A not so happy ending
By Scott Sumner
At first glance, this looks like a win for housing regulation in Santa Monica:
In March 2014, Wilshire Skyline settled a lawsuit with a group of tenants who had sued alleging harassment. The residents had claimed that the owners were trying to push them out to rent the units at higher rates. . . .
The owners and management company agreed to receive training in fair housing practices, adopt written policies for making repairs, and halt the practice of offering commissions to employees who persuaded tenants to move out.
So far so good. But then this happened:
Then, less than one year later, in February 2015, the owners invoked the Ellis Act, a state law that allows owners to boot tenants from a rent-controlled building in order to take the building off the rental market.
It will be converted into an office building:
As part of the renovation, the three-story building at 1305 Second Street will be retrofitted for earthquakes, its brick facade and decorative cornice and corbel details will be restored, and a deck area will be added on the roof. . . .
A recent study looking at housing in San Francisco found that not only does rent control make a city as a whole worse off, it even makes the renters in a city worse off:
Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood.
PS. It’s sad to see a respectable publication like The New Republic carrying an article defending rent control. This is not like the widely debated minimum wage laws. As Paul Krugman pointed out, there really isn’t any respectable argument for rent controls:
[E]conomists, on both the left and the right, tend to disagree. As Paul Krugman wrote in the New York Times in 2000, rent control is “among the best-understood issues in all of economics, and—among economists, anyway—one of the least controversial”. Economists reckon a restrictive price ceiling reduces the supply of property to the market. When prices are capped, people have less incentive to fix up and rent out their basement flat, or to build rental property. Slower supply growth exacerbates the price crunch. And those landlords who do rent out their properties might not bother to maintain them, because when supply and turnover in the market are limited by rent caps, landlords have little incentive to compete to attract tenants. Rent controls also mean that landlords may also become choosier, and tenants may stay in properties longer than makes sense. And some evidence shows that those living in rent-controlled flats in New York tend to have higher median incomes than those who rent market-rate apartments. That may be because wealthier households may be in a better position to track down and secure rent-stabilised properties.
HT: Tyler Cowen