University found that rent control reduces the supply of rental housing, because landlords sell properties for owner-occupation instead. And, argues Richard Green, also at USC, rent control is a highly imprecise subsidy. On his calculations, people in Los Angeles earning $350,000 a year benefited from earlier rent controls just as much as those on minimum wages did.

If polls are anything to go by, Proposition 10 is likely to be voted down. But that will not be the end of new housing measures. Other ballot initiatives, such as bond issues for new building, are likely to pass. And rent control remains popular. According to a poll by PPIC, a think tank, a majority of voters say it is good thing.

Pressure for change is becoming irresistible because “housing has reached a crisis point for the political centre,” argues David Plouffe, Barack Obama’s campaign manager in 2008, who now works for Mark Zuckerberg’s philanthropic organisation. The result is to galvanise and reshape the politics of housing. Both Democratic and Republican candidates for governor have come out against Proposition 10, though the state Democratic Party supports it. Organisations on the left which might be expected to back rent control oppose it. They include builders of affordable housing, who fear controlled rents will act as disincentives for building cheap housing, and mental-health advocates, who think some efforts to help the homeless will come at the expense of the mentally ill.

The politics of housing is affecting the technology industry, too, provoking a debate about the social responsibility of firms. In San Francisco Marc Benioff, the head of Salesforce.com, a cloud-computing company, gave $1m to supporters of the proposal to tax companies and spend the proceeds on homelessness. Jeremy Stoppelman of Yelp.com, an online-review site, is backing a movement called YIMBY (yes in my back yard) which tries to encourage locals to back new housing projects.

Demands for further change will continue. Possible measures include zoning reform (to loosen restrictive zoning rules), more housing vouchers for the poor, and a rent cap which would limit rent rises to inflation plus 5% a year. Whatever happens, though, will come too late for Joseph. He died of a heart attack in August, victim of a political torpor that is finally lifting.

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