UC Berkeley professor blames rent control for California’s housing shortage

Kenneth Rosen, a UC Berkeley economist and real estate consultant, published a paper Wednesday titled The Case For Preserving Costa Hawkins, in hopes of swaying voters against Proposition 10.

Proposition 10, which will go before voters in November, would repeal the 1995 Costa-Hawkins Act, a state law that severely curtails rent control in California cities. For example, under Costa-Hawkins, only San Francisco apartments built before 1979 may be subject to rent control.

Passing Proposition 10 would not in and of itself create any new rent control housing, but it would allow cities to expand rent control stock for the first time in decades if they so choose.

Rosen, however, argues that turning the clock back to 1994 will stifle new housing and drain apartment stock.

Here’s how his case breaks down:

• Rosen cites the usual supply and demand argument about housing costs: “Following decades of strong population growth and persistent underbuilding, California is in the midst of a housing crisis. The statewide failure to keep up with new demand for housing, even through the recent period of rapid economic growth, resulted in a shortage of available housing and rapidly rising housing costs.”
• In fact, Rosen goes one step further and blames the housing shortage partly on rent control: “Rent control incentivizes property owners to convert rental units to other uses, such as for-sale housing units or non-residential buildings. […] Rent control limits the creation of new rental supply by discouraging development activity, especially without guaranteed exemptions for new properties.”
• Of course, there are other factors at play: “Persistent low levels of construction reflect a wide range of factors including a combination of high construction costs, restrictive land use zoning, community obstruction and prohibitive or costly regulatory hurdles.”
• The threat of landlords yanking homes from the rental market looms over the debate: “The supply of rent-controlled units also declined in California cities since the enactment of rent control, as property owners converted apartment buildings to other uses.” Note that this declaration is a little nonsensical—after all, the supply of rent controlled units would be zero before the enactment of rent control—but the gist seems to be that rental stock is lost.