L.A. rent control plan is how capitalism fails

If you happen to live in the Los Angeles area and own some rental property, be on the lookout. You may want to unload your apartment buildings while you can and flee with your wallet intact. The county is currently working on yet another set of regulations aimed at capping rent increases and making it harder to evict tenants who are not in compliance with the rules.

They’re seeking to address a very real problem, by the way. There are far too many elderly people on fixed incomes who can barely scrape by in an area as expensive as Los Angeles, and they have no effective way of increasing their income. When rents keep going up, they wind up homeless. Unfortunately, the new plan takes an ax to the existing system rather than a scalpel and it may drive a lot smaller real estate investors out of the market. (LA Times)

On Tuesday, the L.A. County Board of Supervisors will consider putting in place a law that could help people in Nunez’s situation. In unincorporated areas, the measure would cap rent increases at 3% per year and require that landlords have a legitimate reason for evictions.

Supervisor Sheila Kuehl, who authored the motion calling for an interim ordinance, said it is meant, in part, to prevent older people on fixed incomes from becoming homeless or unable to meet their basic needs.

“You cannot just have your rent jump up and eat … less food,” Kuehl said in an interview.

This is truly populism in its rawest form. Some people really can’t afford to pay any more rent and the rest are unhappy when their rent goes up. But they live in one of the highest cost of living areas in the country full of incredible services. By most measures, it’s a very desirable place to live if you can tolerate the liberal politics, the wildfires and the occasional earthquake threatening to dump you into the Pacific. So how does the local government respond? By waving a magic wand and saying that rents can’t rise more than 3% per year. And since they really want to make the voters happy, they’ll stick it to the landlords a little more and make it tougher to evict people.

Sounds great until you consider the realities of the real estate market. Anyone who’s read about the history of rent control in New York City knows what a gargantuan mess it is and all of the “emergency” revisions they’ve had to do over the past century or so. If you tell the property owners that they can’t raise the rent more than 3 percent, what happens when their associated costs for maintaining the building go up by 5 percent next year?

Even if it’s not a matter of simply breaking even, what about when property values are continuing to rise (along with all the other associated costs in any given area) and the apartment really should be worth considerably more? You’re robbing the property owner and making them less likely to want to stay in that business. And who will want to take it off their hands and keep operating the business when they know the county government will have its boot on their throat from day one?

Also, wanting landlords to show a “legitimate cause” for evicting someone is a great idea in theory. There have certainly been cases of abusive landlords. But this also opens the door to excessive litigation by people who actually deserve to be evicted, either for failure to pay or destruction of property. This drives up costs and acts as another disincentive to being in the real estate business. And if enough people flee the business, you can forget about having sufficient “affordable housing” for the masses. It will all be converted to condos. There’s probably a solution to be found here somehow, but it’s not in this sort of hamfisted approach.

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