Question

Read the following article and answer the questions.

California Approves Statewide Rent Control to Ease Housing Crisis - The New York Times.

Read below article attached on California rent controls and respond to the following questions.

1.Explain the purpose of rent control and the intended effect on California consumer and suppliers of rental property. Does rent control achieve its purpose?

2. How do rent control policies alter incentives for consumers and producers in the market for rental property?

Participation Requirements:
• Your initial response must have content relevant to the discussion.
• Please respond to two of your classmates. Provide complete, well thought out responses.
• Ask questions, share experiences and challenge ideas.
• Be polite and respectful of your classmates. You may disagree but do it in constructive way.

California Approves Statewide Rent Control to Ease Housing Crisis

San Francisco has had rent control for decades, but it has not been spared from a housing squeeze and rising homelessness. A state law approved Wednesday aims to strengthen tenant protections. Credit...Jim Wilson/The New York Times

By Conor Dougherty (Links to an external site.) and Luis Ferré-Sadurní (Links to an external site.)

• Published Sept. 11, 2019Updated Nov. 4, 2019

California lawmakers approved a statewide rent cap on Wednesday covering millions of tenants, the biggest step yet in a surge of initiatives to address an affordable-housing crunch nationwide.

The bill limits annual rent increases to 5 percent after inflation and offers new barriers to eviction, providing a bit of housing security in a state with the nation’s highest housing prices  (Links to an external site.)and a swelling homeless population.

Gov. Gavin Newsom, a Democrat who has made tenant protection a priority in his first year in office, led negotiations to strengthen the legislation (Links to an external site.). He has said he would sign the bill, approved as part of a flurry of activity in the final week of the legislative session.

The measure, affecting an estimated eight million residents of rental homes and apartments, was heavily pushed by tenants’ groups. In an indication of how dire housing problems have become, it also garnered the support of the California Business Roundtable, representing leading employers, and was unopposed by the state’s biggest landlords’ group.

That dynamic reflected a momentous political swing. For a quarter-century, California law has sharply curbed the ability of localities to impose rent control. Now, the state itself has taken that step.

“The housing crisis is reaching every corner of America, where you’re seeing high home prices, high rents, evictions and homelessness that we’re all struggling to grapple with,” said Assemblyman David Chiu, a San Francisco Democrat who was the bill’s author. “Protecting tenants is a critical and obvious component of any strategy to address this.”

A greater share of households nationwide are renting than at any point in a half-century (Links to an external site.). But only four states — California, Maryland, New Jersey and New York — have localities with some type of rent control, along with the District of Columbia. A coalition of tenants’ organizations, propelled by rising housing costs and fears of displacement, is trying to change that.

In February, Oregon lawmakers became the first (Links to an external site.) to pass statewide rent control, limiting increases to 7 percent annually plus inflation. New York, with Democrats newly in control of the State Legislature, strengthened rent regulations (Links to an external site.) governing almost one million apartments in New York City.

Moves to expand rent control through ballot initiatives or legislation have arisen since 2017 in about a dozen states, including Washington, Colorado and Nevada, according to the National Multifamily Housing Council (Links to an external site.), an apartment-industry trade group.

Measures were recently introduced in Massachusetts (Links to an external site.) and Florida (Links to an external site.) to allow rent regulation in cities with a housing crunch — like Boston (Links to an external site.), Miami (Links to an external site.) and Orlando.

Nationally, about a quarter of tenants (Links to an external site.) pay more than half their income in rent, according to the Joint Center for Housing Studies at Harvard University. And California’s challenges are particularly acute. After an adjustment for housing costs, it has the highest state poverty rate (Links to an external site.), 18.2 percent, about five percentage points above the national average, according to a Census Bureau report published Tuesday.

Homelessness has come to dominate the state’s political conversation and prompted voters to approve several multibillion-dollar programs to build shelters and subsidized housing with services for people coming off the streets.

Despite those efforts, San Francisco’s homeless population has grown by 17 percent since 2017, while the count in Los Angeles has increased by 16 percent since 2018. Over all, the state accounts for about half of the country’s unsheltered homeless population (Links to an external site.) of roughly 200,000.

That bleak picture — combined with three-hour commutes (Links to an external site.), cries for teacher housing (Links to an external site.) and the sight of police officers sleeping in cars (Links to an external site.) — is prompting legislators and organizers to propose ever more far-reaching steps.

State Senator Scott Wiener, a San Francisco Democrat, offered a bill that would essentially override local zoning to allow multiple-unit housing around transit stops and in suburbs where single-family homes are considered sacrosanct. The bill was shelved in its final committee hearing (Links to an external site.) this year, but Mr. Wiener has vowed to keep pushing the idea.

Economists from both the left and the right have a well-established aversion (Links to an external site.) to rent control, arguing that such policies ignore the message of rising prices, which is to build more housing. Studies in San Francisco (Links to an external site.) and elsewhere show that price caps often prompt landlords to abandon the rental business by converting their units to owner-occupied homes. And since rent controls typically have no income threshold, they have been faulted for benefiting high-income tenants.

“Rent control is definitely having a moment across the country,” said Jim Lapides, a vice president at the National Multifamily Housing Council, which opposes such restrictions. “But we’re seeing folks turn to really shortsighted policy that will end up making the very problem worse.”

But many of the same studies show that rent-control policies have been effective at shielding tenants from evictions and sudden rent increases, particularly the lower-income and older tenants who are at a high risk of becoming homeless. Also, many of the newer policies — which supporters prefer to call rent caps — are considerably less stringent than those in effect in places like New York and San Francisco for decades.

“Caps on rent increases, like the one proposed in California or the one recently passed in Oregon, are part of a new generation of rent-regulation policies that are trying to thread the needle by offering some form of protection against egregious rent hikes for vulnerable renters without stymieing much-needed new housing construction,” said Elizabeth Kneebone, research director at the Terner Center for Housing Innovation at the University of California.

Mr. Chiu’s bill is technically an anti-gouging provision, with a 10-year limit, modeled on the typically short-term price caps instituted after disasters like floods and fires. It exempts dwellings less than 15 years old, to avoid discouraging construction, as well as most single-family homes. But it covers tenants of corporations like Invitation Homes, which built nationwide rental portfolios encompassing tens of thousands of properties that had been lost to foreclosure after the housing bust a decade ago.

According to the online real-estate marketplace Zillow, only about 7 percent of the California properties listed last year saw rent increases larger than allowed under the bill. But there could be a big effect in rapidly gentrifying neighborhoods like Boyle Heights (Links to an external site.) in Los Angeles, where typical rents on apartments not covered by the city’s rent regulations have jumped more than 40 percent since 2016.

By limiting the steepest and most abrupt rent increases, the bill is also likely to reduce the incentive for hedge funds and other investors to buy buildings where they see a prospective payoff in replacing working-class occupants with tenants paying higher rents.

Sandra Zamora, a 27-year-old preschool teacher, lives in a one-bedroom apartment in Menlo Park, Calif., a short drive from Facebook’s expanding headquarters. A year ago, Ms. Zamora’s building got a new owner, and the rent jumped to $1,900 from $1,100, a rise of over 70 percent. Most of her neighbors left. Ms. Zamora stayed, adding a roommate to the 600-square-foot space and taking a weekend job as a barista.

“Having an $800 increase at once was really shocking,” she said. “It just keeps me thinking every month: ‘O.K., when is it going to happen? How much am I going to get increased the next month?’ It’s just a constant worry.”

Even as more states begin to experiment with rent control, it has long existed in places like New York City, which intervened to address a housing shortage post-World War II, and San Francisco, where it was adopted in 1979.

Today it is common in many towns across New Jersey and in several cities in California, including Berkeley and Oakland, although the form differs by jurisdiction. Regulated apartments in New York City are mostly subject to rent caps even after a change in tenants, for example, while rent control in the Bay Area has no such provision (Links to an external site.).

In New York City, where almost half of the rental stock is regulated, a board determines the maximum rent increases each year; this year it approved a 1.5 percent cap (Links to an external site.) on one-year leases, considerably lower than the limits passed in Oregon and California

Answer 1

Ans to Question 1:

Rent control has long existed in history. In places like New York ans San Francisco, rent control was adopted to adress the housing shortages in the post World War II scenerio. Today, rent control is common in many nations worldwide, intending mainly for the purpose of easing housing crisises faced by consumers.

The purpose of rent control is to ease housing crisis and strengthen tenant protections. There has been difficulties faced by consumers nationwide in finding an affordable house. In America, people are trying to grapple with housing crisis that consists of high prices of houses, high rents, evictions and homelessness. The problem is quite serious as a greater share of households are living in rented houses. But, only four states in America- California, Maryland, New Jersey and New York have some type of rent control.

California is a state with highest housing prices, swelling homeless population and state highest poverty rate. In California, the lawmakers approved a statewide rent cap to adress the housing crisis for consumers. It was intended to adress an affordable housing crunch covering millions of tenants (consumers) and to reduce chances of eviction and homelessness. According to The Joint Center for Housing Studies at Harvard University, about a quarter of tenants nationally pay more than half of their income as rent. This further aggrevates the housing crisis scenerio in California as It also happens to be the state with highest poverty rate. So, the rent control policy intends to protect the interest of the consumers by making homes affordable with a rent cap thereby reducing chances of eviction and thus reducing risk of becoming homeless. For the suppliers of rental property, the rent control bill intends to reduce incentives for hedge funds and stop other investors to buy buildings based on payoffs. Investors have a tendency to buy buildings where they see better payoffs, by replacing working-class occupants with tenants as tenants usually pay higher rates. So, by setting an upper limit to the steepest and most abrupt price increase, such policies intend to affect the suppliers.

Rent control is seen to have negetive as well as positive ways in achieving its purpose. Many studies show that price caps aften prompt landlords to abandon their rental business by converting it to owner-occupied homes as rent control have no income threshold. While there are also positive side of rent caps as it has been effective in shielding tenants from evictions, suddent rent increases, particularly the lower income and older tenants who are at high risk of becoming homeless.

Answer to Question 2

Rent control policies alter incentives for producers and consumers in the rental market. For producers, it becomes difficult as rental income has to threshold and rent cap leads producers to abandon rental business. Also rent cap post disaster scenerio discourages producers to construct new housings as such policies ignores the messages of rising prices. But, however, in many cases it is seen that rent increase was higher than allowed in rental cap bills, which leads producers to gain extra profit. For the consumers, rental cap alters the incentives by providing a shield against abrupt and sudden rent increases, protection from eviction, lower risk of becoming homeless. It is specially beneficial for older tenants who were earlier at higher risk of becoming homeless.Rent cap has also assumed political importance in states like California and it has led to homeless making decisions regarding million dollar programs of the government for providing shelter to them thereby altering the incentives of consumers.