California cities adopt rent control as policies lead housing production to fall

(The Center Square) - California cities are adopting rent control as housing production plummets, leading to further declines in the housing development necessary to make rents more affordable. The neighboring Los Angeles County cities of Maywood, Bell Gardens, and Cudahy, each dense, renter-heavy communities long known for their affordability, have adopted rent control measures, according to The Los Angeles Times. The efforts are aimed at preventing outmigration of longtime residents as vast shortfalls of housing production and increasingly high desirability have led housing prices to explode.

Citing high levels of local poverty, especially among the elderly, the City of Maywood froze rent increases through September and is limiting rent increases afterwards to the lesser of 4% or the annual rate of inflation, writing, “the city finds such an increase provides a just and reasonable return on a landlord's property.” Should a landlord wish to make any capital improvements, they can file an application to pass on half of the cost of such improvements to renters, amortized over five years. Bell Gardens’s and Cudahy’s measures went even further, respectively limiting rent increases to the lesser of 4% or half the rate of inflation, and 3%.

While data for housing production in each of the three cities is unavailable, housing production data for the neighboring City of Los Angeles provides a bleak picture of the state of housing production in the area. In 2019 in Los Angeles, 20,645 market rate and 5,492 income-limited “affordable” housing units were approved. In 2022, there were just 12,967 market rate and 3,987 “affordable” housing units approved, or a decrease of 35% overall. Even with rents and thus potential returns surging – using the Department of Housing and Urban Development’s Fair Market Rate, or what it estimates as the 40th percentile rental rate, Los Angeles County’s fair market rate for a studio apartment has increased from $1,158 in 2019 to $1,534 in 2023, or 10% more than inflation. The Dodge Construction Network estimates new housing starts in Los Angeles are up just 2% over 2022 due to continued difficulty building new housing.

Under these new rent control programs, critics believe housing production will decline even further, as such measures will disincentivize housing production and result in investment funds being directed to more attractive investments elsewhere with higher, safer returns.

“Study after study has shown that rent control both reduces the amount of units on the market and reduces the quality,” California Apartment Association Senior Vice President of Local Government Affairs Fred Sutton told The Center Square. “These cities are not passing any laws to increase their housing supply. We’re in a situation where there are more people who want to live there than there are units, and these cities are passing policies that disincentive investment into their cities while not creating a single new unit in the process.”

Sutton also noted that with property insurance, especially fire insurance, rates rapidly climbing as insurers exit the state due to rises in claims, housing will become even more expensive, and rising insurance costs will further deter the construction of new housing.

“Fire insurance has skyrocketed so much that those dollars have to be passed on to the resident living there or the building is not viable as a business,” said Sutton. “A lot of policymakers do not understand that there are costs of operation, and that housing as a service does not just appear out of thin air.”