As a college student, economics was among the most difficult of courses to master. It was not that I did not understand its concepts. I struggled to apply college textbook theories to the external realities facing the economy. Take for example the equilibrium curve — a graph that economics professors have used for decades to illustrate the two cylinders of our nation’s economic engine: supply and demand. The problem with this chart is that external forces have an impact on supply and demand, such as politics, the economy, wars, taxes, technology and the force that warrants our discussion — state and local law.
In a perfect world presumed by the equilibrium curve, absent external forces, demand drives up the need for the supply of a product. When demand exceeds the supply of a product, those demanding the product are at the mercy of those supplying it. By contrast, as supply exceeds the demand of a product, those supplying the product are at the mercy of the consumer. These are basic principles in economics.
What happens when legislators determine that the supply of a basic necessity in the market is too low, giving an unfair advantage to those supplying the product to drive up prices? More importantly, how do legislators determine the proper action to take, if any, and the unintended consequences of such an act?
The state’s housing affordability crisis has raised these questions. At a time when the Bay Area’s population increases at the rate of nearly 100,000 new residents per year, affordable housing is a difficult commodity to come by. As a result, many have been forced to relocate to the outskirts of the Bay Area and major cities. This trend has prompted lawmakers to enact a host of laws aimed to protect affordable housing. Among the most controversial laws is rent control.
There is no doubt rent control is aimed to address a real problem. Today, tenants on average pay at least half their earnings to a landlord. The problem is that rent control is a legislative response to a market-driven problem in basic economics — supply and demand. To reduce rents by means of rent control in every densely populated city in our state, it would need to be enacted in cities and counties throughout our state. This would place an undue burden on small property owners to earn a profit from renting their properties. Additionally, it provides a disincentive for developers to construct more housing as developers are aware they may not be able to rent properties at a profit.
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Unlike some who suggest that we do nothing to address the housing affordability crisis, I believe it is critical that we take several market-driven measures to address the crisis. First, the State Legislative Analyst’s Office tells us that we need to build more than 100,000 new rental units per year to make room for the state’s growing population. As the supply of housing goes up, renters will have far more housing alternatives from which to choose. Ideally, prices would be far less costly than in today’s market. On the contrary, building more new rental units is not a challenge that can be solved by forcing property owners to keep their rents at below-market values. This requires incentivizing, not burdening, developers and property owners to construct more affordably priced dwelling units for new residents.
Secondly, developers face far too many hurdles obtaining approval from cities to construct new properties. From regulations under the California Environmental Quality Act to local ordinances with numerous roadblocks, our state’s investors and developers face too many disincentives to constructing new affordable housing options. Our state and local governments should do more to incentivize construction.
The bottom line is that, to address the affordable housing shortage in our state, we must begin to implement market-based solutions, rather than merely capping rents. The intent is honorable, but the unfortunate reality is that many rent-controlled regulations place an undue burden on small property owners.
History tells us our housing market is fragile. Enacting too many laws to address a market-driven problem will almost always result in unintended consequences. In my humble opinion, the best model of a housing market is one that encourages homeownership; a market that incentivizes, rather than punishes, property owners to offer affordable housing; and a market that breeds prosperity at every socioeconomic level. These noble goals are achievable when we establish a market that protects renters without unduly burdening property owners.
A native of Pacifica, Jonathan Madison worked as professional policy staff for the U.S. House of Representatives, Committee on Financial Services, from 2011-2013. Jonathan works as an attorney and can be reached via email at jonathanemadison@gmail.com.
We will never make progress on the solving the high cost of housing if we cling to the false notion that rent control is antidote. It merely provides relief for existing renters, not all of who are lower or middle income, at the expense of many middle class families. As long as cities allow commercial office building to expand unabated the problem will remain unsolved.
For all the rhetoric about rent is preventing "workers" from living here, etc...can anyone cite any firm/company that has interfered with the service you'd expect due to a worker shortage because of high rents?
BREAKING NEWS: The efficient-markets hypothesis has been conclusively proven false. For further information on this shocking development, see: the 2007-2010 financial crisis, health care economics, Hyman Minksy and the Minsky moment, John Maynard Keynes’s The General Theory of Employment, Interest and Money, the 17th century Dutch tulip mania, and the work of such classical economists as David Ricardo, Thomas Malthus, and Adam Smith.
OK, this is old news, very old news, hard to say how old exactly. But it’s apparently still news to some. It’s a wonder how any thinking human being who lived through the 2007-2010 financial crisis could think that markets are efficient, let alone around housing. That boom and bust built atop the housing market was practically the perfect real-world demonstration of the Minsky moment and the inefficiency of markets. This has nothing to do with government interference as it might be easier for some to suppose. It is an inherent dynamic of the market in the process of credit creation in which the market has the propensity to keep creating credit to fuel investment. A very fundamental and readily apparent aspect of economics. This is why housing should be treated first and foremost as a human necessity and not as an investment opportunity, which is, paradoxically, what the particular brand of government regulation Mr. Madison is calling for does.
It is time he and others disabuse themselves of their fantastical ideas about the free or unregulated market. There never has been and never will be such a thing. It is a contradiction in terms. There are just markets embedded in different systems of social values. I happen to prefer markets embedded in a system of social values that prioritizes housing everyone over the system of social values that prioritized the wealth-building prospects of the teeny-tiny portion of the population who are fortunate enough to be landlords.
Are you for the seizure of private assets as well? We do know that both Socialism and Communism did not do so well. America is still going strong and it is due to free markets, limited government and personal responsibility.
I haven't a clue what you two are talking about. Please make an effort to craft a cogent, reasoned out argument, that is, instead of just hurling the usual propagandistic bombs.
I cited basic economic science that pretty solidly counters the tired and unscientific notion that markets are efficient. If you would like to learn more about this, I suggest you start with David Ricardo, Thomas Malthus, and Adam Smith, and then make your way to John Maynard Keynes, Karl Polanyi, and Hyman Minsky. All of these superb economists have been dead for some time, in some cases several centuries. Some of them, such as the first three names, are considered the fathers of economics as a science, as well as being lionized by present-day rightist misinterpreters of their thought. None of them, including Adam Smith, ever believed that deracinated markets are perfect distributors of goods. I could even cite the patron saint of market fundamentalism himself, Milton Friedman, to show how such policies as Prop 13 have lead to the vast inequalities of our housing market.
So get with the program, in this case the science program, and do us all a favor and keep your cheap shots to yourselves.
In the perfect world of your classroom example…completely agree…but we do not live, or at least I do not live in that perfect world…and note that our world is an analog system…AKA Holistic world where everything is interconnected way more than too many can imagine…
As a technologist, all my life…taught and learned that in order to solve any problem for your design/solution/etc…the root cause(s) must be ID’d before plugging in solutions…that those without the vision/knowledge of those root causes…many times those end up only as band-aides that creates more problems and far worse problems
Most all municipality codes/ordinances/etc were designed and approved back in the 20th Century and we are not in the 21st Century using decades to several decades old codes/ordinances as the basis for our architecture for the future that will be cast in stone (concrete)
Additional factors are the influence of the developers, which is akin to Lobbyists. Some are trying to go good while making a profit, but a rare one
Then the general population that is stuck in the 21st Century (Nixon Era) mentality of cars, cars, cars (LOS) and only R1’s the goal…they miss the fact that our American Middle Class is no longer the wealthiest in the World. Canada is (based on THREE main factors. Their single payer health. Their high percentage of unionization. The higher min wage…are just the top metrics among many)
The public’s resistance to both TOD and High Density…thinking that their R1’s will be removed. They miss the fact that TOD and Designated High Density areas were around decades before the advent of automotive (ICE) travel. As it was also mainly a renters society, including the middle class of those times…of which we are returning back to a renters society
In your perfect world…yes market forces will protect everyone…and again we do NOT live in that world.
The United States 'was' a government based on both Capitalism and Socialism...'was' is a work in progress as we move into a pure Capitalistic government
Purity in either, historically, leads to Fascism and/or a dictator type of government...Communism is one very, very good example
FDA, FAA, NHTSA, DOT, EPA, CDC, FCC, SS, and many, many more at the Federal/State/city/etc levels are active here in The United States and are socialistic in nature...for the good of our society and not owned by individuals or private sector
Poster boy for pure capitalism is Martin Shkreli of the Turing Daraprim debacle and the Poster Girl is Heather Bresch of the EpiPen debacle and why we have the SEC and other agencies in the USA system to protect citizens from bullies'
Fascism & Dictator types of governments has lead to revolts throughout our human history. The have's taking advantage of the have-nots over time, without compassionate governess, always leads to revolt of some kind...we are repeating that cycle with this President
Waiting for affordable housing to be built, or enough for it to be competitive, is resulting in our losing working class, essential people. We'll all be gone by the time it's built. Emergency rent control measures are needed now. And, as for two of your comments:
"This would place an undue burden on small property owners to earn a profit from renting their properties." Not true. State law requires that landlords make a FAIR return, and rent control cannot infringe on that.
"Additionally, it provides a disincentive for developers to construct more housing as developers are aware they may not be able to rent properties at a profit." Not true. Current state law prohibits rent control on buildings built after 1995.
You are correct about the demand-supply formula. But the formula has two variables and you neglect "demand". The peninsula has too many jobs (blasphemy, I know but we have the lowest unemployment around). Why are cities offering incentives and tax breaks to attract employers/jobs and doing nothing to insure housing for all the employees? And why are employers expanding in a region where their employees will not be afforded a reasonable lifestyle - when they could expand elsewhere?
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(11) comments
We will never make progress on the solving the high cost of housing if we cling to the false notion that rent control is antidote. It merely provides relief for existing renters, not all of who are lower or middle income, at the expense of many middle class families. As long as cities allow commercial office building to expand unabated the problem will remain unsolved.
For all the rhetoric about rent is preventing "workers" from living here, etc...can anyone cite any firm/company that has interfered with the service you'd expect due to a worker shortage because of high rents?
Safeway, numerous restaurants, various retail, schools, etc. I know there are many others that I'm leaving off this list.
Rent control is farcical. Where do the thousands of illegal of aliens here live?
BREAKING NEWS: The efficient-markets hypothesis has been conclusively proven false. For further information on this shocking development, see: the 2007-2010 financial crisis, health care economics, Hyman Minksy and the Minsky moment, John Maynard Keynes’s The General Theory of Employment, Interest and Money, the 17th century Dutch tulip mania, and the work of such classical economists as David Ricardo, Thomas Malthus, and Adam Smith.
OK, this is old news, very old news, hard to say how old exactly. But it’s apparently still news to some. It’s a wonder how any thinking human being who lived through the 2007-2010 financial crisis could think that markets are efficient, let alone around housing. That boom and bust built atop the housing market was practically the perfect real-world demonstration of the Minsky moment and the inefficiency of markets. This has nothing to do with government interference as it might be easier for some to suppose. It is an inherent dynamic of the market in the process of credit creation in which the market has the propensity to keep creating credit to fuel investment. A very fundamental and readily apparent aspect of economics. This is why housing should be treated first and foremost as a human necessity and not as an investment opportunity, which is, paradoxically, what the particular brand of government regulation Mr. Madison is calling for does.
It is time he and others disabuse themselves of their fantastical ideas about the free or unregulated market. There never has been and never will be such a thing. It is a contradiction in terms. There are just markets embedded in different systems of social values. I happen to prefer markets embedded in a system of social values that prioritizes housing everyone over the system of social values that prioritized the wealth-building prospects of the teeny-tiny portion of the population who are fortunate enough to be landlords.
Are you for the seizure of private assets as well? We do know that both Socialism and Communism did not do so well. America is still going strong and it is due to free markets, limited government and personal responsibility.
Havana is known to have a system of housing you advocate. Have you seen it? Would you feel comfortable living in those apartments?
I haven't a clue what you two are talking about. Please make an effort to craft a cogent, reasoned out argument, that is, instead of just hurling the usual propagandistic bombs.
I cited basic economic science that pretty solidly counters the tired and unscientific notion that markets are efficient. If you would like to learn more about this, I suggest you start with David Ricardo, Thomas Malthus, and Adam Smith, and then make your way to John Maynard Keynes, Karl Polanyi, and Hyman Minsky. All of these superb economists have been dead for some time, in some cases several centuries. Some of them, such as the first three names, are considered the fathers of economics as a science, as well as being lionized by present-day rightist misinterpreters of their thought. None of them, including Adam Smith, ever believed that deracinated markets are perfect distributors of goods. I could even cite the patron saint of market fundamentalism himself, Milton Friedman, to show how such policies as Prop 13 have lead to the vast inequalities of our housing market.
So get with the program, in this case the science program, and do us all a favor and keep your cheap shots to yourselves.
In the perfect world of your classroom example…completely agree…but we do not live, or at least I do not live in that perfect world…and note that our world is an analog system…AKA Holistic world where everything is interconnected way more than too many can imagine…
As a technologist, all my life…taught and learned that in order to solve any problem for your design/solution/etc…the root cause(s) must be ID’d before plugging in solutions…that those without the vision/knowledge of those root causes…many times those end up only as band-aides that creates more problems and far worse problems
Most all municipality codes/ordinances/etc were designed and approved back in the 20th Century and we are not in the 21st Century using decades to several decades old codes/ordinances as the basis for our architecture for the future that will be cast in stone (concrete)
Additional factors are the influence of the developers, which is akin to Lobbyists. Some are trying to go good while making a profit, but a rare one
Then the general population that is stuck in the 21st Century (Nixon Era) mentality of cars, cars, cars (LOS) and only R1’s the goal…they miss the fact that our American Middle Class is no longer the wealthiest in the World. Canada is (based on THREE main factors. Their single payer health. Their high percentage of unionization. The higher min wage…are just the top metrics among many)
The public’s resistance to both TOD and High Density…thinking that their R1’s will be removed. They miss the fact that TOD and Designated High Density areas were around decades before the advent of automotive (ICE) travel. As it was also mainly a renters society, including the middle class of those times…of which we are returning back to a renters society
In your perfect world…yes market forces will protect everyone…and again we do NOT live in that world.
The United States 'was' a government based on both Capitalism and Socialism...'was' is a work in progress as we move into a pure Capitalistic government
Purity in either, historically, leads to Fascism and/or a dictator type of government...Communism is one very, very good example
FDA, FAA, NHTSA, DOT, EPA, CDC, FCC, SS, and many, many more at the Federal/State/city/etc levels are active here in The United States and are socialistic in nature...for the good of our society and not owned by individuals or private sector
Poster boy for pure capitalism is Martin Shkreli of the Turing Daraprim debacle and the Poster Girl is Heather Bresch of the EpiPen debacle and why we have the SEC and other agencies in the USA system to protect citizens from bullies'
Fascism & Dictator types of governments has lead to revolts throughout our human history. The have's taking advantage of the have-nots over time, without compassionate governess, always leads to revolt of some kind...we are repeating that cycle with this President
Waiting for affordable housing to be built, or enough for it to be competitive, is resulting in our losing working class, essential people. We'll all be gone by the time it's built. Emergency rent control measures are needed now. And, as for two of your comments:
"This would place an undue burden on small property owners to earn a profit from renting their properties." Not true. State law requires that landlords make a FAIR return, and rent control cannot infringe on that.
"Additionally, it provides a disincentive for developers to construct more housing as developers are aware they may not be able to rent properties at a profit." Not true. Current state law prohibits rent control on buildings built after 1995.
You are correct about the demand-supply formula. But the formula has two variables and you neglect "demand". The peninsula has too many jobs (blasphemy, I know but we have the lowest unemployment around). Why are cities offering incentives and tax breaks to attract employers/jobs and doing nothing to insure housing for all the employees? And why are employers expanding in a region where their employees will not be afforded a reasonable lifestyle - when they could expand elsewhere?
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Keep the discussion civilized. Absolutely NO personal attacks or insults directed toward writers, nor others who make comments.
Keep it clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't threaten. Threats of harming another person will not be tolerated.
Be truthful. Don't knowingly lie about anyone or anything.
Be proactive. Use the 'Report' link on each comment to let us know of abusive posts.
PLEASE TURN OFF YOUR CAPS LOCK.
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