The Wall Street Journal talked to Richard Green, director of the University of Southern California’s Lusk Center for Real Estate. Restrictions he mentioned were California Coastal Commission restraints and the California Environmental Quality Act (CEQA). And Proposition 13, the 1978 tax-limitation measure, left property as about the only area of California life enjoying relatively low taxation, encouraging purchases for investment in addition to occupancy.
I would add two laws I pointed to in a November column in The Orange County Register, “Blame Schwarzenegger for ‘terminating’ affordable housing in California.” The bills he signed were Assembly Bill 32, the Global Warming Solutions Act of 2006, which has been used to attack growth. And Senate Bill 275, the Sustainable Communities and Climate Protection Act of 2008, which discourages building housing except around approved transportation hubs.
The result of all these blocks to development, as reported by the WSJ: “Green estimated that before the fires, L.A. was short at least half a million housing units that were affordable to working-class and lower-income people…. The average rent in L.A. at the end of 2024 was $2,297, about 33% above the national average, said Jay Lybik, national director of multifamily analytics at CoStar. If 15,000 households in L.A. are displaced, that could push up rent by 6% or more, Lybik said.”
On January 14, real-estate agent Jeremiah Vancans told CNN Business, “Prices of some units that had been on the market are up 15% to 20% in the last week.”
The California Department of Justice summarized the current situation after the passage in 2019 of the California Tenant Protection Act, Assembly Bill 1482. A Consumer Alert explained: “Know Your Rights as a California Tenant: Your rent can generally be increased by no more than 10% in one year. Depending on where you live, this cap may be even lower…. These rent-increase caps apply to most rental housing in California that is more than 15 years old.”
As of their date of certification for occupancy, new units, as noted, are exempt from rent controls for 15 years. That’s supposed to encourage new construction. However, according to Adroc Capital, bonds for multifamily apartment developments commonly are amortized over 40 years. That means any new construction will fall under this restriction after the 15 years.
All that produces two more problems. The first is renters in nearby counties also will be affected. The L.A. shortage will drive many thousands of residents to Orange, Riverside, San Bernardino and San Diego counties. People, that is, who don’t leave the state entirely. The new arrivals will drive up rents in those counties.
The second is the dichotomy between new units built the past 15 years and the older units will encourage artificially higher rents on the new units. Indeed, the disparity may be so great the older units will be under pressure for conversion to condos, or replacement by other structures, just to get out from under the rent-control repressions.
In 2020 Rosen Consulting Group produced a report, “The Effect of Rent Control on New Housing Supply: A Bay Area Case Study.” It found, “The vast majority of economists agree that artificially controlling apartment rents acts as a price ceiling that reduces the supply of housing over time.”
Here’s the key finding: “Rent control may also limit the creation of new rental supply by discouraging new development activity, especially without guaranteed exemptions for new properties and assurances that property owners can adjust rents to market level upon tenant vacancies.”
The study also discussed the Costa-Hawkins Act of 1995, which put limits on local rent-control laws, in particular on new rental units; although much of that law was superseded by the Tenant Protection Act of 2019, which enacted the rules listed above. The Rosen study found, “San Francisco permitted an average of fewer than 1,200 multifamily units annually, including both apartment and condominium properties. In contrast, following Costa-Hawkins, construction activity increased considerably to an average of nearly 2,200 units per year from 1995 through 2017.”
Rent control laws are even worse in some cities. On Jan. 15 DoorLoop listed some of them in L.A. County:
- Beverly Hills: 8% annual limit;
- Los Angeles: 8% annual limit. However, the limit is 10% if a new roommate moves in. (How cozy.)
- West Hollywood: The city’s rent stabilization division determines the maximum allowable rent increase.
- Santa Monica: Rent hikes are limited to 75% of the Consumer Price Index of Los Angeles for the past year.
Santa Monica has become a poster-city for the bad effects of rent control. Its law was written in 1979 by the late leftist Tom Hayden, later a state senator, but at the time married to actress Jane Fonda. Rent control, as always, didn’t work. A September 2024 Los Angeles Metro Report found the People’s Republic of Santa Monica suffered the highest rents in the metro area, at $3,000 a month for a one-bedroom apartment. Second highest, alas, is Irvine, where I live, at $2,880.
On the positive side, last November state voters defeated Proposition 33, by 60% to 40%. It would have repealed Costa-Hawkins, allowing cities to impose even absolute bans on rent increases.
Speaking personally, my rent contract expires on July 1. The rent controls cited above will prevent adequate investment in building new apartments in Los Angeles County. Renters will be driving down the 5 freeway, pushing rents here higher than would have happened.
As so many of my friends already have, I’m looking into getting out of a state that can’t enact basic fire-control measures, or allow adequate construction of new housing after a disaster, let alone during normal times. I probably won’t leave. Call it California dreamin’ of leavin’.
John Seiler is on the Editorial Board of the Southern California News Group and blogs at johnseiler.substack.com
