Last week, legislation to repeal the Costa-Hawkins Rental Housing Act was delayed due to mounting concerns about how vacancy control would deter new housing construction in the state of California. Withdrawing the bill was the right outcome for Berkeley because repeal risks returning us to a time when overly restrictive rent control reduced the city’s housing stock and population, with a select few left to benefit from below market-rate units. With hope, the authors of AB 1506 will come back with a more tailored solution that encourages new housing while helping those struggling with high rents.
Census data illustrates the fact that strict rent control prior to Costa-Hawkins was largely ineffective — and in some cases, counterproductive — at helping those it was designed to help. Berkeley was declining in population when strict rent control was first enacted, and Census data indicate that this trend continued between 1980 and 1990. The population decline corresponded with a loss of about 3,400 rental units and an increase in owner-occupied units, despite neighboring cities adding rental housing during that period. About 1,200 of the lost units were single family homes, suggesting these owners chose to exit the rental market entirely. During the 1980s, the number of low and very-low income residents declined by about 1,600. The student population also decreased in Berkeley despite increasing in neighboring cities.
Costa-Hawkins exempts newer construction — units build after 1995 — from any kind of rent stabilization. This has led to some significant distortions in Berkeley, with some paying much higher rents in more recent buildings. The current system is far from ideal. But without Costa-Hawkins, nothing would prevent the Berkeley Rent Stabilization Board from imposing strict controls on any new apartment building at any time. Berkeley added little to no housing units between the enactment of strict rent control and the passage of Costa-Hawkins. If we return to pre-Costa Hawkins, what developer is going to want to build in Berkeley?
Describing San Francisco’s strict rent control program in 2000, New York Times columnist Paul Krugman wrote of a situation of “sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go — and the absence of new apartment construction, despite those high rents, because landlords fear that controls will be extended.” This statement would also describe the situation in Berkeley prior to Costa-Hawkins.
There are many steps Berkeley can take in lieu of supporting repeal of Costa-Hawkins. Continuing to accrue revenue for the city’s Housing Trust Fund and working with non-profit developers to build permanent below market-rate units is one of the best ways to support lower-income residents. And, new market-rate buildings should be expected to include some below market-rate units in cases where developers do not contribute to the trust fund. Much of this work is already underway and ought to continue.
There are also steps the State Assembly can take, including through direct rent subsidies, increased support for public housing programs and reforms that ease new construction in high-demand areas, though some of these steps are admittedly challenging under the Trump Administration. But regardless of the politics in Sacramento and DC, we shouldn’t go back to an approach that fell short in Berkeley in the past.
City of Berkeley Reports
See Table 8 on Page 33 on population decline and owner-occupied units
Page 90 also references increase in owner-occupied units
St. John, Michael. “The Distributional Impact of Restrictive Rent Control Programs in Berkeley and Santa Monica, CA.” Presented at the Western Economic Association. 1993
See charts on Pages 18-22 regarding number of rental units, number of single-family rental units and decline in low-income residents, along with comparison to neighboring cities; See page 9 regarding decline in student populationKrugman, Paul. “Reckonings A Rent Affairs.” The New York Times. 07 June 2000.
Source of Paul Krugman quote National Bureau of Economic Research
Study of Cambridge, MA