“In November, Californians will vote on Proposition 10, which would repeal the state law that limits cities from regulating rents on buildings occupied after February 1995. With rents skyrocketing across the state, capping rents may seem attractive, but experience shows rent control laws have serious downsides, including stifling investment in housing and building improvements, creating shortages and wasting time and money in litigation.
The textbook case against rent control comes from New York City, where government intervention in the rental market started in 1943. For decades, tightly-controlled rents failed to cover basic maintenance and operating costs. As a result, builders added few new rental units and landlords let buildings deteriorate since they couldn’t increase rents to pay for needed upkeep.
By 1968, New York’s vacancy rate — the percentage of rental properties available — fell to 1.23 percent. For comparison, the vacancy rate in Los Angeles today is 3.7 percent. Many New York neighborhoods became blighted and abandoned buildings became common. Over 200,000 rental units were abandoned in the 1960s and ‘70s as rent control restrictions, along with other policies, reduced the South Bronx and parts of Bedford-Stuyvesant and Harlem to rubble.
Rent controls gave way to “rent stabilization” in 1969, but New York rents continued to fall short of breakeven costs for property owners. Lawmakers addressed neglected buildings by imposing a “duty to repair” on landlords. Enforcement, however, was difficult and landlords, tenants and regulators often ended up in court.
In 1994, New York City finally decontrolled rents on apartments occupied by high-income residents and on high-end units that became vacant.
New York’s rent controls created shortages and under-investment. And while the people who needed affordable apartments most often struggled to find them, many well-off tenants lived in rent-controlled apartments for decades. When rent is heavily regulated, tenants have incentives to hold onto apartments. Older adults will remain in three-bedroom units after their children leave home. Others sublet their apartments or invite relatives to assume their leases instead of giving up rent-controlled apartments. Thus, young people cannot find affordable housing for their growing families, and newcomers have to find roommates to share costs, or buy expensive co-ops or condos — if they can afford them.”