Costa-Hawkins Repeal will make Housing Less Affordable: Don’t Make an Emotional Decision.
So many people are talking about the potential repeal of Costa-Hawkins (The Costa-Hawkins Rental Housing Act).
The main assumption being made is that if we repealed the act then we could create new affordable housing.
People constantly talk about the difficulty they face in finding housing that is affordable to their paychecks.
Los Angeles County needs more housing built and that lack is what is causing people to being priced out of their homes.
The market is the market, it will react to the supply and demand constraints that are imposed on it.
When we can’t build, people are forced to move further away from their families, their jobs, and their lives.
In coastal cities, we are seeing Millennials and Baby Boomers moving to the urban cities and struggling to keep up with where the cost of housing is.
I think it’s my generation (millennials) that are really coming to terms that owning their own house is a distant reality.
With nobody on their side (retirees and millennials), people have taken to the streets to voice their concern that the rents are too darn high and that Costa-Hawkins needs to be repealed.
This is one of the worst things that could be done because since 1990 over 400 U.S. economists have studied what happens to affordability when market rents are regulated.
The result?
It reduces the quantity and quality of housing available.
The effects are domino like.
By further regulating the market, it has an inverse effect to building demand.
Meaning, more regulations means less people want to build here.
So we wouldn’t really build momentum in the right direction.
And what’s worse?
The risk of building would increase we would continue to try to fit the expanding population with the limited housing stock we have available.
That’s scary because as demand continues to grow, so does the value of land.
Though if the builder can’t purchase the land because their bank won’t lend them money, or their investors are worried about pending regulation, or simply they can’t seem to make sense of the price of dirt: things won’t get built.
Resulting in no new housing units built and people having to fight for what already exists.
See the Economist article: CLICK HERE
Capping rental rates will help the people who are living in units right now, but it will hurt everyone in the near future.
It will disincentivize taking on new job opportunities as giving up a subsidized rent is taken into consideration.
All of the other people living in Los Angeles County who cannot find a home will find themselves facing the possibility of leaving the area or buying an expensive condominium.
The problem will not fix itself either.
Without new construction, the housing shortage will continue as new people continue moving into the state.
More and more people will find themselves without homes, especially as the people moving here are less price sensitive comparing to the people who are living here.
For example, a technology/media professionals moving from SF/NYC/Boston wouldn’t flinch at paying $2,000 for an average one bedroom apartment.
For an LA native this is an absurd amount since a decade ago a number of people recall paying 50–60% of that amount.
These new policies will cause developers and investors to start an exodus out of state and new developments will stop.
It’s already happening.
The perceived fear alone can cause less housing to be built.
Yet demand will continue.
The cycle created by repealing Costa-Hawkins will ultimately hurt the very people who proposed the law (tenants.)
Big time.
It will halt building and further the housing crisis as more and more people find themselves without homes.
And it will reduce the incentive for landlords to maintain their buildings.
Double-whammy.
To solve the housing crisis and return to lower, more affordable rents, cities should be hyper-sensitive to what factors incentivize new construction of all types.
Investors need to see that building affordable housing and workforce housing leads to a return and strong profit margin.
Repealing Costa-Hawkins will eliminate that margin and crush the building process.
Don’t make an emotional decision regarding the repeal of The Costa-Hawkins Act.
Take a look at the data and the economics behind affordable housing before casting a vote.
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