Rent Control in California: Another Challenge

What does rent control do? According to the California Apartment Association, rent control can discourage construction of new housing and investment in existing apartments precisely when it’s needed most.

The issue is raised because in the case of Guggenheim v. City of Goleta, a 2009 case, a lower court ruled against the property owner. Because it’s a rent control case, Guggenheim v. City of Goleta could set precedent allowing cities throughout California to revisit the rent control question for all rental housing.

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CAA’s legal fund filed an amicus brief asking the U.S. Supreme Court to review the lower court’s ruling (filing an amicus brief is a way a group with strong interest in the subject matter of the case to raise the court’s awareness of a particular aspect of the case; the court, however, isn’t required to consider the brief).  In the brief, CAA argues that rent control has been shown to decrease the quality and quantity of available affordable housing, also arguing that rent control has been linked to “high-priced shadow markets” and has disproportionately benefited high-income renters “who hoard price-controlled units.” They say rent control laws—originally created to protect renters from landlords making huge profits—create artificial restraints that are detrimental because they prohibit landlords from charging what prices the market will allow. In turn, they argue, this means landlords don’t have the extra cash on hand that they might otherwise invest in new housing or improving existing housing.

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From the opposite perspective in the rent control debate, rent control is a necessary form of protection. Without rent control—also known as rent stabilization—tenant rights defenders say unscrupulous landlords could threaten tenants with rent raises if the tenants complained about defects in the property.

Some states, such as New York, hold that rent control is a necessity, needed to sustain a supply of affordable housing and keep rent raises from driving out workers or vulnerable people; it’s true that without rent control, high or frequent rent increases can cause families have to move more often, causing negative impacts on schools, youth groups and community organizations.

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Since the case at hand is in California, it may be useful to know that with rent stabilization, landlords are free to set vacant units at market prices; it’s just that once the unit is rented, all increases that follow are capped at a set percentage. San Francisco is one large city with rent stabilization.

It’s certain we’ll be hearing more about this issue as the Supreme Court hears the appeal on the case. But I’m not sure how much of an impact changes will have, given that these days, availability of mortgages seems to be the constraining factor on development of new apartment projects; MultiHousing News Online reported that a representative of the National Multi Housing Council and the National Apartment Association testified before a key subcommittee of the House Financial Services Committee that the Department of Housing and Urban Development is failing to keep pace with the volume of multifamily mortgage applications.

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