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Real Estate Economics • September 1, 2005

Is This the Future of Rent Control?

Is This the Future of Rent Control?
[President's Message, September 2005]

Rent control in Berkeley is a rapidly turning into a relic.  With each passing day and each new vacancy, a smaller and smaller number of apartments are subject to the strictest form of control.  New construction is everywhere, and not a single unit is controlled.  The “housing crisis” gripping the area has nothing to do with rent—it’s all about the cost of buying single-family homes.  Rents are, in fact, down.

 

On the radio this very morning, I heard the housing writer for the Wall Street Journal recommend that people in San Francisco rent an apartment rather than buy a house.  It’s cheaper.

 

And so the time has come to put rent control into a museum, where it belongs.  Ironically, the anecdotal evidence suggests that most Berkeley voters believe (wrongly, as we know) that rent control has already ended.  Like a post-Communist country, all that remains is to demolish the statues, walls, buildings, and bureaucrats that were constructed by the old regime.

 

If I were to propose a change to Berkeley voters, I think it would look something like this.  First, the Rent Board would be eliminated.  There is no greater relic, no greater waste of resources, no greater font of anger and antagonism.  Any rental housing-related issues would, henceforth, be handled by a small entity under the direct control (and budget) of the Housing Department.  For example, one of the Board’s hearing officers could be re-hired to arbitrate or mediate disputes over repairs, housing conditions, and lease term violations.

 

Second, price controls would be phased out entirely.  Owners would be permitted to adjust rents to market gradually, over a period of perhaps five years.  This approach would eliminate any impact on current UC students.  It would moderate the impact on others, and give everyone a time frame within which to plan.

 

Third, a rent subsidy system would be established to assist those truly in need.  Rent subsidies are the form of rental housing assistance overwhelmingly recommended by economists.  They permit low-income renters to compete in the marketplace without disrupting the supply and quality of housing available to everyone else.  The money to pay for rent subsidies could come from a combination of landlord and citywide sources.  For most landlords, this could simply mean redirecting the money already being paid to the Rent Board in registration fees, and/or to the City in business license taxes.

 

Another intriguing form of rent subsidy could also be incorporated.  Landlords could be given a break on their property or business license taxes if they agree to limit rent increases on any class of people the city feels like protecting: the poor, the elderly, public school teachers, whomever.  The key is that this (or any other) means of limiting rent increases would take the form of an incentive to the landlord, it would be paid for by the entire community, and it would not damage the supply or quality of rental housing.

 

Fourth, some of our larger landlords would privately agree to “bank” a number of empty units and make them available to any person temporarily displaced by a sudden rent increase during the first few years of the phase-out.  This strategy was successfully employed in Boston as a buffer against those who claimed that the end of rent control would lead to massive dislocation.  As it turned out, of course, the “banked” units were barely used at all.

 

Fifth, “good cause for eviction” would be left untouched.  The focus of any immediate change would be price controls and the wasteful rent board.  Continued eviction controls would be an important safeguard for any tenants concerned that de-regulation might encourage some landlords to try to force them out.

 

And there you have it.  Is the City ready?  Are voters ready?  Send us your thoughts, at bpoa@bpoa.org.

 

 

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