In February, 2019, Oregon’s
legislature passed rent-control legislation limiting rent increases to 7%
annually plus inflation. New York’s legislature strengthened the existing local
rent-control regulations in New York City. Roughly six months later, California’s
legislature passed rent-control legislation limiting annual rent increases to
5% after inflation and strengthening other tenant protections.[1]
Not even the largest landlord group and the California Business Roundtable had
opposed the legislation in spite of the fact that rent-control even as a
concept flies in the face of the free-market ideology that has been so popular
in America. Indeed, economists “from both the left and the right have a
well-established aversion to rent control, arguing that such policies ignore
the message of rising prices, which is to build more housing.”[2]
Accordingly, only four of the American states (and Washington, D.C.) had some
kind of local rent-control. So what accounts for the rent-control fever that
had taken hold in 2019? I want to point to the immediate context then in
California, and then to a more theoretical explanation that calls for distinguishing
shelter from real-estate investing.
California’s poverty rate of
18.2% was at the time the highest in the United States. San Francisco’s
homeless population had increased by 17% since 2017, while homelessness in Los
Angeles had increased by 16% since 2018.[3]
Homelessness had become a dominant issue politically. Voters had approved “several
multibillion-dollar programs to build shelters and subsidized housing.”[4]
Assemblyman David Chiu, author of the rent-control legislation, said of the
homeless problem, “Protecting tenants is a critical and obvious component of
any strategy to address this.”[5]
Dampening the fear of displacement was part of this protection. With
homelessness at epic proportions and housing markets continuing to rise in many
urban areas, the fear could easily become unpalatable particularly for
middle-class renters. In other words, a source of instability that renters can
typically overlook had become so acute in California that reducing the fear was
included in the rationale for the legislation.
More theoretically, the fear a
person naturally has at some level of losing his or her shelter without being
able to move to another is a byproduct of subjecting housing to an unobstructed
market-mechanism. Where laissez-faire capitalism is especially revered, the
fear is accepted as a fact of life even though it is not a fact of life in
societies in which a safety-net includes housing. Moreover, there is no
guarantee that an equilibrium in a given rental market is in line with every
resident having shelter. In fact, as many of the California rental markets
demonstrated especially in the years leading up to 2019, rising demand does not
necessarily translate into enough of an increase in supply. The 7% plus
inflation increase allowed in the rent-control legislation was in part intended
to encourage more supply. Yet even so, the government had increased spending on
subsidized housing. In short, a rising housing market acts on demand and supply
in such a way that homelessness can increase; even efforts by government to add
to supply (e.g. subsidized housing) may fall short.
Perhaps as in the case of
health insurance wherein the U.S. Government used subsidies to see that the
poor and middle class have had access to medical care while wealthier Americans
could by premium health-insurance on the free market, the matter of shelter
could be distinguished from that of real estate; the supply of basic shelter
would not be “decided” by a market-mechanism, but by how many people (e.g.,
homeless) need shelter. Homeless men and woman whose health warrants
supervision could be accommodated by group homes or assisted living apartment
complexes. The wealthy could still play the housing market, treating houses as
commodities. The distinction between shelter and a commodity makes it easier to
understand why and how the fear of displacement can be so salient as in
California in 2019. The market mechanism is incompatible with shelter viewed as
a human right (therefore sans fear).
In summary, both the homeless
crisis coming to a head in San Francisco and Los Angeles in 2019 and the incompatibility
of shelter and the market mechanism can explain why California’s government
took action on rent-control even though it would not solve the homeless
problem. For that to occur, the government as well as non-profits and even
businesses (e.g., CSR) would need to step in such that the supply would be
sufficient to house the demand even apart from ability to pay full rent. In other words, I submit that shelter in an
interdependent society (rather than the state of nature) can be unconditional,
in contradistinction to investment in real estate. The fear of displacement
alone points to the incompatibility of shelter and conditionality (i.e., the
market mechanism); so too did the extent of homelessness in California.
Clearly, replying on a market-equilibrium, even if without realizing it, had
given rise to severe distortions.
[1] Conor
Dougherty and Luis Ferré-Sadurni, “California
Approves Statewide Rent Control to Ease Housing Crisis,” The New York Times, September 12, 2019.
[2]
Ibid.
[3]
Ibid.
[4]
Ibid.
[5]
Ibid.
