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Rent Control & "Affordable Housing"

Landlords charge what they can get away with in rent, and they seem to have discovered that in prime markets (where all the jobs are), they can now take most of a tenant’s paycheck without protest, due to a lack of regulation and enforcement. As with any cartel, informal or not, their monopoly over a resource grants them power that they will not relinquish without intervention. It is therefore the role of government, at the national, state, county and municipal levels, to develop straightforward and simple policies, standards, and regulations for rental housing, which are grounded in reality and backed by robust enforcement. Municipalities must also allow for and promote more centrally-located, mixed-use, multifamily development. Renters, who make up the majority of households in most, if not all, coastal California cities, need to organize and petition local government to build more housing that is sustainable and affordable.

 

HUD and Rent Control

 

Government intervention in the housing market is nothing new. Still, while the United States Department of Housing and Urban Development (HUD) offers various programs to support Affordable Housing, landlords can choose whether or not to participate in them. And while some cities in California have rent control, it has often resulted in landlords throwing tenants out, particularly in San Francisco under the Ellis Act, which ostensibly allows landlords to withdraw from the rental market, but has been used to abet evictions for the sake of real estate speculation and rent increases. Because rent control favors incumbents (when they aren’t being evicted), it is not useful in securing fair and affordable rent for anyone who currently wishes to move into a unit in a particular community. In New York, the Rent Regulation and Reform Act of 1993 allows for the deregulation of rent-stabilized apartments, which has led to intimidation and criminal behavior by landlords to drive out existing rent-controlled tenants; in one case, landlords ripped out the kitchen and bathroom of a unit, in order to force the tenant to move. She didn’t; and in an isolated case of justice, the landlords were ultimately arrested.

 

“Affordable Housing” vs. Housing That Is Affordable

 

Many, if not most, cities across California have Affordable Housing policies. These policies are based on AMI, or area median income, which determines affordability. This metric, however, does not necessarily produce housing that is affordable. It is important to note that “Affordable Housing” as a policy is not the same as housing that is affordable to most workers in a given community. In the United Sates, affordable housing as a government policy, is housing that generally does not exceed 30% of a household’s gross income. As we all know, there is a significant difference between gross income and net income, the latter being the money that arrives in our pocket or bank account for our own use. This means in effect that people are paying more than 30% of their net income for housing. Furthermore, 30% is an arbitrary figure that may or may not accurately reflect housing affordability, even if it were based on net income. Why not 20 or 25%? Thus, we frequently end up with Affordable Housing that is not affordable. Furthermore, because many Affordable Housing policies are incentive-based and voluntary, with municipalities providing, for example, density bonuses and fast-track approval for new development that includes "affordable" units, developers can sometimes avoid providing Affordable Housing. When they do take advantage of such policies, Affordable Housing represents only a small percentage of the overall units, which are subsidized by premium-priced units. So what we often end up with is a few market rate units and a lot of so-called luxury units. As a result, Affordable Housing, when it is provided by the private sector, may end up increasing rents overall.

 

Many developers are motivated to build multifamily units because of increased demand, which results in higher prices and rent premiums. Furthermore, most new multifamily development is built to capture the high-end luxury market. Some of this new development is luxury in name only, but because the units are new, they will regardless sell and rent at the top of the market. Still, instead of allowing just a few of these projects, cities should allow many more. The result will be a stabilization of rents in older housing as more new, better housing comes onto the market, and supply increasingly meets demand. Cities can also ensure that new housing construction is up to code.

 

To offset the increase in housing costs resulting from new luxury housing, municipalities should move from a voluntary approach of providing benefits and incentives to developers for constructing Affordable Housing, to a model of mandating that housing that is affordable be included in new housing construction, and/or a fee-based system that requires developers to pay for housing to be built and managed by the municipality. While many cities already have such programs and policies, they need to be revisited to ensure that developers are in fact paying their fair share (along the line of Mello-Roos style development fees) and/or providing a reasonable amount of housing that is affordable. Meanwhile, cities need to base their affordability metrics (in terms of rent) on the true cost of living in a community. In addition, Proposition 13 needs to be repealed so that all homeowners pay their fair share for public services. This would free up resources for the city to invest in housing that is affordable, and offset the loss of funding resulting from the dissolution of municipal redevelopment agencies by the State of California.

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