In ancient mythology, Odysseus had to navigate his boat around a group of sharp rocks but beautiful women stood on the shoreline behind the rocks singing songs that promised love and health and fortune if they simply sailed closer. As I recall, they had to duct tape old Odysseus to the mizzen mast or he would’ve jumped over and swam over to those lovely vixens. It’s always the pretty ones. There is much similarity from this story to the siren call of Proposition 10, the repeal of a law that restricts local cities and counties from enacting rent control initiatives. Supporters say this is a panacea that will solve all of our housing shortage problems.
Don’t be fooled.
Last week, Jim de Bree wrote an excellent column on the topic and I’m going to add my 2 cents. In the interest of full disclosure, we own rental properties and that makes me a…. yeah, say it…. landlord. So, I have a vested interest.
First and foremost, real estate rentals are a business. The property owner must make a profit. Otherwise, there is no reason to put money in real estate. Most may not realize that it is very expensive to do this — taxes, fees, maintenance and repairs eat up a huge chunk of the profit. And, guess what goes first when the money gets short?
Yep, maintenance/repairs. We just invested about $20K in one of our properties — new roof, new bathroom, full renovation, landscaping, the works. The house looks great. Also, we hired many guys to help with the work — providing employment that allows them to feed their families, pay bills and keep a roof over their heads.
If we can’t make a profit on the property, would we have done that? No, we would not. We’d figure out a way to Mickey-Mouse it or simply not do it, bringing down the value of the home and neighborhood.
The next reason seems heartless but it must be said. Under rent control, housing becomes less dense. Why is that? Say a widow lives in a two- or three-bedroom apartment that she has been in for 30 years. It’s far bigger than she needs but she stays there because rent control allows her to.
Unfortunately, this means that a large family who could potentially live there cannot. One person living in a space capable of supporting four or five decreases the amount of available and affordable housing.
This is tough. This widow has a competing interest with the family that is left out on the street. Unfortunately, if you want to do something about the housing shortage, the choice is clear.
This does not mean that the widow is cast out onto the street. But, maybe she considers getting a boarder for that extra bedroom? The cost is less for the boarder, the widow can pay the rent, and the capacity of the property to house more people is met.
Another factor to consider is the incentive to build more housing. Again, this is a business. If an area has rent control, why would a builder create new housing there? The profit will be less than in an area that does not have it.
Add in permit expenses, outrageous inspection requirements that delay projects, onerous code requirements, taxes, and other governmental interference, investors say “forget it.” My money is safer someplace else.
In Thomas Sowell’s amazing book “Basic Economics,” he discusses the failed attempt at rental control in Sweden on a national scale. In fact, the parallels to the situation in California today are quite remarkable.
I won’t go into the details but liberals would be well-advised to look at this real-world example of the failed policies of rent control. Ultimately, Sweden repealed all forms of rent control, the market dictated the actual cost of housing and the “shortage” rapidly disappeared.
Often, the “class struggle” thinking begins to infect the discussion of a topic that is actually very simple. Those who wish to manipulate people for political purposes portray those who own property as some sort of evil overlord who eats babies and rapes/pillages at will.
Heck, it’s been a whole week since last I pillaged.
But, seriously, rent control does the exact opposite of what proponents tell us it will do. It decreases incentives to build new housing, removes incentive to maintain property and ultimately winds up costing a community far more than if the free market had been allowed to function.
Don’t believe the siren song of Prop. 10. It’s a lie that seeks to pull us onto the rocks. Vote NO on Prop. 10.
Now, where is my duct tape?”