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By Kim Murphy
Murphy & Murphy Southern California Real Estate 

Real Estate Round-Up:

Rent stabilization is just a fancy word for rent control

 

Last updated 2/22/2019 at 12:53pm



There are many discussions and proposals being considered by the state legislators to alleviate California’s housing crisis. Last week I wrote about “affordable owner-occupied workforce housing” and “affordable workforce housing.”

Both groups represent individuals or families that have a desire to live in the community in which they work. Specialized housing concepts or “carve-out” loan programs could potentially provide a vehicle to assist with the development of affordable workforce housing.

Developers could receive incentives to build housing for these groups. Those incentives could be in the form of low-cost loans, government-backed loans, reduced building permit fees or even elimination of certain building permit fees. For example, San Diego County has eliminated all building permit fees for “Accessory Dwelling Units” for the next five years. The same rule could be made applicable to single family detached homes, single family attached homes and apartments as an incentive for builders to build.

Another discussion on the table is rent stabilization. In November, voters rejected Proposition 10 which would have overturned “Costa-Hawkins.” The Costa-Hawkins Rental Housing Act of 1995 placed limits on municipal rent control ordinances in two major ways. First, it prohibits cities or counties from establishing rent control over certain kinds of residential units, such as single-family dwellings and condominiums, and newly constructed apartment units.

Second, it prohibits “vacancy control.” If an apartment is under “vacancy control,” the ordinance works to deny or limit an owner’s ability to increase its rent to new tenants, even in cases where the prior tenant voluntarily vacated or was evicted for “just cause,” such as failure to pay rent. Overturning Costa-Hawkins would remove an apartment owner’s right to rent the vacancy at market price and would establish rental price control on previously exempted properties.

Rent stabilization would investigate and possibly promote ways to circumvent Costa-Hawkins. Rental rates are high because demand is high. Demand for rental units is high because there aren’t enough affordable homes available for purchase, and the circle goes round and round. But “stabilizing” rents, or controlling what a building owner can charge in rent, will simply make matters worse, because it will remove all incentives to build more units. Do you see where I’m going with this?

Developers are not “nonprofit” entities. They are a “for-profit” industry. They want to build homes, condominiums and apartments, but they also want to make money at it. The investors or banks backing them expect them to be profitable.

Imagine if “Apple” was told they could only charge “X” amount for the iPhone? They would stop producing iPhones. They’d create something else that doesn’t have restraints on it. Because they are a “for-profit” business, they are motivated to produce more and better technology, and they are permitted to charge whatever the consumer is willing to pay for it. Their stockholders expect that Apple will make a profit. When there is more competition in the mobile phone industry, it makes phones more affordable, not less affordable. Apple keeps their profits up by constantly upgrading the iPhone and charging what the consumer is willing to pay.

Housing, a for-profit business, operates and reacts in the same way. Builders are required to keep up with updated building and environmental standards; they have costs associated with maintenance and repairs; they have state and local taxes and sometimes utilities. Builders will stop building if they are prevented from adjusting rents to cover the costs associated with owning a rental building.

Therefore, less units will be built; some of the existing units will be converted to “for sale” units, and availability will go down. Builders will find something to build that isn’t burdened with restrictions. The units remaining might be “affordable,” but there will be fewer and fewer of them. Who loses? The renter.

I can hear some people’ complaint already, “but housing is different from an iPhone.” They’re right it is, but they both are part of a for-profit industry, and the way to make housing affordable is to make more of it, not to put restraints on the builders of those homes.

Rent stabilization is a restraint. Existing units will be converted to “for sale” units; new rental units will not be built and rents will increase. Renters will be the big loser.

Next week, I’ll tackle the electrification of housing. It sounds illuminating to me.

Until then, stay well, stay dry and stay informed.

Kim Murphy can be reached at kim@murphy-realty.com or (760) 415-9292 or at 130 N. Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.

 

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