This is the first in a two-part series on rent stabilization in Los Angeles. You can find Part 2 here, or find a link at the bottom of this post after reading Part 1.
Rent control, or "rent stabilization" as we have in Los Angeles, is all about shielding residents from the up and down swings of the housing market.
So long as your apartment meets a few requirements—specifically, it needs to be a multifamily unit built on or before October 1st, 1978—you're protected from double-digit rent increases, and in most years your rent won't rise by more than 3 percent. (The City of LA hasn't allowed rents to go up by more than 5 percent a year on rent-stabilized units since 1985.) If you're on a fixed income or your prospects for career advancement are limited, the benefits of this kind of stability cannot be oversold. It's a lifeline without which we'd likely see thousands more households being displaced each year.
But rent stabilization is far from perfect, and I'd like to describe some of its shortfalls as a means of setting the stage for a potential solution.
The Drawbacks of Rent Stabilization
One of the main weaknesses of rent stabilization is that rents are free to reset to market rates when a new tenant moves in. In formal terms, this is known as "vacancy decontrol": When a unit becomes vacant, the control on rent is lifted and the owner can reset rents at whatever level the market will bear. Once it's occupied again, stabilization goes back into effect.
If someone moved into a Hollywood apartment 20 years ago and was paying $400 a month at the time, they're paying less than $800 a month today. Since $800 is far below what the market will bear for even a shoddy Hollywood apartment today, when that tenant leaves (or is evicted), the landlord will probably be charging closer to $1,500 or more. They may even decide to invest in some major renovations and find people willing to pay $2,000+ per month.
When that new tenant moves in, the unit will still be stabilized so their rent will only increase by a few percentage points each year, but the unit is never again going to be affordable to a low-income household—when rents are starting at $2,000 a month, it's not the annual rent increase that's keeping poor families out. In that sense, rent-controlled/stabilized units are not synonymous with affordable units. The stability has value to the new tenant, but if our goal is to preserve affordability for low and middle income households, rent stabilization is often poorly targeted.
To be clear, this shouldn't be read as a recommendation that we adopt strict rent control, which puts a ceiling on rents themselves, regardless of tenant turnover—i.e., rent stabilization without vacancy decontrol. This is what existed in a number of cities in California before 1995 (more on that in Part 2), and it tends to result in very poorly-maintained units as well as persistent housing shortages. That in turn develops into a lottery system where a few lucky winners get an affordable home in a desirable area (albeit a relatively poor quality home), and everyone else either has to pay twice as much for a non-controlled unit, or live in another city altogether. As an analogy, think of the long lines at gas stations during the gas crisis, or Soviet bread lines. Price controls often lead to rationing, and rationing is a really awful outcome when we have a simple alternative solution available to us: build more housing. Rent stabilization is the compromise we came to after the failure of rent control.
Stuck in Place
A second concern is that rent stabilization causes people to be "stuck in place," sometimes at the cost of social or economic mobility.
If you've lived in the same apartment in Santa Monica for 15 or more years, you're probably getting an incredible deal on rent—way below what you'd pay if you moved into the same unit today. So what happens when you get a great job offer in Burbank? You can move closer to your new job, but you'll probably pay much more for a unit of similar quality to your Santa Monica home, since you'll be paying market rates on the new apartment. Or you can stay in Santa Monica and commute well over an hour each way, adding untold amounts of stress to your life. Suddenly that new opportunity doesn't look so appealing, even though it might be the right choice for your future.
Or maybe you're retiring and want to live closer to your family in Long Beach. Your only options may be to move in with your children, since you can't afford market-rate rents near your kids, or to stay in Santa Monica and endure the mental and physical costs of social isolation.
Whatever the individual circumstances, rent stabilization can make it more difficult to move. Not only can that be bad for the tenant, it's also bad the person who actually has a job in Santa Monica, but can't find anywhere to live in the area since all the units are full. We end up with a perverse situation where someone lives in Santa Monica but drives to Burbank for work, and another person lives in Burbank but commutes to Santa Monica, but neither party has any incentive to make the rational choice and move to (or near) their respective city of employment because the cost of leaving their rent-stabilized unit is too great.
The third problem is one that pro-growth, pro-housing advocates tend to focus on: rent stabilization can make market-rate rents go up even faster, and it pits the tenants of rent-stabilized units against new housing development and future residents of the city.
Rents go up more quickly for a few reasons. One is simply because of the number of people that are "stuck in place"—some of those people might choose to live in another area and free up some of the housing stock, but their incentives for staying are too great. That creates an artificially high demand for housing locally, which contributes to low vacancies throughout the region, which in turn lead to higher prices. (This problem is compounded by Proposition 13, by the way.)
Another, perhaps more important reason rents go up faster is that rent stabilization encourages local opposition to new development. Because of the way rent stabilization works in LA, the stock of rent-stabilized units can only fall over time: There were a certain number of multifamily units built before 1979, and that number will never go up. Every time a 10-unit dingbat is torn down to build a 100-unit apartment complex, that's 10 fewer rent-stabilized homes, forever. Since most people living in a 50-year old building can't afford a brand-spanking-new apartment, and because rent-stabilized tenants were probably getting a good deal even for a not-so-great 50-year-old building, they understandably feel threatened by new housing development. Which is unfortunate, because an inadequate supply of new housing is the #1 cause of rapidly increasing rents, and it's a big part of why it can be so difficult to find an affordable replacement when a rent-stabilized home disappears.
This local opposition is the driving force behind the affordability crisis in Los Angeles and throughout the booming metropolises of our country. Local opposition on the part of homeowners, while misguided and arguably immoral, can at least be explained (at least in part) by financial incentives: when housing is in short supply, their homes grow in value faster. But renters? Opposition to new housing just doesn't make any sense, at least in a very broad sense. (There are justifiable reasons for opposition at the individual/neighborhood level, which pro-housing advocates need to do a better job of addressing head-on.) As renters, there's no household equity for us—higher rents just means more money out of our pockets. Pitting existing residents against future residents, as we often do, only serves to make all of us worse off.
The stuff I've written about above is the big stuff. Another problem, and one that's reflected throughout our housing policy framework, is the exemption of single family housing. Rent stabilization doesn't apply to them; they can pretty much raise rents as much as they like, whenever they like. If rent stabilization is good enough for a duplex, though, why should a property owner who rents out their single family home receive special dispensation? (Likewise with parks and open space fees, affordable housing requirements, etc., etc.) Like most housing-related policy, this just boils down to a preference for doing things that enrich single-family homeowners.
Is There a Better Option?
There are some serious problems with the way rent stabilization operates in Los Angeles and in cities throughout California. On the one hand it protects some in genuine need of assistance. On the other hand, benefits are not distributed according to need, and it encourages a local dynamic that is change-averse and exclusionary—driving up the long-term cost of housing, including for current beneficiaries of rent-stabilization who aren't willing or able to live in the same apartment for their whole lives (i.e., most people).
So the question then becomes, "How can we change the incentives so that the tenants of rent-stabilized housing can see—and capture—the benefits of new housing development?" Are the drawbacks outlined above an unavoidable cost of rent stabilization? To some extent, I think perhaps they are. But I also think that we can do better.
In my next post I'll be diving into what a better rent stabilization policy framework might look like. Find it here: Rent Stability, Part 2: How "Rolling" Rent Control Might Preserve Affordability in LA.