Most Americans understand the basics of supply and demand. Prices go up when demand is high and supply of any product is limited. Some local officials apparently believe that this immutable economic rule doesn’t apply to the housing market. In Santa Ana, the city has passed new rules that will dramatically reduce the supply of available rental housing.
California now has a statewide rent-control law, but Santa Ana passed its own ordinance that is more stringent. In addition to capping rent increases at 3 percent annually or 80 percent of inflation, the city requires landlords to list their units on a registry. The law limits the ability of landlords to evict tenants.
The city also has created a Rental Housing Board to oversee the ordinance and mediate disputes. In other cities with similar provisions, such as San Francisco, those boards are dominated by tenant activists.
In the short term, rent control limits rent hikes. But in the longer term, it discourages owners from investing in rental properties, encourages them to convert units into condos and dissuades them from investing in upgrades. It crushes housing supply.
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These eviction limits chase away mom-and-pop landlords who don’t have the legal teams to deal with the hassles. Despite its high rents, San Francisco has more than 60,000 vacant homes largely because landlords fear that once they rent out a property they won’t even be able to evict the tenants.
And now the Santa Ana council wants to tie the hands of future councils by requiring a supermajority vote to change the ordinance – a pre-emptive strike against a recall targeting one of the pro-rent-control members. On Tuesday, the council directed the staff to render an opinion on whether the council can do that without a voter initiative. If it succeeds, future councils will not be able to easily adjust the law as needed.
This is a disaster in the making and we already hear anecdotes about investors who are now avoiding the Santa Ana market. Sorry, but politicians cannot simply change the laws of economics by fiat.